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.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
You'll need £220,000 for a minimum wage in your retirement
Questions of Cash: I checked in with Air France in time and still missed the plane
Minister's pension promise to firefighters challenged
Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along
- 1 Planes go hybrid-electric in important step to greener flight
- 2 Antonio Martin shooting: Police and protesters clash over teenager's death just five miles from Ferguson, Missouri
- 3 Northern Lights above Britain: Stunning Aurora Borealis illuminates Northumberland sky on Christmas Eve
- 4 British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
- 5 New route to Mars could make manned mission much cheaper and easier
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
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