Hello hello,
This is my first time posting on the forum, but I've been lurking for a long time - thanks in advance to you guys for being active on the forums, have picked up a lot of useful advice from here (and of course the main MMM blog) over the past few years.
My question: I have received a signficant lump sum (~£230k) and am wondering what to do with it.
The context is that I'm a PhD student in London, with just over a year left of my funding. Before the pandemic I was renting somewhere fairly central with friends, but I boomeranged back to my parents' place (which is ~45mins outside the city) when our lease expired in the summer - it just didn't seem sensible to sign onto a new lease when the rentals market in London was actually *rising* following the lockdown. I'd love to be able to move back in to London if possible; I don't necessarily have to, as we're all working from home, but my (social) life is there and, as I'm now in my mid-20s, I do feel like I shouldn't allow this move home to become a long-term thing. I'm also of an age now where I'd quite like to have a space to myself - if I couldn't find a studio/1 bed flat then I'd probably stay at home for a while rather than move in to a houseshare. The other thing to consider is that when my PhD comes to an end I will be looking for a job, probably as a post-doctoral researcher, and possibly outside of London.
The way I see it, my options are:
1) Set aside a year's worth of rent - on the order of £15k for a studio/1 bed in London - and put the remainder in a savings account.
Then when my PhD is up and I get a proper job I will have approx £215k available as a deposit, which plus mortgage would just about buy a reasonable 1 bed flat in London (upwards of £400k). This is the most conservative option and it really irks me to be both putting money in a landlord's pocket AND having my remaining money sit as cash.
2) Set aside a year's rent and put the remainder in the stock market.
Added to my existing portfolio, and assuming 4% withdrawal rate, this should yield approx £1000pm, which would cover the lions share of the rent of a 1 bed flat in London (£1400pm) and, if I were to move out of London subsequently, would probably then cover all of my rent. Of course the problem here is that the lump sum then becomes unavailable to use as a deposit in the short to medium term, in case I did want to buy my own place. I know we're not supposed to time the market but things aren't looking great economically at the moment, so I worry that this is financially more risky than usual at the moment. There's also the tax implications, because the investment would be greater than my ISA allowance, so are theoretically taxable - while I'm still a PhD student I think any income/capital gain would be less than my personal allowances, but as a longer-term strategy I suspect I would start having to factor in capital gains tax of 10% initially.
3) Buy a property as an investment.
This in some ways is a halfway house between the two options above - like the stocks option, my money would be invested rather than sitting as cash (at least if I find somewhere run down that I can add value to), and I would also be saving the money that I would otherwise spend on rent; but if I did want to get into investment property in a more serious way then this would perhaps provide a more natural progression than putting my money in and taking it out of stocks again. However, the major problem is that I can't get a mortgage as a PhD student so would have to pay cash, ruling me out of London. So this wouldn't help me get back in to town but I suppose I would at least have my own place and could have friends round. There's also, like stocks, a lot of Covid uncertainty around at the moment which perhaps means that my horizon at the moment - a year to the end of the PhD - is too short to be considering investments seriously at all.
Would really appreciate any thoughts you have on the above! Thanks again in advance.
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Details:
Income
I've got funding for my PhD which pays me a stipend of approx £27k p.a. until the end of Dec '21. Importantly, this is not taxable income, so the £27k is my take-home figure and also leaves me with all my personal allowances/savings allowances etc. unused (which may be relevant to the investment question).
Outgoings
While I'm living at home with my parents I'm not paying rent or contributing to the food bill (I'm aware I'm extremely fortunate in this...!) I have also been staying at my girlfriend's flat periodically and contribute £200 towards her bills/rent. But other than this I have essentially no fixed expenses and am able to save a lot of my income - most of which goes towards buying index funds.
In more normal times I'd expect to spend maybe £300pm on food, £150 on doing sport (club fees, kit etc.), £350 on going out (mostly theatre - big expense but also completely discretionary), £200 on misc. other expenses and £500pm to investments - pretty bloody luxurious in the context of MMM, but I'm aware of that and happy to accept a slightly longer path to FIRE whilst doing work that I enjoy.
Assets
Approx £75k invested. Vast majority (85%) in worldwide equity funds, remainder spread across other asset classes like gold, bonds etc. to try to reduce the downside/psychological risk.