£5000? How to get a good return?

[sue denim]

A relative of mine has had an £5000 isa for 5 years and it has given a yield of £500. 10% over five years doesn't seem much.

She is thinking of cashing in said isa and investing elsewhere.

If you had a spare £5000 what would you do with it to create a good return?.

I am at a loss as to what to suggest.

Your thoughts greatly appreciated.

Regards

Sue

 

[t8hants]

Buy some form of standard collectable that you enjoy the ownership of, and not one that is enjoying a fashion hike. You then have the enjoyment of ownership/use and will get a 20% - 30% return and no tax. For me a classic motorbike would be the thing, antiques are too much of a minefield.

 

[paulm]

Agreed Sue, it's a very poor return.

I'm no expert but recent research I've done shows that many of the cash ISA's have their headline interest rates boosted in the first year or so by one-off extra bonuses, and that after that the rates fall dramatically. The point being that you have to research them again each year and transfer the money to a new ISA each year if necessary to keep getting the best rates. The kind of return your relative has got suggests that they have left it in one place for the duration and the rate must have been very poor indeed ?

It doesn't mean they should dismiss ISAs as a concept, just that they need to be more active and savvy in managing them perhaps.

Worth thinking about premium bonds too, any winnings are tax free, the capital is safe and easily accessible at quite short notice if wanted, and always the chance of winning larger as well as smaller sums

I'm not an investment advisor though obviously so just my own personal thoughts/experiences !

Cheers, Paul

 

[StevieB]

It denends on how mush risk your friend wants to take regarding getting back less than she invested. If she wants a safe investment then returns will be smaller but secure. 2% return is not bad - you get it for doing nothing after all! If you want instant access to your cash and a safe investment you are not going to do much better than that. If you are happy to lock it away so you cannot touch it then most banks and building societies offer bonds of between 1 and 5 years with tiered interest rates and these are also secure investments in that you will get back your money plus guaranteed interest. On the above two options there are also no fees to pay.

If you happy to risk your capital, then you can consider stocks, shares and investment funds of all sorts of decriptions. Again some banks offer these services or you can find an investment manager to manage the funds for you (and both will take a % for doing so).

So:

Decide whwether you want access to the funds immediately
Decide how risk averse you are in terms of losing capital (are you investing to make money or simply saving the capital for a rainy day)
Decide whether you want to pay a % for someone to manage it for you then go for it

suddenly 2% guaranteed might not be so bad after all!

Steve

 

[misterfish]

It depends what they need the £5000 for. If it is an important part of their savings then it should be in something safe (like an ISA). You can get a rate of 4.15% for 5 years which would give a return of about £962. This is only really suitable if you can lock your money away without needing access for the investment period. Otherwise, higher interest savings accounts will give a lower rate and be liable for income tax (at source). The thing with many accounts is they offer a high rate for an initial period (usually a year) so you need to keep on top of things and move cash to a new account when rates drop. Of course we don't know what will happen to future interest rates.

Collectibles are fine - but you need to know what to buy and what will hold value - some things seem to lose their popularity and value. So what else - jewellery maybe, but you need to buy from somewhere trustworthy. Or maybe gold coins - British sovereigns and Brittanias have no tax liability on buying or selling (as they are considered currency) - bullion coins (bought for their gold value) are always in demand but the value is dependent on the world market.

I suppose if we knew what would give a high future return then every one would be going down that route. Basically the higher the potential return the greater the risk (unless you're a senior/investment banker).

Misterfish

 

[bugbear]

Buy some form of standard collectable that you enjoy the ownership of, and not one that is enjoying a fashion hike.

Nice trick if you can do it. Not for widows an orphans though.

All collectibles are terribly vulnerable to the whims of fashion, since they have little intrinsic value.

Remember classic cars?

BugBear

 

[Harbo]

Lots of ISAs offering 3% for a year and savings schemes too - but you have to be prepared to look around again after 12 months.


Rod

 

[woodbloke]

If it's for a long term (10 years) investment, I've put quite a lot into a Hargreaves Landsdown portfolio of their 150 best performing equities. They send you all the info and it's dead easy to do over the 'phone. I know very little about this sort of thing, but my youngest brother (who is the MD of Schroders in the City) gave me some excellent advice on where and how to place investments. If you want to make money, you need to spread the risk over lots of areas (Emerging Markets, Asia etc) and leave it...don't panic and withdraw funds when they dip, which mine have done now to the tune of about £400. Cash ISA's are good (I have one of those as well) but the returns over a longer period are negligible, as you've found out.

Edit: do any investments yourself, it really is dead easy over the 'fone. Do not, say again, do not go to your local FSA and get them or him to do it for you as they'll charge up to 5%, depending on circumstances - Rob

 

[DIY Stew]

Spread the money out, don't put all your eggs in one basket. ISA's are ok but look closely at the interest after the first year, I would also look at precious metals (gold). It really depends on how long you want to tie up the cash. Some good sound advice has been given above, but me personally I would stay away from collectables, fashions are unpredictable and you could make a loss.

I must point out I have a limited knowledge of investments other than advice I have been giving in the past.

Stew

 

[RogerM]

If it's for a long term (10 years) investment, I've put quite a lot into a Hargreaves Landsdown portfolio of their 150 best performing equities. They send you all the info and it's dead easy to do over the 'phone. I know very little about this sort of thing, but my youngest brother (who is the MD of Schroders in the City) gave me some excellent advice on where and how to place investments. If you want to make money, you need to spread the risk over lots of areas (Emerging Markets, Asia etc) and leave it...don't panic and withdraw funds when they dip, which mine have done now to the tune of about £400. Cash ISA's are good (I have one of those as well) but the returns over a longer period are negligible, as you've found out.

Edit: do any investments yourself, it really is dead easy over the 'fone. Do not, say again, do not go to your local FSA and get them or him to do it for you as they'll charge up to 5%, depending on circumstances - Rob

This would be my approach as well for any time frame over 5 years. Unfortunately with inflation running at over 3%, and 2% being par for the course in cash savings there is currently 100% chance of losing money in terms of its buying power if you invest in cash. There are plenty of FTSE 350 companies out there paying over 4% dividend and with no track record of cutting their dividend. I would pick 6 or 7 shares from different sectors and where the dividend is well covered ie. they can afford to pay it with room to spare. So for instance I would pick a share from pharmaceuticals, tobacco, telecoms, aerospace, oil, food and household goods. I'd avoid high street retailers - they're shot to b*****y ( a technical term). It will be possible to pick a share from each of these sectors yielding over 4.5% and where it normally increases each year at MORE than the rate of inflation.

Share prices rise and fall at the whim of the market and no one knows which direction it will head next. Dividends however are much more stable. Companies are normally reluctant to cut their dividends, and try to increase them each year. If a company is paying a decent dividend and increasing it each year, then the capital value normally follows in the long term - and in the short term does it matter? If the income (dividend) is rising then eventually the share price should follow - and if it doesn't, if the dividend is rising steadily year on year then you're still getting a decent return.

If all that sounds like hard work then an alternative could be to choose an investment trust that follows the same philosophy. An investment trust is simply a company whose sole purpose is to invest in the shares of other companies according to their objectives. So for example, the City Of London Investment Trust invests in shares paying a decent dividend, currently yields 4.13% and has increased its dividend every year for the 44 years it's been in existence.

NB. THIS IS NOT INVESTMENT ADVICE, JUST AN EXPRESSION OF OPINION. DO YOUR OWN RESEARCH.

 

[doorframe]

Any spare that becomes available goes straight into premium bonds, and any winnings also go straight back in. Got at least 50 x more in the last year than I got from my bank in the last 5 years. And always the chance of a 'biggie' without buying a lottery ticket.

No risk. You never lose your money and it's tax free. For me it's a no-brainer.

Roy

 

[RogerM]

In the long term premium bonds give a return of about 1.5% - so you're still losing money with inflation running at over 3%. True, you can dream of "the BIG ONE" but chances are vanishingly small.

 

[woodbloke]

If it's for a long term (10 years) investment, I've put quite a lot into a Hargreaves Landsdown portfolio of their 150 best performing equities. They send you all the info and it's dead easy to do over the 'phone. I know very little about this sort of thing, but my youngest brother (who is the MD of Schroders in the City) gave me some excellent advice on where and how to place investments. If you want to make money, you need to spread the risk over lots of areas (Emerging Markets, Asia etc) and leave it...don't panic and withdraw funds when they dip, which mine have done now to the tune of about £400. Cash ISA's are good (I have one of those as well) but the returns over a longer period are negligible, as you've found out.

Edit: do any investments yourself, it really is dead easy over the 'fone. Do not, say again, do not go to your local FSA and get them or him to do it for you as they'll charge up to 5%, depending on circumstances - Rob

This would be my approach as well for any time frame over 5 years. Unfortunately with inflation running at over 3%, and 2% being par for the course in cash savings there is currently 100% chance of losing money in terms of its buying power if you invest in cash. There are plenty of FTSE 350 companies out there paying over 4% dividend and with no track record of cutting their dividend. I would pick 6 or 7 shares from different sectors and where the dividend is well covered ie. they can afford to pay it with room to spare. So for instance I would pick a share from pharmaceuticals, tobacco, telecoms, aerospace, oil, food and household goods. I'd avoid high street retailers - they're shot to b*****y ( a technical term). It will be possible to pick a share from each of these sectors yielding over 4.5% and where it normally increases each year at MORE than the rate of inflation.

Share prices rise and fall at the whim of the market and no one knows which direction it will head next. Dividends however are much more stable. Companies are normally reluctant to cut their dividends, and try to increase them each year. If a company is paying a decent dividend and increasing it each year, then the capital value normally follows in the long term - and in the short term does it matter? If the income (dividend) is rising then eventually the share price should follow - and if it doesn't, if the dividend is rising steadily year on year then you're still getting a decent return.

If all that sounds like hard work then an alternative could be to choose an investment trust that follows the same philosophy. An investment trust is simply a company whose sole purpose is to invest in the shares of other companies according to their objectives. So for example, the City Of London Investment Trust invests in shares paying a decent dividend, currently yields 4.13% and has increased its dividend every year for the 44 years it's been in existence.

NB. THIS IS NOT INVESTMENT ADVICE, JUST AN EXPRESSION OF OPINION. DO YOUR OWN RESEARCH.

The problem is Rog, which do you pick and how do you know? The H&L '150 Best' is easy to follow and very easy to see what's doing well. I've got my money in a lot more than 7 funds ranging from Schroder Tokyo through to Blackrock Gold. I agree it's not investment advice, but the advice from my brother (who's at the top of the game and knows it inside out) recommended H&L as one of the best firms to use. That said, very little in the investment area seems to be doing well at the moment but it will pick up...we just need to be patient and watch the markets. Agree about PB's...no hopers - Rob

 

[doorframe]

In the long term premium bonds give a return of about 1.5% - so you're still losing money with inflation running at over 3%. True, you can dream of "the BIG ONE" but chances are vanishingly small.

Agree about PB's...no hopers - Rob

Well, a quick calculation shows I've had over 10% this past year. I hope next year is another no-hoper.

With the small amount I had, the bank was only paying pennies. The PB's pay pounds. I'll never be a money-man, so I know I'd get any investments wrong and just lose my money. I wont pay a wizz-kid adviser. Just don't trust them to have the customers welfare as their main priority. And I certainly can't afford to chance losing what I've got.

Roy

 

[doorframe]

RogerM and Woodbloke, it's obvious you both are quite savvy when it comes to money.

My account at Lloyds is a bog standard debit card account in joint with my wife. With around £5000 (about the same as the OP's friend) we never got more than about £3 interest in any year. Every year when we filled out my wife's self assessment, we would put in the interest and laugh in disbelief at the ludicrously small amount. Lloyds standard response was to advise us to get ISAs and tie up our money. We left a float in the account an put the rest in PB's.

In the last year we have had over £700 from premium bonds, which has all gone straight back in.

So, my question is, what type of account can I have that doesn't tie up my 5-6000 and gives a much better return.

Cheers,

Roy

 

[woodbloke]

RogerM and Woodbloke, it's obvious you both are quite savvy when it comes to money.

My account at Lloyds is a bog standard debit card account in joint with my wife. With around £5000 (about the same as the OP's friend) we never got more than about £3 interest in any year. Every year when we filled out my wife's self assessment, we would put in the interest and laugh in disbelief at the ludicrously small amount. Lloyds standard response was to advise us to get ISAs and tie up our money. We left a float in the account an put the rest in PB's.

In the last year we have had over £700 from premium bonds, which has all gone straight back in.

So, my question is, what type of account can I have that doesn't tie up my 5-6000 and gives a much better return.

Cheers,

Roy

Roy, I'm afeard that you're wrong about me being savvy with money...I'm not, but my brother is! I can't really answer your question (maybe Rog could) but my very limited experience is based on my youngest brothers advice. I initially went to an FSA who calculated my 'risk' assessment base on the markets and then came up with a portfolio of investments with a return that was a little better than a current account. When I showed it to my bro he just shrugged and said it was absolute sh&te and told me that to make money, lots of it, you need to invest long term (10 years or more) and spread the risk across many diverse funds. I gave H&L a ring (they've got a good website as well) and their newsletter with the 'Best 150' investments dropped onto the mat in a couple of days. It took me an afternoon to go through and pick my funds and then 30 mins on the phone to make the purchases. You can also track how each of the funds is doing on-line...but the main thing is to leave it there in the funds and not to panic and withdraw everything when the markets dip, which they're doing at the moment - Rob

 

[bugbear]

I know very little about this sort of thing, but my youngest brother (who is the MD of Schroders in the City) gave me some excellent advice on where and how to place investments.

Not with Schroders!! I had a Schroder ISA thingy for ages, and it wobbled all over the place without actually growing much.

Unless (of course) the staff at Schroders are spending all their time advising relatives...

BugBear

 

[woodbloke]

I know very little about this sort of thing, but my youngest brother (who is the MD of Schroders in the City) gave me some excellent advice on where and how to place investments.

Not with Schroders!! I had a Schroder ISA thingy for ages, and it wobbled all over the place without actually growing much.

Unless (of course) the staff at Schroders are spending all their time advising relatives...

BugBear

Yebut BB, you have to know which Schroders investments to go for...some do well and others not so well. It's picking them that's the game :wink: - Rob

 

[RogerM]

RogerM and Woodbloke, it's obvious you both are quite savvy when it comes to money.

My account at Lloyds is a bog standard debit card account in joint with my wife. With around £5000 (about the same as the OP's friend) we never got more than about £3 interest in any year. Every year when we filled out my wife's self assessment, we would put in the interest and laugh in disbelief at the ludicrously small amount. Lloyds standard response was to advise us to get ISAs and tie up our money. We left a float in the account an put the rest in PB's.

In the last year we have had over £700 from premium bonds, which has all gone straight back in.

So, my question is, what type of account can I have that doesn't tie up my 5-6000 and gives a much better return.

Cheers,

Roy

That's a difficult one to answer Roy. The trouble is that we're living in a time of record low interest rates (lowest for over 300 years) and borrowers seem to think they have a divine right to them at the expense of the savers who provide the raw material - i.e. the cash to lend. When I was afirst time buyer in 1978 I had to pay 17%, and the average rate I paid over the term of the mortgage was 12%. Today there are plenty of deals around 3% which is a rate I could only dream of.

The best rate today will not necessarily be the best deal next week so be prepared to chase around periodically to improve the deal. Typically the best rates now include a 12 month bonus so that you'll need to look around again next year, a bit like you have to do with your motor or house insurance - i.e be a rate tart! As good a place to start as any is Money supermarket.com. You'll normally get the best rate online rather than over the counter on the high street.

What is best for you to do is entirely dependant on your circumstances and time frame. I am retired and in receipt of an occupational pension, but not a state pension yet. I need an income from my capital and the approach I outlined in my first post is designed with that in mind. I want to know approximately what my income will be for the year ahead to help me plan, and I want it to rise each year - which won't always happen if I rely on interest from cash. This is important because even with inflation at 3.5% prices will double in 20 years which would make interest from savings halve in value as it will no longer buy the same goods in 20 years as it does now. I refuse to accept a steadily declining standard of living as inevitable so my approach is designed to provide a rising return. I am getting iro 4.5% which is increasing each year and I'm happy with that - and I can plan ahead.

The problem is Rog, which do you pick and how do you know? The H&L '150 Best' is easy to follow and very easy to see what's doing well. I've got my money in a lot more than 7 funds ranging from Schroder Tokyo through to Blackrock Gold. I agree it's not investment advice, but the advice from my brother (who's at the top of the game and knows it inside out) recommended H&L as one of the best firms to use. That said, very little in the investment area seems to be doing well at the moment but it will pick up...we just need to be patient and watch the markets. Agree about PB's...no hopers - Rob

Aye - and there's the rub! :lol: You are lucky to have advice from someone who knows what he's talking about, understands your objectives, risk tolerance and approach, and who has no vested interest in getting you to follow his advice just to meet this month's sales target. The HL 150 Best system is fine - it's just that I prefer to select my own shares - even if I sometimes do take the easy way out and buy an investment trust that has the same objective as I do. Sure I have shares that I wished I'd never set eyes on (Tesco and Kenmare Resources) and others that I wish I had bought even more of at the time (British American Tobacco, Gold, Diageo, Reckitt Benkiser and Glaxo to name just 5). Overall I am up over the past 12 months by about 6% despite the market falling by 3.5% over the same period, and I've received about 4.5% in addition to that in dividends which is my income. I'm happy with that.

 

[woodbloke]

What is best for you to do is entirely dependant on your circumstances and time frame. I am retired and in receipt of an occupational pension, but not a state pension yet.

I agree with Rog. My position is slightly different in that I'm also retired but receive two final salary pensions each month, one from teaching and a smaller one from the MOD. As I'm a kept bloke :mrgreen: (hammer) (SWIMBO is still working) I could afford to invest long term in H&L equities as it doesn't have to provide an income, so any dividends that I accumulate get ploughed straight back into the funds. I also don't yet receive a state pension but when I do :-" ... - Rob