Collective Investment vs Property as investment

The risk level on the account portfolio is fairly low (3/10), mainly due to my wife's higher aversion to risk ;-)

When you get that low down the risk profile, the returns are barely going to be better than cash savings.

Also, your wife needs a bit more "teaching" on risk. She is prepared to accept a buy to let which carries risks (potentially worse than a cautious conventional investment option). Yet wants to play it extremely low on investment risk (whilst increasing shortfall and inflation risk).

Initially, we drew an income of £600 per month from the Collective Investment
account. However, after reviewing its performance after a year and a half, it
appears that the % growth after income drawdown and fees was not keeping up with
inflation. As such, we stopped taking an income from the account in order that
the inheritance is not eroded.

Yes. That was predictable. Its a consequence of not taking enough risk.

Recently, I came across this in The Telegraph online:
Historical data suggests that returns from the stock market are comparable with
house price rises, but this stacks up only if you reinvest dividend income from
shares...
There is no escaping the fact that, for 20 years or so, capital gains on the
average UK property have easily exceeded capital gains on shares when dividend
income has been taken.

That statement needs a lot of context. Dividend income is a significant part of the return. So, if you leave it off, you are handicapping conventional investments.

It is also a short term window (in the scheme of things). For most other periods, equities have out performed property. You can always pick periods when one is better than the other. For example, equities have outperformed property since 2010.

You also need to look at what drives the gains. Nearly half the period covered by the Telegraph comment is within the credit boom. Virtually unregulated easy credit dished out at unsustainable levels. Its no wonder property prices boomed in that period.

However, lets look at post credit crunch and the issues. You have areas of the country now stagnating on property prices or even falling. Supply and demand is still favouring demand in most areas. However, easy credit has gone. So, that part of the upward pressure on prices has gone. Govt policy is to reduce the number of landlords and increase ownership. So landlords are being hit with increased taxation. That is likely to continue. Probably through capital gains tax and income tax (both of which are easily avoidable or at least reduced to a minimal level to begin with before eventually becoming avoidable on conventional investments) Landlords now have more requirements than in the past and that is likely to increase.

You mentioned liquidity risk and diversification risk. How is it that wife is willing to accept those but not investment risk?

Plus, there is no point comparing a risk 3 portfolio with either property or equities. Someone who considers themselves risk 3 is neither suited to equities or property.

Risk scales vary but on most 1-10 risk scales, 1 = cash, barely anything is in risk 2 nowadays and risk 3 is really taking limited risks with virtually no reward. If someone is insistent that they are risk 3 (i.e. they cant be eductated to understand why risk 3 is a bad idea) then I tend not to invest in anything risk based for them. Nearly always it leads to them cashing it in at the first sign of loss or it could lead to complaint. It just isnt worth it.

Your next step is to discuss this more with your wife and I would suggest involving the IFA.

Its the type of investment that is restricting you, you say your wife is adverse to risk, yet you have a BTL - the two don't equate.

Personally i'd stick where you are but take a greater risk, my S&S Isa is in a number of funds and the past 2 years has far out stripped house price increases (as has my pension, again in similar funds to the ISA).

OP if you do choose the investment route, why not see if you can persuade her to invest a smaller proportion of the money in a vehicle higher up the risk scale on a trial basis and the rest at a risk level in keeping with her aversion.

There might be nothing quite as persuasive as empirical evidence.

irobot8 wrote: »

So, maybe the best strategy is - in addition to upping risk on the Collective Investment - to sell the BTL and buy ourselves a place to live (there wouldn't be a mortgage involved, as we own the BTL outright). This would presumably help balance out the increased risk on the Collective Investment. However, that's assumes you're all suggesting that it's the BTL that's high-risk, as opposed to property ownership generally.

I agree that does look like the best strategy and less risky. It seems strange to me that you own a BTL outright yet you are renting yourselves.