Large Cash Sum - Advise Please

Hey people, I’d love some advice if possible!

I’m going to keep everything pretty low level detail for now but basically my partner will be coming into a large sum of money soon, roughly £120,000.
I would appreciate some advice on what you all think would be the best way to invest this smartly?
We already live in a house which I have a mortgage on. Would she be smart to also go into property and rent it out? What are the risks? Would it be better to invest instead?

I know this is a huge question and there’s probably tons of ways of doing this, but any advice would be hugely appreciated.

You have to tell us what your goals are for us to give you any advice.

There’s a good flowchart here from the UKPF Subreddit https://marcusmichaels.github.io/personal-finance-flowchart/ which should help you make a decision.

Don’t be afraid to enjoy some of it.

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People often think of property as a good investment because it’s something that you can visit in person but property is such a broad class of investment that it’s impossible to label property investment as “smart” or “dumb”. The type of property (house, apartment etc.), the location (major city, small town etc.), the type of management (renting to a family, running an HMO etc.) is what matters, there are places where running an HMO is a fantastic investment and others where it’s terrible, likewise there’s places where renting out family homes is a fantastic investment and others where it’s terrible.

A key to successful investing is diversification, your goal should be to balance your risk tolerance with your goals. Your net worth is already heavily weighted towards property (your family home), adding more property is going to expose you to a lot of risk with the housing market. Often bad things compound: a recession causes you to lose your job and your house value falls and now you’re jobless and unable to sell your house.

A lot of people have a vision of shares as a high-risk game of “pick the company that is going to succeed this year” but in reality investing in individual companies is far from the only strategy when it comes to stocks, in fact it’s the least advised for people who want to invest in the long term. Active investing (picking companies) has a companion: passive investing. Passive investment usually happens through funds, they’re available at all different risk tolerance levels and you can choose what works for you. Vanguard are very well respected in that area.

The most important questions to answer are:

  1. What are you goals?
  2. How much risk are you willing to take?

Years ago I read this guide to passive investment and it was hugely helpful to me, I’d recommend reading it.

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Thank you for your reply :blush:
Goals I guess would be not to lose and hopefully beat inflation. We have a house already.
Thank you for the link, really helpful.

What a great reply, thank you.
I think she’s leaning towards property, so I guess it’s a case of finding out which type would be best for the area.
Is this just a case of looking at nearby property and seeing what sells?

There’s no easy answer. Property investment is a business, it’s not just a matter of finding a property and then buying it, there can be a lot of complexity involved – for example you may need an HMO license. Fortunately property investment is very well established, there’s many good resources online (and books too) that can introduce you to that world.

Also, it’s worth noting, if you are already property owners then you shouldn’t find it too difficult to get a buy to let mortgage. If you’re looking at property investment as a way to maximise the growth of your cash then you should consider leveraging that cash, so instead of buying one property for £100k you buy 4 properties with £25k down on each. That introduces complexity and shouldn’t be a decision taken without serious consideration given the additional risks but it’s a good demonstration of how you could leverage the money in property to build long term wealth.

Personally, if I were in your situation, I’d probably use £25k to buy one property with a mortgage and diversify with the rest. Also, consider the tax benefits of putting some of that money into your pensions, depending on your tax rate and age it could be very beneficial to you (vs. investing in an ISA or naked investment account).

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Would paying off your own mortgage first be a good option?

You’ll be in a better position long run to invest more money, more regularly, over a longer term.

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Agreed. Save thousands in interest and free up disposal income to invest in a diversified range of assets.

There’s a significant opportunity cost associated with that, though. Borrowing is very cheap at the moment, if he can invest his lump sum to produce more than ~3% per year then he’ll be better off by not paying off the mortgage. There’s a lot of factors to weigh up, for some people the security and peace of mind of having a paid off mortgage is worth much more than even 10% yearly returns, but paying off the mortgage is definitely not the best financial decision.

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Before figuring out how to invest the sum, it’s worth (if you haven’t done so already) checking how much if any will be taxed. You don’t want to invest everything only to find you have to pay a tax bill or something which exceeds your accessible funds.

The flowchat is good, and if you look at MoneySavingSupermarket you’ll find some good advice there too. Consider spreading it across different types of savings/investments (especially if you don’t have many/any already).

tl;dr, consider tax burden; pay off high interest debt before saving/investing; spread the risk.

Already have a house, but no investments? IMO:

    1. Pay of credit cards etc if you have any debts
    1. Save some cash
    1. Put 20k into a S&S ISA every year for a few years
    1. Top up pension every year
    1. Maybe consider buying more property if you wish to take the risk and take on the work, and are willing to own it for at least 10 years.

The advantage of property is the leverage, but I don’t think it’s worth the risk if you already have significant sums in property and don’t have much saved elsewhere. If you believe inflation will be very high, having large low-interest debts on assets which will appreciate is a hedge against that inflation, and property is one of the few assets you can borrow lots on low interest rates to invest in. The downside of course is that it is highly illiquid and highly correlated with recessions (when you could lose your job and things will be tougher). Personally right now I would not invest in UK property.

Property is unlikely to be the best choice, because;

a) Property is already your biggest asset, so you’d be very vulnerable to a house price crash
b) Being a landlord has legal responsibilities etc and also a lot of risk (if a tenant stops paying their rent, you could have no income for months but still be incurring costs, houses can subside etc).
c) Property is an extremely illiquid asset. If you suddenly need the money in five years time, you could be forced to sell quickly with a tenant in-situ, which would probably be at a huge loss.

Still, the biggest question for a property investment would be whether you will use the money as a deposit for an interest only mortgage (gearing), or just buy outright (ungeared). The returns on an ungeared property investment wouldn’t normally be worth the effort and risk. Gearing can produce good returns, but of course the risk is increased.

Investing in a diverse share portfolio is probably a better idea. You could pay an independent financial advisor to help you set up a sensible investment portfolio (no need to pay them a continual management charge if you don’t want to). On average, historically, shares return much more than an ungeared property portfolio, as well as being a lot simpler and easier to manage and accessible in an emergency.

If she really does want to invest in property, she should at least do some basic training at one of the landlord’s associations on the legal aspects of being a landlord (yes you can get a property agent, but the legal relationship is always between the landlord and the tenant). But really, in terms of financial management there really is little sense right now in this course of action.

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I thought you meant literal cash :joy:
There are free wealth advisers out there I would talk one of them about things. But If I were you I would stick it somewhere where you can easily get it out primarily in a savings account and just wait till Brexit etc sorts itself out

£120000 - it really depends on how much access she wants.
Yes property is an option but you don’t get much these days so it does potentially mean getting a mortgage to top up with. What happens if your property lies empty for 4-6 months - can you afford the repayments?
If the money is received prior to end of tax year then £40k in ISAs - £20k 2018-19 & £20k 2019-20. Obviously cash rates are low & stocks & shares you do risk the capital.

Remember investing through an ISA you could expose yourself to property prices through certain funds. It’s all about picking the correct stock - I’ve learnt that with my kids - daughters ISA gained only 10% in 5 years. Son’s ISA gained 200% in 5 years. Guess who is happier?

Interest rates aren’t great so to beat inflation you either need to tie it up or go for a riskier investment.
For savings accounts I’d start looking here

Lots of banks offer regular savings at 5% but in reality it takes time to set up and most limit £250 a month deposit.

I can’t see if anyone already recommended this, but this guide on what to do with lump sum investments from Reddit’s /r/UKPersonalFinance is really good, and gets referred to almost daily on there.
https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminvestment

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