I have about £250,000 from life savings and the proceeds of a house sale in my bank account. What should I do with it? S.C., London.
Flush with cash: Where’s the best place to put a lump sum of £250,000?
Paul Thomas, of the Money Mail, replies: Before we go into some general details of what you might want to consider, it is worth noting that when investing a large sum, it’s best to see an independent financial adviser.
If you know people who use an adviser see if you can get a personal recommendation, alternatively there are two main services to help you find an adviser, which This is Money is happy to recommend trying.
To help you think about what you might want to do with the money, there are some general things to consider.
The first thing to ask yourself is what you want the money for. You said it is from the proceeds of a house sale. Was this your own home and do you intend to use it to buy another house?
If so, you need to keep it safe and avoid taking risks with the money, as you will need it for that purchase. If not, and this was an investment property or inheritance, you may think that earning a decent return takes priority over protection.
If you don’t need it for a while, consider investing it. This could either be into the stock market, or government or company bonds, but you don’t need to cherry pick individual shares yourself – that job can be outsourced to either a fund manager, or a tracker fund that just follows a stock market index.
Investing is where you’ll get the most growth, but you will have to take a risk that you could see a decline in your pot at some point. Typically, to do this you need to have at least a five-year horizon.
However, it’s unwise to invest in the stock market if you need the money soon because a sharp move in share prices could wipe out a large chunk of your savings.
If you will need the money soon, you’re best off using a savings account, and the best-paying instant access accounts are RCI Bank and Virgin Money, both offering 1.3 per cent.
But there are a few things to consider.
The Financial Services Compensation Scheme will protect the first £85,000 you hold with any one bank or building society that is signed up to the scheme if it goes bust.
That means you will have to spread your money around four savings providers to ensure all your £250,000 savings are covered.
But be careful, because some providers share the same FSCS licence, such as AA, Bank of Ireland and Post Office.
So if you have accounts with all three, make sure you don’t exceed the £85,000 limit.
You can find a list of the firms who have the same FSCS licence at bankofengland.co.uk.
If you don’t want to place your money in several accounts, you can put all of it with National Savings & Investments and every penny of your money will be guaranteed.
Its easy-access direct saver is currently paying 0.95 per cent while premium bonds pay the equivalent of 1.4 per cent.
Splitting the money
Deciding what you do with this money is not an all or nothing affair. It may be that you need some of it short term, or are willing to risk investing a small part of it to earn a better return but not all of it.
This could mean putting some money into savings and some into investments. Again, it is wise to see a financial adviser, particularly if you are unsure what you are doing.
What if you invest yourself?
If you do go down the route of investing it yourself, then there are some choices to be made. First it is wise to think about what you are doing and why, so read our guide to creating an investment plan.
There are a wide variety of investment services on offer online and they can be split into two main groups.
The traditional option was to sign up to a DIY investing platform, such as Hargreaves Lansdown, AJ Bell, or Fidelity, that lets you buy and holds shares, funds, and investment trusts. With these you must pick your own investments and look after them.
A new breed of services are the digital wealth managers, known as robo-advisers, which have tools to assess your risk and then build a portfolio that is then automatically managed for you.
Most DIY investing platforms now offer a helping hand to choose investments, with either lists that select what they see as the best funds, or model portfolios constructed by their experts. For ideas on where to invest, check our 50 best funds round-up.
You can invest in more than one of these services, but only with a general account. If you put money into an stocks and shares Isa with them you can only pay into one account each tax year.
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