'I have £150,000 from a house sale - what should I do?'

‘I have £150,000 from a house sale – what should I do?’

Ben Yearsley, Chief Investment Officer at Shore Financial Planning

The first thing I would do would be to put £50,000 in NS&I premium bonds. NS&I recently increased the prize rate of the prize to 2.2%, which means there is now a 1 in 24,000 chance of winning each month. That leaves £100,000. As this money will be used for a house deposit, I wouldn’t recommend tying up too much in longer-term investments.

Markets are volatile and if Ms. Palmer invested the full amount, she could easily go up or down 10% in a short time.

So I’d leave £50,000 of that in cash – now you can get decent instant access rates. As an example, Shawbrook Bank’s easy-access account pays 2.3% and this could increase further in the coming weeks as the bank has so far done well to pass on rate hikes. That leaves £50,000.

This is the hardest part because the time frame for buying a house in Cornwall is so uncertain. As Ms Palmer doesn’t know when she wants to buy, I think it’s fair to take some investment risk, with the caveat that the shorter the period she’s invested in, the greater the risk of losing money is big.

The first step is to set up a stock and shares Isa. I would then look at funds known as “capital preservation” investment trusts. By buying shares of these, you pay a professional to invest your money on your behalf in order to preserve its value. This is very attractive when markets are down and inflation is high.

Popular choices include Ruffer Investment Company and Personal Assets and Capital Gearing trusts. It’s also important to include some bond investments, as they help diversify how your money is spread and look like decent value today.

The Axa Global Strategic Bond and Premier Miton Corporate Bond Monthly Income funds are good options.

Daniel Hough, financial planner at RBC Brewin Dolphin

Ms Palmer is in a great position – with the sale of her two properties, she could be mortgage free in her 30s. However, I encourage her to reevaluate some of her plans, as she may be putting too many eggs in one basket. With a salary of £37,500 from her job and an additional £12,000 in annual rental income, Ms Palmer is set to be a higher rate taxpayer.

Any significant bonus or increase in her salary would tip her over the £50,271 threshold. While she is likely to make a significant capital gain on her own property in Nottingham, which she expects to sell for £250,000, the selling process will need to be carefully considered. It may well be worth selling her flat in Nottingham next year, otherwise she could incur a significant tax burden on top of the capital gains tax she is required to pay via her share in the second house in condominium.

The other point is how much of the potential £400,000 pot she should spend on buying the townhouse. If she needs the full amount, that leaves no room for possible refurbishment costs. If Ms Palmer only needs £300,000 for the property from a £400,000 pot, I would suggest investing the balance in a diversified portfolio of assets.

Alternatively, if she was planning to spend the full amount, it may be worth downsizing and instead buying a smaller property for herself so that some of the money can be used for non-property investments , such as pensions or Isa contributions.

Saving in a pension would also reduce his taxable income.

When it comes to investing, the absolute minimum time horizon we suggest is three years – or ideally between five and 10 years. Anything less and you are very limited in terms of what you can realistically invest in. For three years, I would still err on the side of caution and go for a low-risk portfolio. This could mean a 20% equity and 45% bond allocation, with at least 10 different funds in a variety of regions and sectors. The rest should be in cash.

Jupiter Strategic Bond and Allianz Strategic Bond funds are good options, while tracker funds that mirror the S&P 500 and FTSE 350 stock indices would be good starting points for equity exposure.

However, if Ms Palmer wants to try to beat the market, active funds such as BNY Mellon US Equity Income and Ninety One UK Equity Income could be good options.

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