# How to invest lump sum



## goldenhog (13 Feb 2008)

We are a couple in our 30s with a baby on the way.  All of our savings (130k) is in various high interest deposit accounts.  We want to start investing for the mid / long term but neither of us has any experience of investing.  Where do we start?
FYI we both contribute AVCs although mine are not maximised, we have a mortgage of around E250 on a house valued about E370.  We could pay off more of the mortgage but we already have a fair bit of equity in it and I wonder whether it's wise to put all our money into the house.  Having said that, we'll have to pay the mortgage anyway.
Any ideas where we could start to help us make some decisions on how to start investing for the future?


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## irishlinks (13 Feb 2008)

I would definitely think about paying off some more of your mortgage to bring it down under 50% of the house value (i.e pay off 65k to bring it down to under 185k) You could then get a much lower rate on your mortgage  - such as 4.5% from NIB . It will save you more than you could probably make in interest on your deposit accounts after tax.


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## Ascent (13 Feb 2008)

You could talk with an independent adviser (not someone at your bank or building society) and you should research yourself. Read the guide to investing on this site (http://www.askaboutmoney.com/guide/index.htm). 

Important early questions like this [broken link removed] need to be answered (I have no connection with rabo). An adviser should take a lot of time to go through this type of discussion in detail - if they don't then don't use them, they will most probably sell you something you will regret buying.

Most investments which have the potential of higher returns have risks that's why people should be wary about talking about specifics before they understand the risks you want to take. Risk = potential to make money vs the potential to loose money - unfortunately one side goes with the other and the greater one, the greater the other. If you find an investment with no risk that beats inflation let me know. Some investments also have volatility that is they go down, then they go up, then they go down, but hopefully over some time are getting higher and higher in value but not taking the direct route. The speed and extent to which the go up and down is volatility. Don't invest in something very volatile if your investment going down in value periodically keeps you awake at night. Online access to the value does not help the situation.

People generally like the stock market because it is a game that never finishes i.e. you can generally stay invested until you "win" and over the last very large number of years things have generally on average have gone up a lot - so don't just buy one stock or if you have my luck you will buy the one that goes down.

Always ask about commissions and charges and compare the products on this basis also.

The first time I invested I bought 10 of the top 20 Irish stocks through a Davy on-line account each with 10% of my money. I kept them for a number of years and they did very well. The potential down side is illustrated by what happened to them between the beginning of last year and now but they are still up on when I bought them and will go up again.

At then end of the day you need to make up your own mind what to do, good luck and don't put all your money in one place.

Oh and if you decide to pay off some of the mortgage invest the repayment savings if you decide to keep the term the same otherwise you will spend it.


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## Marc (19 Feb 2008)

goldenhog said:


> We are a couple in our 30s with a baby on the way.  All of our savings (130k) is in various high interest deposit accounts.  We want to start investing for the mid / long term but neither of us has any experience of investing.  Where do we start?
> FYI we both contribute AVCs although mine are not maximised, we have a mortgage of around E250 on a house valued about E370.  We could pay off more of the mortgage but we already have a fair bit of equity in it and I wonder whether it's wise to put all our money into the house.  Having said that, we'll have to pay the mortgage anyway.
> Any ideas where we could start to help us make some decisions on how to start investing for the future?



Have you considered an offset mortgage? You are in a position to roughly half your loan to value.

These work by offsetting your savings against your borrowings thereby giving you a "risk free" rate of return equivalent to the mortgage rate. 

"risk free" is in inverted commas because it is an analytical term meaning this is your reference point. I.e you need to achieve at least your mortgage rate from any alternative investment you make to see any profit at all. 

The future value/equity in your property is not really a relevant consideration because:
a) you have to live somewhere
b) as you say, you would have to pay the mortgage anyway. 

This is therefore more of a consideration of the direction of future interest rates (which nobody can accurately predict) compared to the likely returns from an alternative investment strategy, which could make you more money, or could lose you money.

If you are wanting to play safe, reduce the borrowing, that would reduce your monthly outgoings which you could then use to fund a regular savings plan.

By putting a small amount of money into an investment each month, you would be taking less risk and benefit from the statistical advantage of an average investment price. I am assuming that you would buy an equity investment over the medium to long term.

BTW: I once asked a similar question to test the impariality of the advice of a range of high street banks. Needless to say, there was a great deal of resistance to recommend debt repayment rather than buying an investment. I wonder why?


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## goldenhog (20 Feb 2008)

Thanks for the advice.  I think the first thing I will do is look at paying off mortgage to get lower rate.

I'm still interested in investing 10 or 20k into a long term 'medium risk' type investment - how would I go about figuring out what that is?  I know Rabo have some investment products, should I just start there? Seems very accessible.


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## Jimbojones (20 Feb 2008)

If you have maxed out you tax advantages for pension contributions, for a less experienced investor reducing your mortgage down to a more favourable rate has to be your primary focus. Reading you post you seem keen to get into some form of investment for 10-20k but what you should really consider first is changes to your outgoings and income when the new arrival comes. In the short term with deposit rates so attractive I would postpone any investment decisions and revisit in 12 months when you have your new arrival and are more informed about your new financial position. Deposit rates between 5-7% seem difficult to beat in the short term so there is no rush. Best of luck with everything and enjoy parenthood.


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