Another what to do with £40k, but different.

[48Valves]

We are due to receive a chunk of money in a couple of months. After tax and spending some on our current house we will have around £40k left.

Wife says pay a chunk of the mortgage and reduce outgoings, I’d prefer to keep up payments and reduce the term. Mortgage is fixed for the next 18months at 1.8%. Payment of a lump would see the LTV down to around 20%.

I can’t help but think that there is a better place to put the money? Maybe a stocks and shares ISA!

We have no real appetite for risk. No cars or C&H.

Thanks

[bitchstewie]

Respectfully if you don't have any appetite for risk you've just about ruled out a S&S ISA as even the most cautious of funds involve some degree of risk as there's a basic risk/reward balance with any investment.

I'd think whether you really mean no risk appetite or about what you think you could stomach if you put that £40K into something and took a look one day and saw it was worth less.

[48Valves]

bhstewie said:

Respectfully if you don't have any appetite for risk you've just about ruled out a S&S ISA as even the most cautious of funds involve some degree of risk as there's a basic risk/reward balance with any investment.

I'd think whether you really mean no risk appetite or about what you think you could stomach if you put that £40K into something and took a look one day and saw it was worth less.

You are right. No risk was not the right thing to say. Minimal risk.

I would obviously not be happy to lose a significant amount, but if it becomes a longer term investment then leaving it alone gives a chance of it going back up.

Leaving it in the bank will just see the value eroded as inflation rockets, normal ISAs hardly seem to be worth bothering with.

[bitchstewie]

48Valves said:

You are right. No risk was not the right thing to say. Minimal risk.

I would obviously not be happy to lose a significant amount, but if it becomes a longer term investment then leaving it alone gives a chance of it going back up.

Leaving it in the bank will just see the value eroded as inflation rockets, normal ISAs hardly seem to be worth bothering with.

I'd still try and come up with a £ amount that you'd be "happy" to see yourself down by even if it's just on paper.

Lots of people think that if they invested £100K and logged in to see it was only worth £80K on that day that they'd be fine with it.

Reality when that happens is often very different

[Dr Mike Oxgreen]

anonymous said:

[redacted]

This is very true, and easily overlooked.

Mathematically it makes more sense to put the money in a global equity index tracker for the long term, where it'll probably earn more percentage growth than the interest you'd save by paying the mortgage down (at least with interest rates where they've been for the last umpteen years).

But I'm a great believer that financial decisions should also take into account one's feelings - and the feeling of security you get from paying your mortgage down is worth something, even if not in a purely mathematical way.

[greengreenwood7]

Is this a flawed perspective?

Say mtge interest is 2-3%, and inflation ( real inflation not the 'made up' number ) is 10%+, and the appreciation of property is perhaps 10/12%.

Isn't there a case for using the 'mortgage money' which is debasing at that rate of inflation and parking in somewhere that will give a likely return (medium term) that's higher than the possible property value increase?

even with little risk appetite the likes of the Tsla, Goog, Amazon etc are likely (?) to perform better than the property increase.

[blueg33]

Op, I hope you don't mind if I add a similar question.

Following a downsizing my Mum has circa £250k in her current account. Her ISA's are maxed out, what is the best way to invest this money so that it has a small return (low risk) and allows her to access it if she needs to?

[Yegap]

Unless you value having the weight of a mortgage off your shoulders, let inflation do the heavy lifting for you on that. Especially as you are already <60% LTV thus accessing the best rate.

Pension is probably the best option depending on how old you are and if you don't plan on retiring early. You can immediately add 25% to it or even more if you are a higher rate tax payer through the tax relief on contributions. A global index tracker is about the lowest risk you can get which might already be what your pension is already invested in.

[mike9009]

Dependent on your pension position and if you are a higher rate tax earner, I would drop feed the 40k into your pension.

So, up your contributions into the pension ( equivalent to £40k gross in one year) and live off the £40k for a year or so. The tax relief will outstrip any ISAs or mortgage payments.

Sounds like you are willing to play the long game from your post, but obviously other factors might be at play (LTA, for example).

[UrbanAchiever]

mike9009 said:

Dependent on your pension position and if you are a higher rate tax earner, I would drop feed the 40k into your pension.

So, up your contributions into the pension ( equivalent to £40k gross in one year) and live off the £40k for a year or so. The tax relief will outstrip any ISAs or mortgage payments.

Sounds like you are willing to play the long game from your post, but obviously other factors might be at play (LTA, for example).

Agree, the tax relief on pension contributions shouldn't be underestimated when looking at overall returns, As long as you are happy that the money will be untouchable until you hit 55 or 57 depending on when you were born.