What to do with a windfall

Q I am 35 years old. I have nine years to run on my mortgage and no plans to move house. I have recently taken voluntary redundancy and have been lucky enough to secure a very good new job.

I have a lump sum of ?20,000 to invest and am in a position to save ?100 per month. I should be in receipt of an annual bonus in the region of ?5,000.

I am not a risk taker and up until now I have never had any money to save. I am at a loss as to what to do with the windfall. Could you advise me on some of the alternatives available to me over the next five years?

A A windfall is a nice problem to have.

You say that there is nine years to run on your mortgage, from which I assume it is a repayment loan and there would be penalties for early redemption. If not, you would save more money by reducing the mortgage than you are likely to earn from a "safe" investment, once tax has been deducted.

I am a bit puzzled about the reference to "over the next five years", as this suggests some sort of investment deadline. If this is not the case, bearing in mind your age, I would think pension plans should take priority when considering long-term savings. If your new employers do have a company pension, that should be worth joining and if you are not earning more than ?30,000 a year, you could consider taking out a stakeholder pension in addition to this.

Apart from pensions, you could consider putting the ?l00 a month into an individual savings account (Isa) investing in the share market, preferably via an investment trust with very low charges, for long-term capital growth tax free.

Investing on a monthly basis reduces the risk involved in shares considerably and you benefit from pound cost averaging as a result of more units being bought at low prices.

Finally, the ?20,000 windfall. I would suggest keeping around ?l0,000 in a no-notice internet deposit account as a rainy day emergency fund.

If it is not feasible to reduce your mortgage, the remaining ?l0,000 could go into one of the "guaranteed" products available at present which give exposure to the equity markets, but pledge a full return of original capital in five years time whether the markets rise or fall in value.