Investment Advice - Shares

[BrightSideRightSide]

My OH has shares in a former employer who listed on the stock exchange a while ago. It looks like there will be some sort of share buy back which could leave us with around £150k after tax.

As far as I can understand, many financial advisers wouldn’t manage a sum that low. What would you recommend to do with a sum like that?

We have a mortgage (approx £330k) - the monthly payments are manageable on our income. We both have workplace pensions, but not too much else in the way of savings (which we’re working on). Aside from a small amount of credit card debt, we don’t have any other debt / loans.

We don’t have kids (nor will we). We do have a lot of work to do on our house though this is very much a long term project.

I’m finding it hard to identify the best way to use this money to the maximum benefit. Should we chuck it all in savings? Put some to the mortgage to being the term down? Put some in our pensions? All of the above?

And of course, this feels like “free” money so we feel very lucky to even be in this position.

Any advice from savvy investors much appreciated!

I think probably all of the above is a good answer, and I wouldn't be so sure that taking advice from an IFA isn't worthwhile, just pick someone regulated and not affiliated to any particular bank or building society.

Are you both tax payers? What % interest rate is your mortgage, and fixed for how long? Until the recent crisis I would have always said that mortgages are a very cheap form of borrowing and you can usually get a better return invested elsewhere and more tax-efficiently too, but of course recent events may somewhat change that if your mortgage repayments start to look unaffordable, particularly if by overpaying you can bring yourself down to a lower LTV band and so get a cheaper fixed deal. The general usual order of operations is:

1. Pay off any high interest rate debts or overdrafts (is your credit card debt 0%?)
2. Put 6 months worth of expenses as an emergency fund into an accessible savings account at the highest rate you can find (use money saving expert www.moneysavingexpert.com/savings/savings-accounts-best-interest/ )
3. Investigate additional contributions to your workplace pensions, and/or any tax efficiencies by starting an additional private pension
4. Max out ISA allowance either as a cash ISA or stocks and shares (I'd suggest a managed fund rather than self-choice) - S&S usually pays out more interest in the long run but are more volatile in the short-medium term so not a great choice if you will need or want access to the cash imminently
5. Pay off mortgage and other low-interest debt only if the saving you make exceeds the interest you can earn via other methods
6. Other investment vehicles e.g. non-ISA investment funds

Work on the house I would usually de-prioritise over at least 1-4 above although of course it depends a bit on what it is, obviously if you need a new roof and water is currently flooding your house it's a sensible thing to do that ASAP compared to if you just don't like the colour of the walls or whatever. And I'm a tad sceptical of the 'but it adds value' argument, I think people tend to overestimate how much value cosmetic work in particular (and in that I include new kitchens and bathrooms where there were already functional ones in, and knocking through walls to make rooms open plan etc.) adds to a house compared to what it costs, of course it adds something and makes the property more marketable but in general a house is a very illiquid asset unless you plan to sell imminently so even if you do add value via extensions to create extra square footage that isn't cash in the bank you can use in the event of an emergency. And making it more marketable now really doesn't make much difference if you aren't planning to sell for 20 years.

But then of course I'm only talking in terms of the purely financial bottom line, improving your house can add immeasurably to your quality of life which is what money is for at the end of the day, so if spending a chunk of your windfall making your improvements now rather than slowly over the years would really make a difference then I'm not going to tell you not to do it, I'd just say then be strict with yourself about saving at least a good chunk of what you would have spent on the house into more 'boring'/intangible things like your pension or a rainy day fund rather than frittering it away as disposable income...

This should help.

ukpersonal.finance/flowchart/

Paying off debt (incl mortgage) can be a good use of the money but you have to consider the relative interest rates compared with savings, and any penalties for making a big overpayment on your mortgage.

Also consider the financing of this work on your house and any other large purchases like car replacement - if you do the mileage and have charging facilities electric cars might be a good investment. But you don't want to be paying off cheap debt now, only to need to take out more expensive finance in the short to medium term.

It might be a good idea to think about investing in a tracker product, either within an ISA or a SIPP, but this needs to be only for money you don't need in the next few years.

Another consideration for your OH if you're not married (it's not clear whether you are married or not) is whether they want to ring fence the money as 'theirs' or if they're happy to share it with you 50/50.

Whatever you do, don't leave it sitting in a current account, earn a bit of interest at least while you decide. Just look for the best paying instant access account, bearing in mind that you only have protection if the bank goes bust, for up to £85k.

Plus perhaps earmark some to treat yourselves, perhaps to a bigger holiday than you'd normally take?