Investing first £25k (UK)

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MCR-UK dude
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Investing first £25k (UK)

Post by MCR-UK dude »

Fellow ERE'ers,

I'm writing on behalf of my younger brother who has accumulated around £25k (just under $30k) mainly through the commission he earns from his sales job. He earns a decent salary, especially for his age (he's 26).

He's currently got the cash sat in a standard savings account with Natwest, paying something like 0.02% interest.

I've explained that he's worse off each year with that rate but I'm struggling to suggest where he should look instead as I am new to this (investing) myself. He's also interested in buying an apartment within the next 12 months as an investment (he'll likely rent it out), so he would need to be able to take some/most of the cash out when needing to place a deposit.

I thought perhaps putting it into a Vanguard index tracker, but I'm out of my depth here completely.

What advise would you offer to my brother given this scenario?

Many thanks

Tom

jacob
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Re: Investing first £25k (UK)

Post by jacob »

MCR-UK dude wrote:
Fri Jul 21, 2017 9:36 am
He's also interested in buying an apartment within the next 12 months as an investment (he'll likely rent it out), so he would need to be able to take some/most of the cash out when needing to place a deposit.
That clinches it. Either put it in a savings account (at a miserable but positive interest rate) or buy a CD(*) that expires shortly before the planned purchase. It would be dumb to speculate on stocks given the material risk that they might be down after some months when he wants to sell them for the down-payment.

(*) or a few, e.g. a 3 month, a 6 month, a 9 month, and a 12 month. You get the point.

Earlybath
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Re: Investing first £25k (UK)

Post by Earlybath »

Double check he has the basic shortterm personal finance goals covered first e.g. no consumer debt, 3-6 months living expenses and so on. Then throw the remainder into a savings account and research longer term investments, don't invest until you understand the characteristics of what you are investing in.

Fairly good savings guide here http://www.moneysavingexpert.com/saving ... t-interest which includes up to date best rates . BTW CD s are fixed term/rate savings accounts.

chenda
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Re: Investing first £25k (UK)

Post by chenda »

Put it in premium bonds, almost zero risk and if he's lucky might get him a much better return than a savings account.

Chad
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Re: Investing first £25k (UK)

Post by Chad »

2nd Jacob's advice if he really wants to invest in real estate.

Also, based on the lack of financial knowledge, I bet he hasn't run the numbers on his real estate investment.

jacob
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Re: Investing first £25k (UK)

Post by jacob »

@chenda - If the expectation (probability) of an interest hike goes up more than presently expected, the bonds will go down. This is especially the case for a bond ETF which is more a reverse bet on the yield curve than an actual bond investment (advanced perspective).

IlliniDave
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Re: Investing first £25k (UK)

Post by IlliniDave »

Another +1 for what jacob said. If he's going to use/need it in the next 12 months, it's in a pretty good place already, though as mentioned he could shop around for slightly higher interest.

chenda
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Re: Investing first £25k (UK)

Post by chenda »

@jacob - I mean these things https://www.nsandi.com/premium-bonds

Not proper bonds its like a lottery.

Dragline
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Re: Investing first £25k (UK)

Post by Dragline »

He should ride the pork belly wave! http://www.marketwatch.com/story/americ ... 2017-07-15 :lol:

But seriously, I agree with jacob. The #1 follow-up question to ask about "what should I invest in?" is "when do you expect to be needing this money?" Anything short term means leave it in cash or cash equivalents. If there's part of it he won't need soon, he could put that in an index fund, but that would be a long-term investment.

slowtraveler
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Re: Investing first £25k (UK)

Post by slowtraveler »

I'd tell your brother to check out the bigger pockets forum.

ducknalddon
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Re: Investing first £25k (UK)

Post by ducknalddon »

Haven't the tax rules changed for UK property investors recently? I'm pretty sure it doesn't look so favourable now if you are highly leveraged.

Earlybath
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Re: Investing first £25k (UK)

Post by Earlybath »

Take a look at a "Help to buy ISA" in conjunction with a high interest current account.

fingeek
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Re: Investing first £25k (UK)

Post by fingeek »

UK premium bonds are as good as cash in a FSCS-covered bank. The interest rate equivalent is 1.15%, so compared to UK savings accounts that's quite attractive (And hey, maybe you'll win the million ;-)).

It's important to also understand the risk of various investments. Cash and premium bonds have low interest/return, but they're about as safe as it gets. Anything with higher returns will see an increase in risk, time required or both.

You may like to look at some of the high interest current accounts, with the potential for 1.5%-5% no-risk (See http://www.moneysavingexpert.com/bankin ... s#interest). This is too much effort for me personally.

On property - I have UK property, but I would not consider single lets (a standard house, or an apartment rented out to a single person/family). The gross yields are typically 4-6% which is pretty poor considering you need to spend time handling this type of investment. In addition for apartments, you have leasehold issues to consider - Service charges and the like. As a first investment, I wouldn't recommend it. In addition, there are a number of signs that the UK property market is on a turn, and a house price correction is on the cards in the next 1-3yrs. This is already happening in the big cities (London, Bristol, Oxford - see https://www.hometrack.com/uk/insight/ma ... ordability, http://www.bbc.co.uk/news/business-40680575). If you buy into the perfect storm of a bubble market, at a high LTV, and a low prospective yield then you may well find yourself (1) in negative equity, which will cause a problem when it comes to remortgages and (2) lessened demand as renters may start to buy into a cheaper market (The government is determined to help first time buyers, regardless of the economic outlook, it seems).

I would strongly suggest taking a step back and looking at the big picture - What is it you want to achieve? Are you looking to temporarily hold cash before repurposing it elsewhere? If so, then do look at high interest savings/current accounts with minimal lock-ins and the like.

If you're looking to build a larger long-term portfolio then you should start looking into the stock market, but make sure this is part of a bigger plan to have cash/liquid asset available or a strong income stream to cover surprises.. And then look further into investing.

ERE is not your mainstream group of people though - The papers, financial advisors, friends and family will tell you all sorts of differing opinions.
Last edited by fingeek on Sat Jul 22, 2017 7:36 am, edited 1 time in total.

fingeek
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Re: Investing first £25k (UK)

Post by fingeek »

ducknalddon wrote:
Fri Jul 21, 2017 2:36 pm
Haven't the tax rules changed for UK property investors recently? I'm pretty sure it doesn't look so favourable now if you are highly leveraged.
Indeed. The long-and-short of it is:
* Lower band tax payer - No change.
* Higher earner & BTL mortgage - More tax to be paid.
* No BTL mortgage - No change.

If your total income (*including* rental income, before expenses and tax) is £45k or less then you will see no change in tax. If you're over, then you will get taxed more on your rental income... In some cases >100% tax.

MCR-UK dude
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Re: Investing first £25k (UK)

Post by MCR-UK dude »

Many thanks for all your answers, suggestions and links on this post.

I think given that my brother is not in any particular rush to do something with his money (which would be inadvisable anyway) and is happy for it to sit for a year at least, I'll be looking into the high interest bank accounts to start. Over the next year we'll have done more research into housing and taxes (he is a higher tax payer) all whilst his money is at least doing some work for him.

Thanks!

Zeran
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Re: Investing first £25k (UK)

Post by Zeran »

Zopa and other P2P lending sites will allow you to lend out on a term of 12 months (with an option to sell the product on if you require the money sooner). Zopa gets ~3% on personal loans, others lending to businesses offer ~7% returns. These are especially good as last year a new ISA was introduced for p2p lending, so you can get those rates tax free.

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