We don't need this cash for 10 years - what should we do with it?
05 May 2021
Question by Ann
I am looking for a little advice in regards to the best return for my savings. My partner and I are both 30 years old.
This year I have tried to sort my finances out and educate myself more about investing. I have opened a LISA [AJ Bell] and a S&S ISA [Fidelity], each for my partner and I. I have invested a small amount (£3000) at the start of the year, and have set up a regular monthly payment. I have chosen a diverse range of funds at medium risk. It has been a rocky journey with the S&S being so erratic but trying to persevere. My partner and I bought our first home together and we now have some savings left.
We have around £80,000 between us, of which £60,000 could be invested for at least 5-10 years.
I am not keen for it to sit in savings account. We both have an NHS pension so not needing a private pension currently. I am rather hesitant to put all that money into a S&S investment account. I have thought about a buy-to-let property, however there are added costs: stamp duty, agency fees, ‘hassle’ of being a landlord.
I wanted some advice about what you would suggest to do.
I am keen to invest it in some way to get a return.
Answered by Chris Hill
The starting point when considering what to do with a lump sum should always be to make sure that you have a large enough contingency fund in case something unexpected happens and you need access to capital quickly. I suggest around 6 months expenditure as a starting point.
The next step is consider repaying debts. You did not mention whether you had a mortgage, but if you do, overpaying on the mortgage is a guaranteed way for your cash to do more for you than holding it in the bank.
I often get asked about buy to let property as an investment. Like everything, it works for some people and not for others. You have already pointed out some of the downsides, not to mention the legislative hoops to jump through, the removal of most of the tax reliefs, the time required to sell the property when cash is required, lack of flexibility, cost of repairs etc. Against that are the potential for a reasonable income stream and potential for capital growth if you invest in the right property.
You mentioned that you had selected a medium risk portfolio for your LISA accounts and you were trying to persevere with the bumpy journey you have experienced. This indicates to me that you may be invested in a way that is taking more risk than you are comfortable with and the feelings that you have about your LISA would be magnified if you were to invest a larger lump sum. There are some key things to think about before considering where to invest your money:
What do you intend to use the money for?
You mention that £60,000 could be invested for 5-10 years – what happens after 5-10 years time?
What would happen if the £60,000 fell in value over the 5 – 10 years?
A key consideration in selecting the level of risk that should be taken with a portfolio is the time that the money is going to be invested. Larger drops in value are less of a concern when the money won’t be needed for 20 years than they are when the money will be required in 5. I think that it would be worth engaging a financial planner to properly assess your attitude to risk.
Chris is a Director at WBW Chartered Financial Planners and winner of Certified Financial Planner of the Year 2019. He has a real passion for helping people understand their money and what it can do to help them. This has led him to working with people for many walks of life.