Ideas for £250k for 18 months
Discussion
I have just sold a property and am left with about £250k that I want to use towards paying off the mortgage on my own home when the period of early repayment penalties finishes in August 2022. It goes against the grain to leave it in savings accounts paying dismal interest, and I could use some to top up equity ISAs, but with this particular sum I don’t want to take too much risk.
I realise that I am very fortunate to be in this position. I’m thinking of putting some in premium bonds but I’d be very grateful for other ideas - what would you do?
I realise that I am very fortunate to be in this position. I’m thinking of putting some in premium bonds but I’d be very grateful for other ideas - what would you do?
Mattt said:
What’s the maximum you’d be willing to lose of that amount?
Yes that’s a key question and one I am still asking myself. It is somewhere between 0 and 10% I think - the relatively short timescale makes it more difficult, and I don’t mind taking on risk in some contexts but for some reason I’m feeling more risk-averse here. One of the reasons for posting is to see if something emerges that I haven’t thought of yet and that feels a ‘right/comfortable’ (but possibly non-zero) level of risk. I am far from qualified to suggest, but my take from your 10% comment would be as follows, but potentially increasing the index tracker to 100.
50k Premium bonds
85k Marcus
55k RCI or somewhere similar to marcus.
60k Index tracker
Worth adding that i suspect you could afford to weather any significant market drop and simply not pay back the mortgage, so given that you could be flexible on the date you need the money, you may wish to increase your exposure to index trackers even further.
50k Premium bonds
85k Marcus
55k RCI or somewhere similar to marcus.
60k Index tracker
Worth adding that i suspect you could afford to weather any significant market drop and simply not pay back the mortgage, so given that you could be flexible on the date you need the money, you may wish to increase your exposure to index trackers even further.
Edited by tapandunwrap on Saturday 6th March 23:07
sjj84 said:
How much is the early repayment penalty and how much will you be paying in interest between now and when that period ends? Might well be better off just sucking up the fee if your plan is to pay off the mortgage.
Yes, and remember that any interest paid to you over the next 18 months is subject to tax.Lexicos said:
Yes that’s a key question and one I am still asking myself. It is somewhere between 0 and 10% I think - the relatively short timescale makes it more difficult, and I don’t mind taking on risk in some contexts but for some reason I’m feeling more risk-averse here. One of the reasons for posting is to see if something emerges that I haven’t thought of yet and that feels a ‘right/comfortable’ (but possibly non-zero) level of risk.
Only adding the one Asset class which hasn’t been mentioned yet; fixed income. Most Bond Funds have returned between 0.5-7.0% over the last few years mostly without losses.
Thanks very much everyone for your thoughts. I’ve just been double checking the early repayment charge - 3% of the amount overpaid, 2% from September, which as the mortgage interest rate is 1.72% I think means it isn’t worth it. I have already paid off the 10% allowed before penalty.
Tapandunwrap’s proposal makes sense, with room to adjust risk exposure by varying how much goes into a tracker or equivalent (and you’re right that one option would be to roll over the mortgage and hold on for a recovery if markets had fallen) - but as others have said I do need to be clear in myself on whether I would actually tolerate any loss at all.
I am completely unfamiliar with fixed income options and have the vague impression that bond prices/values fluctuate wildly according to demand and so aren’t much lower risk than ‘normal’ equities, which I’m used to - but would be grateful for some education on this!
Tapandunwrap’s proposal makes sense, with room to adjust risk exposure by varying how much goes into a tracker or equivalent (and you’re right that one option would be to roll over the mortgage and hold on for a recovery if markets had fallen) - but as others have said I do need to be clear in myself on whether I would actually tolerate any loss at all.
I am completely unfamiliar with fixed income options and have the vague impression that bond prices/values fluctuate wildly according to demand and so aren’t much lower risk than ‘normal’ equities, which I’m used to - but would be grateful for some education on this!
I'm almost unfamiliar with fixed income, but my impression is that it has tended to fluctuate opposite to equities, so an appropriate mix of equities/bonds can be lower volatility than a 100% mix of either.
If you put Lifestrategy 100 through 20 % equities performance into the HL funds graphing page for example, and look at 5 year performance, you can see the effect as equity % goes down.
If you put Lifestrategy 100 through 20 % equities performance into the HL funds graphing page for example, and look at 5 year performance, you can see the effect as equity % goes down.
18 month time frame.
Equities - downside risk - 30% fall? Potential net upside - 10%?
Bonds - downside risk - 5% fall? Potential net upside - 5%?
The real question is how keen you are to keep the £250k you started with, because if the answer is “very keen indeed” you’ll probably just have to suck up 2% inflation sitting in a bank account.
What would I do?
Pick a “must keep” figure - say £150k to £200k - and stick it on deposit.
Invest the rest in a low cost global fund and cross my fingers.
Why?
Shouldn’t lose too much value if things go badly.
Decent opportunity of maintaining full spending power of the original £250k, after inflation, with perhaps a little upside as well.
Equities - downside risk - 30% fall? Potential net upside - 10%?
Bonds - downside risk - 5% fall? Potential net upside - 5%?
The real question is how keen you are to keep the £250k you started with, because if the answer is “very keen indeed” you’ll probably just have to suck up 2% inflation sitting in a bank account.
What would I do?
Pick a “must keep” figure - say £150k to £200k - and stick it on deposit.
Invest the rest in a low cost global fund and cross my fingers.
Why?
Shouldn’t lose too much value if things go badly.
Decent opportunity of maintaining full spending power of the original £250k, after inflation, with perhaps a little upside as well.
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