Stocks and Shares ISA or Guaranteed 8% YoY?

[jewelz613]

I have around 25k (from a relative passing away) that I have a few options to do with.

The first is I leave it with a family member who will guarantee an 8% YoY return until I need the money.

The second is I put 20k of it in a Vanguard FTSE Global S&S ISA. The rest remains with 8% YoY.

The third is I put half, 12.5k in the Vanguard FTSE Global S&S ISA and half remains with 8% YoY. If the Vanguard does better, the interest on the other 12.5% will match.

I don't know much about S&S ISA's so I suppose my question is, over a 5y or 10y period, could a S&S ISA do better than 8% YoY?

Right now, I believe I will use the money to support buying my first flat, which would be on a 5y time period - however this is not confirmed. I am early 20s, and hear that the earlier I start with S&S ISA the better, but I won't be able to add my own savings to this amount for another few years.

 

[joshken]

@jewelz613 I would want to know a lot more about where this 8% return is coming from before choosing an unregulated investment over Vanguard.

Why do none of your options include not giving lending any of your money to the family member?

 

[chargedbyfaith]

@joshken Don’t even entertain the 8%… when it should be obvious that there is no scenario that could possibly exist to explain that.

 

[brokenflesh]

@chargedbyfaith There is one scenario, but it's still not worth it.. The family member lives in a different country that have ordinary savings accounts with higher interest. Typically these are less developed countries with higher inflation and higher rates.

What the OP wouldn't have considered is the fx risk (and potentially regulatory risks).

Every so often there's a post like this ('shall I send my money to family members in x country and put into savings at x% interest?').

 

[ahiah1]

@chargedbyfaith What? That could easily be true. Not definitely, but it’s not impossible.

 

[chargedbyfaith]

@ahiah1 “Easily be true” for someone to guarantee an 8% return, go on then oh wise one, & share your wisdom?

 

[ahiah1]

@chargedbyfaith I mean, many people have generous relatives. Would it be so unbelievable if someone said 'my uncle is very rich, and is going to give me £20k'? If not, then it shouldn't be so unbelievable if a generous relative offers to help you out with a decent interest rate on some cash.

For example, you could imagine a young man telling his uncle he's stressed about whether to risk his deposit savings on stocks or whether to put it in a 4% interest account, and his uncle relieves that stress by offering a better rate. Not particularly likely, but not something that's totally unbelievable, especially as we're thinking about P(offer is genuine and real | offer being made), rather than just P(relative offers a genuine and real offer to pay 8% interest).

 

[joshken]

@ahiah1 If that was the case the family member might as well just give them £2k (the 8% return) and be done with it.

 

[ahiah1]

@joshken Yes, I’m not talking about what’s rational here, I’m talking about whether this is a totally unbelievable scenario.

 

[andreas89]

@joshken This

 

[joshuasamuel212]

@joshken I do some work for someone that has a considerable amount of money and this person’s money is basically sitting with brokers providing property backed loans. And on average this person gets around 10% interest. The thing is not everyone gets to get into this loans like this I feel this is somewhat to people with a lot of money, however, this person every now and then brings in friends and family with lower amounts.

 

[bazel]

@joshuasamuel212 This makes no sense. If it's risk free 10% then why would banks not offer say 9.5%? Risk and interest on loans are so inextricably linked there is no way someone is making a significant increase on the risk free rate without taking on additional risk. Especially when not benefiting from economies of scale in the same way a typical lender would.

 

[joshuasamuel212]

@bazel Because it’s not available to everyone. Usually when property developers who request say £1m or so. These brokers will do a round of pooling money, private. It’s not that it’s available to anyone, it’s to anyone with money.

 

[bazel]

@joshuasamuel212 The only reason they'd restrict it to richer investors is if it's a riskier investment product not suitable for the general public. This is the same rationale for hedge funds being restricted.

There is just no way it's risk free.

 

[joshken]

@joshuasamuel212 There's just no reason an opportunity for guaranteed returns would not be open to everyone - the property developer would just develop twice as much. Or, if the opportunity was genuinely lucrative they'd raise finance at a far lower rate than friends and family.

 

[sandys]

@joshuasamuel212 Why are the property developers willing to borrow at a higher interest rate than they need to?

This doesn't pass the sniff test.

 

[toddje]

@joshuasamuel212 You are completely ignoring risk. This is a general lack of understanding of how interest works. The risk free rate is set by the market through gilt prices. Anything deviating from that involves some risk.

 

[rosemarytyson]

@jewelz613 Posts where OP has expressed delight at long term positive yield thanks to generosity of family member: 0

Posts where OP has had difficulty getting money back from family member: uncountable

Posts where relationship with family member has changed, producing awkward situations for shared finances: uncountable.

No one cares as much about your financial wellbeing as much as you do. So why don't you look after your money, and your family member can earn 8% on their own money.

 

[saron]

@rosemarytyson Posts now deleted by OP: uncountable

 

[undercover_mormon]

@jewelz613 Are they paying you the 8% out of their own pocket (generous family member)?

Or are they investing it somewhere which they say returns a guaranteed 8% (sounds like a scam or not a true reflection of risk anyway)?