How to invest windfall after cancer diagnosis

[Shermo]

So I've never been the best saver or investor in the world, I've had a bit of good luck some of which was due to a little smarts but here's how I got to where I am now...

Graduated as a software engineer, lived with parents for 2 years, saved some cash up, invested in RBS shares in 2009, roughly trebled my money and after borrowing a little from family bought my first house for £70,000, spent a few years and £20,000 doing that house up. Sold that in 2013 for £115,000 and together with having made over payments had a nice deposit to put down on a house with my partner (a £235,000 home with around £200,000 mortgage! eep!)

Been slowing increasing payments on that house as our salaries have increased.

Anyway, not really being doing much in terms of saving except to save for holidays etc, obviously paying into my pension though. Just over a month ago I was diagnosed with skin cancer, nothing terminal but a real eye opener and obviously something to worry about going forward, but due to having two critical illness policies due big payouts (best investment ever!). I have received one payout, the second still waiting for them to process.

Now whilst dealing through the mental anguish of a scary diagnosis, I have the trouble of trying to figure out how to deal with around £250,000 :| The main policy was a joint one and my partner and I have agreed the most sensible thing is to pay down the remainder of our mortgage, minus a small amount to do some much needed refurb like new windows and a new boiler (which was already planned for next year anyway).

That still leaves me personally with a reasonably large sum to invest and I haven't a clue where to start. I've just picked up a copy of Investing Demystified by Lars Kroijer which I've started reading.

Obviously, normally someone would be looking to invest for the very long term, but given my recent diagnosis my real aim is to just get a reasonable ROI whilst keeping the cash reasonably accessible. Worst case scenario is the cancer spreading, I have to quit working (get 6 months full pay at work so that's really good), but still, I can't tie it all up at least for now in very long term investments.

Any tips for a UK based person would be greatly appreciated. I'm slowly reading through things on this blog and monevator too, both really good sites!

[BTDretire]

 My first thought, what is the interest rate on your mortgage.
Often your investments can earn more money than the interest rate
on a mortgage.
 In the US, if you have the money you can make investments that save you
taxes in the current year. Since you recently quit work, might be able to
invest your way to zero taxes, this year.
  I don't know the options in your country, but most would say invest in a
Total stock market index fund. This gives you diversity, thus avoiding single
stock risk and you grow at the rate the companies in you country grow.

[nobody123]

When you say "partner" do you mean a legal spouse?  I assume so, since you had a joint policy, but you also say you have a remainder to personally invest, so that confuses things a bit.  Are you married with separate finances?  The answers to those affect the advice I'd give.

[kiwigirls]

You have indicated having security and certainty is important given your health scare. It therefore makes sense to repay your mortgage in full (could you get a line of credit on the house for no monthly fee as a backstop if you later want to reaccess some cash?).  Of the remaining 50,000 put aside 6 months expenses as an emergency fund, perhaps on a 6 month term deposit to maximise interest rates and you won't need it immediatly as you get paid leave for 6 months.  With the remainder of the money you can start investing in equities - there is every chance you will live as long as the rest of us and you need equities to give you long term gains.  ETF are the way to go for low fees and exposure to the worlds markets.

[former player]

If you own the house jointly with your partner but your insurance monies pay off the whole of the remaining mortgage, how does that affect the ownership of the house?  What if you split up at some point in the future?

You may have difficulty in getting any future life/critical illness/health insurance.  Is that a potential issue, for instance if there is the likelihood of future children?

Moneysavingexpert.com gives advice and interest rates for UK savings - http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

[Shermo]

The interest rate on our mortgage is currently 3.79%, we are thinking currently we will pay off all but around £30,000 and use that money to do much needed work on the house.

I think kiwigirls is right, putting aside 6 months expenses in a simple savings account is probably a wise move. I'm still reading up on ETF's and bonds etc, slowly getting my head around these things. I think mostly I can avoid a lot of tax by doing all this via an ISA, although that gives me a limit of £15,000 for this tax year.

I'm not married so our affairs are separate, I'm not even sure there are financial benefits for being married or not in the UK anyway. The mortgage is joint, we have a joint account for all our bills, we just keep our spending money separate and I'll have £60,000 left from my personal critical illness policy to invest.

The biggest problem may be just doing it in a tax efficient way as dealing with lump sums is a little trickier than regularly saving? Something I will be doing more of going forward.

[nobody123]

Since you're not married, I'd have something in writing that explicitly says how you will divide the assets if you break up before doing anything.  Hopefully you already have that in place because you have a joint mortgage and bank account.

I'm don't know anything about the UK, but I'd be pretty sure to keep all of the money under my control if you're not married.  If the joint policy explicitly pays out to both of you (insurance company cuts two checks) when one of you gets sick, I would think that both of you using an equal amount to pay down the mortgage makes sense, especially if the intent of you purchasing the policy was to protect the other person.  If it actually just mails you a check if you get sick and you partner if they get sick, then I say the money is yours to do with as you wish and I wouldn't pay the mortgage down unless your partner could independently fund an equal paydown out of their personal funds.

[Dicey]

...my partner and I have agreed the most sensible thing is to pay down the remainder of our mortgage, but still, I can't tie it all up at least for now in very long term investments.

Sorry to hear about your cancer, Shermo. Speaking from personal experience, it has a way of making you appreciate the value of achieving FIRE as quickly as possible.

However, I must point out that the quote above is a complete oxymoron. Paying down the mortgage IS tying your money up in a long term and very illiquid investment. Advice from the BT,DT camp is: Don't do it. Invest a few hours with our pal jlcollinsnh.com and get yourself set up with a diversified, low cost portfolio. Let it earn the money to make the mortgage payments for you. Better still, leave all of it invested and continue to pay the mortgage with current cash flow.

[kiwigirls]

Diane C normally I would agree with your advice but in this situation the OP said "Worst case scenario is the cancer spreading, I have to quit working (get 6 months full pay at work so that's really good), but still, I can't tie it all up at least for now in very long term investments."   

If the worst happened (and we all hope it doesn't) there is a high risk that an equities portfolio would have lost money over a short term ie under 7-8 years and the full sum won't be there when they need it.  At least if the mortgage is paid down (with a line of credit in place to allow funds to be redrawn) he can be confident his partner isn't left with a huge debt and he can also access lump sums of money quickly if they want to attack the bucket list.