how should I invest?

Question

After cost, paying off debt and tax implications my partner and I will soon receive a windfall of £32K - This is a lot of money to us and we are going to try our best to keep our wish list to a minimum.

How should we best invest it? Nb we have a £46k fixed rate (2 yrs left) repayment morgage with approx 19yrs left - should we pay something off this?

Answer 1

Yup, if you can make early payments without penalty, get the mortgage paid off.

There are some investing strategies that could leave you better off by investing the money rather than paying it off the mortgage, but there's plenty of risk involved. You don't mention your risk tolerance, but i'd imagine it's quite low if you haven't paid your mortgage off yet.

Just putting it in a savings account is low risk, but also pretty stupid: you'll get interest on that money at one rate whilst simultaneously paying interest on the same amount (through your mortgage) at a higher rate; it's like doing interest arbitrage against yourself and will cost you at least £6,400 (20% of the sum) compared to paying your mortgage off.

Answer 2

To get higher returns, you have to accept higher risk. Don't start buying individual stocks. You are competing against investment professionals, and you will not win. Buy a maket index ETF like QQQ, which invests in an index and has very low fees. You are investing in the market as a whole. Or, buy a mutual fund, and you pay a fee (a percentage of your money) to the managers for picking your stocks. If you think that you can choose the professional that will pick stocks better than all the other professionals, then buy a mutual fund, and the increased return will be worth the increased fees. Do not fool yourself into thinking that you can pick stocks better than the pros. If there was a high-return, low-risk investment, the pros would already have jumped on it, bidding up the price until the expeected return matched the expected risk. Open a Roth IRA. Put money into it. You will not get a tax deduction now, but the money will grow tax-free, and when you take the money out, you won't pay tax on it. Your tax rate when you retire is almost certainly going to be higher than your tax rate now, so this is a good deal. (If you think your tax rate will be lower in retirement, put your money into a regular IRA, which gives you a deduction now, but the money is taxed as regular income now when you take it out at retirement.) Put the money into an index ETF like QQQ. DO NOT sell every time the market drops. You want to buy low and sell high, and selling when the market drops is the opposite of that.

Answer 3

My suggestion is don't pay off the house loan as this is the cheapest form of credit possible. I would take about 10K and invest in premium bonds as this is risk free and has a better return than current savings accounts. I would suggest then splitting the rest between your wish list and stocks. If you know nothing on stocks pick names you know (e.g barclays worked for me) from the FTSE100 as they are reduced risk. You only need to then look at the dividend paid e.g. the percentage the company returns to you, a lot pay in the region of 3-6% (This is additional increase above the gain in price of each share) over the last 20 years increase of the FTSE 100 is 9% average. DO NOT however invest in stocks if you need the money within the next 5 years!!! short term rise and fall can be quite a swing. You can get really into this yourself or ask a broker to invest on your behalf through managed funds. I like the self pick route where I choose but this is personal choice.

Answer 4

dont pay off the mortgage cos you obviously have life insurance and god forbid, if anything happened to either of you, the mortgage would be paid off.

The interest rate you can get off investing would also be far greater than the rate you're paying on your mortgage.

For a start, why not both open an ISA.

Dont know much about investing but wouldnt trust the return on stocks and shares.

Premium Bonds are pretty good, you have chance of winning money, never lose on them but then you wont gain any interest off it!

You could always invest it in another property to rent out, this will give you a pretty good return but will probably have to top it up with a mortgage.

Dont waste it!

Answer 5

To be honest I'd say property!

£32,000 would divvi up into £10K bundles quite nicely which would be pretty much enough for a deposit on a buy-to-let mortgage for a place that was around £70K to buy. That wouldn't get a lot in England but if you took a cheap flight you'd find yourself in Scotland and that kind of money would get you some not bad 1-2 bed flats that didn't need any work.

I say Scotland as the market up here is a bit more stable (I feel) and growth isn't or hasn't been as rapid. The upshot of this is that down South there is some longer term worries over a crash in house prices (mainly around London area) and since the Scottish market hasn't seen such a steep climb in house prices, the market is seen to level off in the future rather than crash.

Basically, your £32K investment would turn into assets worth £210,000 if you bought 3 £70K houses/flats and with a growth rate of even say 10-15% pa thats a hell of a lot better than any savings acct with a bank or building society.

However, if your after something a bit more riskier but with higher rewards I'd seriously look at the same model as above but in Romania, Poland and Bulgaria due to their position with the EU.

Downside - TAX! CGT (Capital Gains Tax - currently at 40%) - speak to an accountant but the best thing to do is to set up a company to do all this (simple and only for around £200).

You can't avoid tax (legally) - you just need to get yourself in a position to pay as little of it as possible and for this a company is best.

Hope this helps!

Answer 6

I agree with most people here it depends on your attitude to risk.......the 'safe' thing to do is simply to pay off the mortgage and have the security of that....

But in reality interest rates are low at around 5% at the mo.....and you can make more money with this windfall.....the higher return you seek the more potential risk that there is normally involved.

ISAs - currently at around £8k per person per year are a good idea.....and the income from the investments is tax free....another thing to bare in mind. Simple savings accounts you may get a good rate but you will be taxed at your marginal rate on the income.....never pleasing being taxed on savings income but a reality.

Independent financial advisors are the best people to go and see and many will offer you an initial financial assessment free of charge. This will give you a feel for the options out there and how risk loving or averse you actually are....

Remember....paying interest on the mortgage.....and earning lesser amounts say in a building society at the same time really makes no sense at all....

Good luck!

Answer 7

I agree with Julie W and others. It's insane to pay off the mortgage. I would suggest looking at http://www.top10traders.com for investing ideas. This site lists out the best performing stock portfolios. You can also create your own portfolio with $100,000 in "play" money and then watch how your stocks compare against over traders. The site is totally FREE. Good Luck!

Answer 8

Do NOT pay off your mortgage...thats insane.

Buy another property and let it .

Here is some simple math:

if you pay off 32k of your mortgage how much will you save a month ? 250 pounds maybe ?

if you buy a place using the 32k as a deposit, you can get rent, pay the mortgage (int only) and you will have 300-400 pounds profit (depends where you buy it). and most importantly after 3-5 years you can sell it and make a huge profit.

Answer 9

My suggestion is: 20% in a fixed rate vehicle like annuity or certificate of deposit long term in a bank; 20% in a global large cap mutual fund; 20% in a short term bank account for emergencies; 20% in a fund to take a great vacation somewhere; and 20% in a mutual fund handling energy stocks in oil, gas, and natural resources. Just my opinion. Have a good time.

Answer 10

I would take 80% of this windfall and put it towards the mortgage. Take the other 20% and put it towards your wishes. People hold too much debt, and it's just a better idea to get rid of the debt because when the world markets fall into recession in who knows how many years, real estate will be your best asset.