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I'm turning 21 years old soon and have an inheritance coming into my control to the value of approximately £60,000. I'm full-time employed, as a Software Developer in a Financial Services company. I have aspirations of buying a house fairly early on in life, but I don't know if it's the right time yet. I also think I might travel for 6-12 months in the next year or two.

I'm looking for ideas and suggestions on how I should effectively deploy this money to either get a good rate of interest/return, or if I should try and get a mortgage as soon as possible.

I've already considered the following options:

  • Buying ISAs (both Stocks & Shares and Cash) - This will take time to get all the money in accounts because of the ISA limits, and the interest rates aren't incredible, but the tax break is appealing.
  • Investing in stocks myself - I'd be looking at long term and dividend stocks, as I don't have time to micro-manage a portfolio trying to play intraday trades and shorts etc.
  • Throwing the whole amount into a wealth management fund and allowing someone else, with time and experience at their disposal, to do their job.
  • Taking out one or many Savings Account(s) and looking for the best deal in that market.

I'm open to all suggestions, specific to the options I've specified, or avenues I haven't already considered. As it stands the money is in a Wealth Management Trust Fund (approx. 12% gain over 6 years so far) and will remain with that Fund until I decide to do something else with it.

Thanks in advance for your replies.

  • For the current fund the money is in, is it 12% gain total over the 6 years? Or 12% per year? – EkoostikMartin Feb 10 '15 at 16:36
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    I have some magic beans that I would love to tell you more about... – Code Whisperer Feb 10 '15 at 20:18
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    @itcouldevenbeaboat How many beans do you have? – rbrtl Feb 11 '15 at 11:31
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    The investment advice below is pretty good especially Chris' comment. As for travel advice there is no better website to get you started than travelindependent.info – rhaskett May 21 '15 at 20:18
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    Heh, good one Joe. An interesting thing though: say OP bought a little flat today. Say OP got a tenant, and turned out to be "ultimate tenant from hell" - the tenant utterly destroys the flat. What would this mean in 10 or 20 years? Nothing. Not a single thing. It would just be a funny story from the past, a small hiccup or setback, irrelevant after a few years. It's just very hard to beat the enforced stability and enforced saving that comes with a bit of real estate. – Fattie Nov 25 '16 at 15:05
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What a lovely position to find yourself in! There's a lot of doors open to you now that may not have opened naturally for another decade.

If I were in your shoes (benefiting from the hindsight of being 35 now) at 21 I'd look to do the following two things before doing anything else:

1- Put 6 months worth of living expenses in to a savings account - a rainy day fund.

2- If you have a pension, I'd be contributing enough of my salary to get the company match. Then I'd top up that figure to 15% of gross salary into Stocks & Shares ISAs - with a view to them also being retirement funds.

Now for what to do with the rest... Some thoughts first...

House: - If you don't want to live in it just yet, I'd think twice about buying. You wouldn't want a house to limit your career mobility. Or prove to not fit your lifestyle within 2 years, costing you money to move on.

Travel: - Spending it all on travel would be excessive. Impromptu travel tends to be more interesting on a lower budget. That is, meeting people backpacking and riding trains and buses. Putting a resonable amount in an account to act as a natural budget for this might be wise.

Wealth Managers: "approx. 12% gain over 6 years so far" equates to about 1.9% annual return. Not even beat inflation over that period - so guessing they had it in ultra-safe "cash" (a guaranteed way to lose money over the long term). Give them the money to 'look after' again? I'd sooner do it myself with a selection of low-cost vehicles and equal or beat their return with far lower costs.

DECISIONS: A) If you decided not to use the money for big purchases for at least 4-5 years, then you could look to invest it in equities. As you mentioned, a broad basket of high-yielding shares would allow you to get an income and give opportunity for capital growth. -- The yield income could be used for your travel costs. -- Over a few years, you could fill your ISA allowance and realise any capital gains to stay under the annual exemption. Over 4 years or so, it'd all be tax-free.

B) If you do want to get a property sooner, then the best bet would to seek out the best interest rates. Current accounts, fixed rate accounts, etc are offering the best interest rates at the moment. Usual places like MoneySavingExpert and SavingsChampion would help you identify them. -- There's nothing wrong with sitting on this money for a couple of years whilst you fid your way with it. It mightn't earn much but you'd likely keep pace with inflation. And you definitely wouldn't lose it or risk it unnecessarily.

C) If you wanted to diversify your investment, you could look to buy-to-let (as the other post suggested). This would require a 25% deposit and likely would cost 10% of rental income to have it managed for you. There's room for the property to rise in value and the rent should cover a mortgage. But it may come with the headache of poor tenants or periods of emptiness - so it's not the buy-and-forget that many people assume. With some effort though, it may provide the best route to making the most of the money.

D) Some mixture of all of the above at different stages...

Your money, your choices.

And a valid choice would be to sit on the cash until you learn more about your options and feel the direction your heart is pointing you.

Hope that helps. I'm happy to elaborate if you wish.

Chris.

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    I don't get the travel advice. He can do whatever he wants. The rest is pretty bland too. – blankip Feb 10 '15 at 18:04
  • this answer looks at a lot of different options in a fair manner – Code Whisperer Feb 10 '15 at 20:24
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    I'm afraid experience and life create blandness. It's a youthful enjoyment to piss £60k away, sure... but to use it moderately to ensure a wealthier future, that is indeed blandly sensible. And whilst I'm here - the travel advice was not meant to confuse. Simply my observation when I have travelled that staying in expensive hotels and flying everywhere limits your ability to interact with others. It tends to be those interactions that actually make the holiday memorable. Hope that removes the confusion. – Chris Feb 10 '15 at 23:42
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    -ArthurDent I didn't think you would. Asking the question on this board shows a level of maturity beyond your years. – Chris Feb 11 '15 at 11:09
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    -blankip My answer was directed at your short and unhelpful remarks. Having checked a few more of your answers, I can see your attitude to investing and risk are very adventurous. I understand now why my reply seemed bland to you. I believe you are in a minority in your beliefs. – Chris Feb 11 '15 at 11:11
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Myself I am in a similar position. I've had a few good conversations about this with people in the financial services industry.

It all depends how much time you want to spend on yielding your profits and how much risk you would like to take. High time and high risk obviously means higher expected gain, but also has a high chance of creating a loss.

Option 1: You could buy a home now and take out a mortgage with a high down payment (thus lower interest rates) and rent it out. By the time you are ready to have your own house, you can decide to either take out a mortgage on your second house and make money off your first house, and keep renting it out. Or you could move in there yourself.

If you use an asset-back mortgage (i'm not sure if that is the term, but a mortgage where in the worst case you give your home back to the bank), you generally carry least risk. If you keep doing this you can have 2 houses paid off if everything goes well.

Option 2: You could also invest in stocks. This all depends on the risk you want to take and the time you want to put in it.

Option 3: You could also put the money in a savings account. Some banks will give you better interest rates if you lock the money for a set amount of years.

Option 4: You could buy a foreclosure and try to flip it, though this is very risky and requires a lot of time.

Also, it is important to also have some sort of emergency fund, so whatever you do, don't spend all your money. Save some for a rainy day :-)

Hope it helps..

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It's important to consider your Investor Profile when deciding the right kind of vehicle for your finances.

You are a young guy, with a considerable earned income and no dependents (sorry, this was not clear from the question.) This means that you are able to take a lot of risks that people who also have a family to think about, might not.

  1. Young professional
  2. High income
  3. No dependants

== high risk tolerance

You should definitely not put your money in a Wealth Management fund or Mutual Fund or any other 'hands-off' vehicle. These typically have worse returns than the FTSE itself. Their popularity is due to an amazing marketing job and the fact that people in general want to believe there is an easy way to grow their money.

Probably the best vehicle for your money is property, so the first thing you should do with the money is hire a competent accountant and solicitor.

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    Given that the questioner is British, you might want to translate this into English rather than American. We don't have attorneys, real estate or the S&P over here. – Mike Scott Feb 10 '15 at 20:48
  • @MikeScott Forgivem e lack of culture. Perhaps you could edit the answer to include both isms? – Code Whisperer Feb 10 '15 at 20:49
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Depending on where you live in the UK, buying a house sooner might be a better option. I would echo the advice about putting some money away into a "rainy day" fund etc. above but I know that in my area house prices are going up by around 7% per year. I bought a house two years ago and I'm paying 4% interest on my mortgage so I'm effectively making money by owning my house.

Given that you want to buy a house soonish, if your money sits in an account somewhere making no interest, you're effectively losing 7% of your cash each year by not keeping up with house prices, meaning you'll be able to afford a smaller house with the same money.

Do bear in mind though that buying a house costs around £4k in lawyers fees, surveys, mortgage setup fees etc. and selling a house can be more since estate agents will take a % of the sale cost.

If you live somewhere where house prices are not increasing as quickly then this will not be as good an option than if you live in e.g. London where house prices are currently skyrocketing.

If you don't want to live in the house, you may be able to do a buy-to-let as an investment. Generally the rent will cover the mortgage payments and probably a letting agent/property management company's fees, so while you won't see any actual net income, the people renting will be paying the mortgage off and you'll be building equity on the home. It's not entirely without risk though as tenants can trash homes etc.

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The above answers are great. I would only add to the "rainy day" part, that even though the cash provides a good cushion, "a stormy day" could mean even losing those emergency savings to the unignorable randomness that governs the world economy. Though unlikely, what happened to the russian ruble and the latest decision of the swiss cental bank are just two recent reminders that uncertainty must be treated as a constant. I would therefore advise you to invest some of the money in land capable of agriculture. How expensive is land over there in the UK?

  • As I'm sure you can appreciate, the UK is a small island and as such our land is overpriced unfortunately. – dooburt Feb 12 '15 at 16:21
  • @dooburt Tahiti is a small island, you probably mean population density. Germany has a greater population density than the UK, but still has decent land prices in some parts (obviously not banana republic levels). Im curious, whats the lowest price you can get over there? – nomadStack Feb 12 '15 at 19:37
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I assume you've no debt - if you do then pay that off.

I'd be tempted to put the money into property. If you look at property prices over the past 20 years or so, you can see returns can be very good. I bought a house in 1998 and sold it in 2003 for about 110% of the purchase price. Disclaimer, past performance is no guarantee of future returns!

It's a fairly low risk option, property prices appear to be rising currently and it's always good to get your foot on the housing ladder as quickly as you can as prices can rise to the stage where even those earning quite a good salary cannot afford to buy.

Of course you don't have to live in the house, a rental income can be very handy without tying you down too much.

There are plenty of places in the UK where £60k will buy you a reasonable property with a rental income of £400-£500, it doens't have to be near where you live currently.

Just to put a few more figures in - if you get a house for £50k and rent it for £400 a month (perfectly feasible where I live) then that's very close to a 10% return year on year. Plus any gains made by the price of the house.

The main downside is you won't have easy access to the money and you will have to look after a tenant if you decide to rent it out. Also if you do buy a property make sure it is in a good state of repair, you don't want to have to pay for a new roof for example in a couple of years time.

Ideally you would then sell the house around the time property prices peak and buy another when they bottom out again. Not easy to judge though!

I'd review the Trust Fund against others if you decide to keep it there as 12% over 6 years isn't great, although the stock market has been depressed so it may compare favouribly.

Keep some "rainy day" money spare if you can.

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