Your Money: Windfall Special - How not to blow it
Pay off the overdraft, credit cards and loans
Robert Guy, technical director at the independent financial advisers John Charcol, favours first paying off debts.
Getting a windfall is is similar to someone getting an inheritance and I would suggest a client should follow the same procedure as they would if they had inherited a lump sum. The first thing to look at is short- term debt reduction, such as paying off an overdraft, or credit cards, personal loans or any HP agreements you may have.
That's a good use of the money as it will reduce your outstanding debts in the long term. Financially I think it make the most sense and means you'll be doing some some real good with your windfall.
If there is cash left over I would take a close look at a client's circumstances. I tend to take opportunities in tax relief order and would therefore look at pensions first. I would consider the scope of making a one-off payment into a pension to get the full tax relief, which would give a real long-term benefit from this windfall. Then I would look at Tessas and PEPs, for those people who are prepared to tie up the cash for any length of time.
Go for one of the remaining societies and hope
Simon Holt, managing director of Skipton Financial Services, independent financial advisers owned by the Skipton Building Society, also advises looking out for potential future windfall bonuses.
As a short-term investment I would recommend choosing one of the mutual building societies. A recent Which? survey highlighted the typically higher rates paid by the mutuals, and this would also give the opportunity for further windfall bonuses if the society subsequently demutualises.
For the longer term I would suggest considering the AIG Bonus Bond, which is a six-year investment with minimum guaranteed growth on maturity of more than 5 per cent each. The bond offers a maximum potential return of 16.25 per cent for each year that the FT-SE 100 index and the American S&P 500 index do no fall. There is a small initial charge of 2 per cent payable on the bond, but the combination of guaranteed returns plus potential of stock market linked extra growth makes the product suitable for a cautious investor. I would also recommend a look at PEP investments.
Despite some predictions to the contrary, the UK stock market has reacted favourably to the change of government. Although most PEPs are linked to the stock market, some providers, such as Legal & General, offer capital returns on their PEPs at the end of five years, with potential for real profit if the markets rise.
For those not requiring capital guarantees I would suggest a balanced- risk PEP such as the GT Income, which has an excellent long term performance record under the fund management of Nick Train.
Try an income bond for a long-term investment
Stephen Dight, an independent financial adviser with Grosvenor Financial Services of Henley-on-Thames, says any strategy he proposed would depend on the individual client.
If anyone had sold their shares then it would suggest they are a conservative investor. So I would suggest a strategy which broke down between long- and short-term savings. If they want fairly immediate access to their money then the building society is still a logical home.
It might be interesting to put the windfall cash in a few different building societies to have another go, as it were, at benefiting if any of them decide to go public. For that reason it does not make any sense to leave the cash in those building societies which have already issued their shares.
If a client was more interested in tying things up for a longer period I would suggest a guaranteed bond or income bonds or even National Savings. The bonds issued by insurance companies look good at the moment. Scottish Mutual, for instance, has just launched a 10-year bond which looks quite attractive.
If a client were to go the equity route I would suggest a PEP such as the Skandia Multipep because it divides the function between PEP provider and fund manager and therefore gives much more choice and spread over the investment funds available.
- 1 Malaysia Airlines MH17 crash: Pro-Russian rebel 'admits to shooting down plane'
- 2 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
- 3 Israel-Gaza conflict: The myth of Hamas’s human shields
- 4 Amy Winehouse unpublished 2004 interview: ‘Ten years from now I’ll be 30, so I’ll maybe have one baby’
- 5 Dutch paedophile club to fight their ban at the European Court of Human Rights
Malaysia Airlines flight MH17 crash: 'Nine Britons, 23 Americans and 80 children' feared dead after Boeing passenger jet is 'shot down' near Ukraine-Russia border
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...
£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...
£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...
£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...
Day In a Page
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar