£25k to invest
Discussion
Wife has inherited £25k from Godmother and would like to invest it wisely and put it towards something meaningful in the future.
She has good pension, doesn’t want to pay it off mortgage and would like to see it grow.
My thinking would be some in premium bonds but would be a little on the boring and cautious side, with some in the S&P 500 that she could track and see grow.
Higher earner tax rate too so any advice welcome,
Many thanks,
Matt
She has good pension, doesn’t want to pay it off mortgage and would like to see it grow.
My thinking would be some in premium bonds but would be a little on the boring and cautious side, with some in the S&P 500 that she could track and see grow.
Higher earner tax rate too so any advice welcome,
Many thanks,
Matt
Premium bonds isn't really investing and the S&P 500 is considered high risk. The two are at odds with each other.
Premium bonds are an ideal safe haven, for accessible cash, however returns aren't amazing for most. It is likely you'll receive less than the headline rate. Although being a higher rate tax payer, may save some tax liability on the returns.
Have a look at blended funds through a low cost provider. In a stocks and shares wrapper. Vanguard is an example, but there are many.
Premium bonds are an ideal safe haven, for accessible cash, however returns aren't amazing for most. It is likely you'll receive less than the headline rate. Although being a higher rate tax payer, may save some tax liability on the returns.
Have a look at blended funds through a low cost provider. In a stocks and shares wrapper. Vanguard is an example, but there are many.
If you want to do something sensible without overthinking it look at Vanguard and look at either the FTSE Global All Cap fund or the LifeStrategy range.
If none of that means anything to you ask here or start on https://monevator.com
If none of that means anything to you ask here or start on https://monevator.com
I can vouch for this one. She could buy it within an ISA wrapper for better long term gains.
https://www.vanguardinvestor.co.uk/investments/van...
https://www.vanguardinvestor.co.uk/investments/van...
It depends on lots of factors.
For instance, how long is the money likely to be invested for, and might she need to access it at short notice? Also, what's her attitude to risk: if the £25k is invested in equities and the value drops to say £20k, is she going to panic? What's her capacity for risk: if she crystallises that £5k loss, is it going to lead to financial hardship?
If she decides to invest in equities, I wouldn't stick it all on the S&P500. As others have already said, pick a global tracker instead (or a multi-asset fund) and put £20k of it in an ISA if this year's allowance is still available to her.
I'm not sure why she wouldn't use it to reduce mortgage debt first tbh, unless you're on a super-low fixed rate that's unlikely to increase any time soon. For context, the average Premium Bond prize rate is currently 3.6%, so is your mortgage rate higher or lower than that figure?
Re Premium Bonds, remember that their value can erode over time unless your win rate is sufficient to keep pace with inflation.
For instance, how long is the money likely to be invested for, and might she need to access it at short notice? Also, what's her attitude to risk: if the £25k is invested in equities and the value drops to say £20k, is she going to panic? What's her capacity for risk: if she crystallises that £5k loss, is it going to lead to financial hardship?
If she decides to invest in equities, I wouldn't stick it all on the S&P500. As others have already said, pick a global tracker instead (or a multi-asset fund) and put £20k of it in an ISA if this year's allowance is still available to her.
I'm not sure why she wouldn't use it to reduce mortgage debt first tbh, unless you're on a super-low fixed rate that's unlikely to increase any time soon. For context, the average Premium Bond prize rate is currently 3.6%, so is your mortgage rate higher or lower than that figure?
Re Premium Bonds, remember that their value can erode over time unless your win rate is sufficient to keep pace with inflation.
Premium Bonds
The present rate of return is 3.6%.
Remember that is the average return, so once the few big prizes have been allocated the percentage return for everyone else is much lower.
My wife has had a Premium Bond holding for 30 years.
Has never won a prize, so inflation has depreciated the purchase value to very little.
A hopeless way to save, except for the handful of big prize winners.
Investment
I purchased holdings in CPG.L; BATS.L and GSK.L then gifted them to my grandchildren.
They are providing a 4% annual growing income and the total purchase cost has now doubled in value.
The grandchildren are too young to know anything about their fledgling portfolio, but they should be grateful one day.
If you want to try that type of investment, select businesses that provide goods or services which are essential requirements, because those companies can better survive recessions.
Depending on how high your mortgage raye is, I would personally overpay by £25k
As others have said, premium bonds is a waste of time, most people only buy them when they have used up their £20k isa allowance.
As others have said, a Vanguard LS fund or S&P500 fund might be good if you do it via an ISA fund. Bear in mind it can lose money and is only really any good if you want to invest the money long term. If you are the sort of person who checks the value every day and panics whin if falls (like when Trump announced the tarrifs and it fell over 10% in one day) then this is not the investment for you.
As you are a higher tax rate payer, not putting it in an ISA means you would need to be making 8%ish a year just to equal paying off some of the mortgage (assuming you are not on an old 1.something% rate)
As others have said, premium bonds is a waste of time, most people only buy them when they have used up their £20k isa allowance.
As others have said, a Vanguard LS fund or S&P500 fund might be good if you do it via an ISA fund. Bear in mind it can lose money and is only really any good if you want to invest the money long term. If you are the sort of person who checks the value every day and panics whin if falls (like when Trump announced the tarrifs and it fell over 10% in one day) then this is not the investment for you.
As you are a higher tax rate payer, not putting it in an ISA means you would need to be making 8%ish a year just to equal paying off some of the mortgage (assuming you are not on an old 1.something% rate)
Edited by ThingsBehindTheSun on Saturday 6th September 14:29
With £25k as a lump sum, the first thing I’d look at is using an ISA wrapper so any growth is tax-free, which is especially valuable at higher-rate tax. Premium Bonds are very safe and liquid but the expected return is low and unlikely to keep pace with inflation, so they work better as a cash-like holding. If the goal is long-term growth, a low-cost global tracker fund (S&P 500 or a broader world index) inside a Stocks & Shares ISA is a simple and tax-efficient option. That way part of the inheritance stays liquid and secure, while the rest is invested for real growth that can compound meaningfully over the years.
If premium bonds is a 3.6% then a Stocks and Shares ISA with 20K in for this year and stick the other 5k in next year and if you can keep putting away a wee drop then something like the Vanguard FTSE All World or other stock would perform better. Last 6 months its up 7% better than the bonds, stable climber so doesn't need to be watched every day.
If you really got into shares with proper investment and also good risk and thinking then it can be worth it. My year so far (april) is 23% return on investment.
If you really got into shares with proper investment and also good risk and thinking then it can be worth it. My year so far (april) is 23% return on investment.
Robert Burns said:
If premium bonds is a 3.6% then a Stocks and Shares ISA with 20K in for this year and stick the other 5k in next year and if you can keep putting away a wee drop then something like the Vanguard FTSE All World or other stock would perform better. Last 6 months its up 7% better than the bonds, stable climber so doesn't need to be watched every day.
If you really got into shares with proper investment and also good risk and thinking then it can be worth it. My year so far (april) is 23% return on investment.
I’m always a fan of hedging bets….so yes, I would put 20k into an S&S ISA, a low cost global fund - see videos at https://kroijer.com for some reasons why - but I personally *would* put £5k into PBs.If you really got into shares with proper investment and also good risk and thinking then it can be worth it. My year so far (april) is 23% return on investment.
As others have said above, they are not really an “investment”, but our experience has been that we have generally made the amount paid out (eg, around 3.6%), but the beauty is also you can get your hands on it within 2-3 days with minimal hassle…& the capital is protected. Think of it as play money. Maybe even buy a nice item of jewellery or take a break to remember her Godmother by. Life is for living, not just saving!
For the £20k, she could see that drop to £15-18k within weeks of investing - markets are fickle - so that ought to be a 5-10yr+ investment.
She could choose to drip-feed the ISA - pop £2.5k pcm for the next 8 months. Historically, I believe putting the lump sum in usually wins about 2/3rds of the time, but either way she would be getting it invested.
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