Investing the lot - YOUR ideas?

betlarge · 17 February 2007 at 1:40PM

Due to illness, I am being forced to work part time and I am therefore looking to invest all my finances for the future.

I have some 350K to invest, and would like to realise an income from this of around 15-18k per annum. Any future protection from inflation would also be desirable as I am only 42 years of age. I would like to do this via a number of investments that will offer 'shelter' in times of high interest rates or inflation or poorly performing markets. Some form of counter-balancing investments, I suppose.

The overall risk profile should be as low as possible although I am prepared to invest smaller amounts in medium/high-risk areas to balance the portfolio.

I have posted on MSE before regards this, so please forgive any repetition but I have crystallised my situation a lot further since.

Could any of you be so kind as to offer your suggestions or opinions to the following:

1. Should I use an independent IFA? I consider myself to be broadly financially competent but no expert. However, I've seen what some 'experts' have done in the past!

2. What range of income-producing investments should I be looking for (bearing in mind that I would like a balance that hopefully some will perform well if/when others don't) ?

Thank-you very much for your responses.

dunstonh · 17 February 2007 at 1:53PM

I would like to do this via a number of investments that will offer 'shelter' in times of high interest rates or inflation or poorly performing markets. Some form of counter-balancing investments, I suppose.

A sector allocated portfolio matching your risk profile with annual rebalancing would do the trick.

1. Should I use an independent IFA? I consider myself to be broadly financially competent but no expert. However, I've seen what some 'experts' have done in the past!

An investment specialist IFA can do a very good job for you. A mortgage IFA or a GP IFA may not do as well as you could do. Its about getting the right person for the job.

2. What range of income-producing investments should I be looking for (bearing in mind that I would like a balance that hopefully some will perform well if/when others don't) ?

Its not just income producing investments that can be used. What and how would depend on your risk profile.

£17,500 net should be easily achievable.

betlarge · 18 February 2007 at 12:01PM

Thanks for reply.

Can anyone list what they consider to be the lowest-to-highest investments in terms of risk that I should be looking at. (e.g. cash in bank account would possibly be the lowest).

dunstonh · 18 February 2007 at 12:25PM

You wouldnt be looking at just one or two investments but a spread that averages out to match your risk profile.

Cash would normally be nil risk from the point of view your balance would never drop. However, it does contain quite a lot of risk when you are drawing the interest as an income as the value is never going to go up and inflation will eat into that reducing it to around 70% every 10 years. So, £350k now would have the spending power of around £245k in ten years time. In income terms, thats like seeing your income drop from £17,500 to £12,250 over 10 years.

Plus, savings accounts are taxable.

Given your timescale, cash would be a disaster for you.

As for the rest, you would utilise most, if not all the key investment sectors but just allocate the correct amounts depending on your risk profile. So, its not a case of looking at one or two of those sectors but all of them.

Cook_County · 18 February 2007 at 12:29PM

I think cash could be part of the planning because you should invest over TIME - not all at one go. In other words invest a portion this tax year, some next etc.

Cash is not entirely secure because:
a) the bank can go bust, and
b) it is betting on the strength of Sterling

EdInvestor · 18 February 2007 at 1:36PM

Think about asset classes, the risk goes roughly like this in ascending order of risk:

1.Cash
2.Gilts
eq3.Corporate bonds
eq3.Commercial Property (bricks and mortar)
4. Equities (shares) of which
Large cap
-UK Equity Income
-UK Equity growth
-UK property shares
-Foreign (large cap mature markets)
-UK small cap
-Overseas property shares
-Emerging markets
-Foreign small cap
5.Commodities

dunstonh · 18 February 2007 at 2:47PM

Or look at the sectors

cash
UK fixed interest
international fixed interest
property
UK
Europe
N America
Japan
Far East Ex Japan
Emerging Markets
Specialist

EdInvestor · 18 February 2007 at 5:33PM

Many investors don't see the need to incur additional foreign exchange risk with little upside by investing in foreign stockmarkets, especially since so many UK blue chips are involved in the gorowth of these markets as part of their business.

dunstonh · 18 February 2007 at 7:52PM

Many investors see the need to invest in overseas markets to increase the potential growth of their portfolios. The small increase in risk caused by currency exchance can work against you but can work for you as well.

Plus, when you consider that the UK has historically been the best performing area to be in about once every five to seven years, this means that any 20 year period you would be in the best place only two years, maybe three years out of twenty.

UK Blue chips do have a very small amount of overseas exposure but its limited to the scope of their business. It is insufficient to give you any real overseas exposure.

Different sectors perform best at different times. A spread with annual rebalancing allows you to take advantage of that.

EdInvestor · 19 February 2007 at 12:24AM

The small increase in risk caused by currency exchance can work against you but can work for you as well.

Remember how often you read stories in the press about cheap shopping and holidays in America?Crops up quite often, doesn't it?

Every time that happens you can write off any gains you've made in the US, Japan, and many emerging markets in Asia and Latam because their currencies move in line with the US dollar ( usually because they export into the US market).

It's not a minor risk. Of course it also makes any losses worse.

dunstonh · 19 February 2007 at 1:06AM

Every time that happens you can write off any gains you've made in the US, Japan, and many emerging markets in Asia and Latam because their currencies move in line with the US dollar ( usually because they export into the US market).

US and Japan have had poor performing times recently. However, Asia, Latin America and Global emerging markets have been booming.

Neptune Russia & Gr Russia up 57% last year
SWIP Euro Property up 45%
Threadneedle Latin America up 27% (up 66% the year before and 31% the year before that).
Neptune China up 52%
Fidelity SE Asia up 20.21%

Your favourite fund, Inv Perp Income up 27%

It's not a minor risk. Of course it also makes any losses worse.

Yes it is a minor risk. You invest appropriate to your risk profile and a sector allocated portfolio will have some investments below as well as some above but will average out to match your profile. With annual rebalancing, the potential for growth is higher.

You wouldnt stick 100% in china. You may only stick 1-2% in there but you still give yourself some exposure.

I dont understand your xenophobia when it comes to investing.

Investing the lot - YOUR ideas?

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