Low maintenance savings..

Fly_Guy · 26 July 2014 at 8:26PM

A bit of background.. I find myself looking after the finances of my mum, early 70s and recently widowed but currently fit and active. My dad always dealt with money matters in a traditional family and mum is now in the fortunate and slightly surprising position of having a reasonable pension income and savings of around £260k, but with no experience or desire to take control of this herself.

Her portfolio is currently split across multiple accounts: £22k in S&S ISAs, £47k in cash ISAs and tax exempt NS&I Savings certificates. £50k is offsetting my mortgage (thanks mum !) and most of the rest (£150k) is scattered across various fixed rate and instant access savings accounts. Many of these are maturing and need to be found new homes over the coming 6 - 24 months. 2 current accounts with lots of activity DDs, pension payments etc etc are also running...

ISA allowances are maxed out and she is a basic rate tax payer, no debts and a total estate just below the double IHT threshold.

The problem is that I am physically located 3 hours away and dont really want to spend what time I do have available when visiting worrying about her finances. I have a full time job and family to look after and take my responsibilities seriously, but just dont have the time to spend hours a week dealing with this.

Although ultimate yield is not absolutely key and some risk is OK, she wants to keep things safe as we really dont know how long she'll keep going or what kind of support she might need in years to come.

As such, what would the MSE community recommend as a low maintenance / moderately yielding diversified investment approach suited to keeping everyone happy ?

Suggestions very much appreciated,

Cheers,

FG

Consumerist · 27 July 2014 at 12:19AM

To be honest I think, from your synopsis, your best bet is to see an IFA.

In any event, it looks as though it's going to take some time to re-organise a mainly-cash portfolio and, if simplicity is required, would tend to dictate keeping all the cash under one roof.

jamesd · 27 July 2014 at 6:24AM

In the early 70s with your description of her health it seems reasonable to anticipate her living to at least her early 90s, since late 80s is average life expectancy. Here there's a choice to be made: accepting that savings accounts mean that inflation is going to gradually reduce the value of the money over time or using at least some investments to keep up, accepting that the investments will have shorter term ups and downs instead of inflation's steady eating away.

Does she have any income need from the money? £260,000 could generate about £10,400 a year of income using a fairly cautious 4% income rate if investments rather than savings accounts were used for most of the money. Savings accounts limit that to roughly nothing if inflation is being kept up with and may not even keep up with inflation.

My initial thought is that far too much is in normal savings accounts and unlikely to preserve the value of the money after inflation. So I'd initially think of moving the cash ISA money to the S&S ISA and picking one or a few suitable investments, depending on whether she needs income or not. If income, perhaps a commercial property fund. For inflation protection without income generation a global stock market tracker fund.

Given how close she is to the current inheritance tax limit she might want to consider some inheritance tax planning. For her age one of the most efficient ways is to simply give money away. Ideally to people who might give the money back if she had a need for it, but there can be no contractual undertaking for this or the gift will have no effect on inheritance tax liability.

PeacefulWaters · 27 July 2014 at 7:50AM

IFA.

Give some away.

Make sure there's a will.

Consider getting a POA in place while she's in good health.

Fly_Guy · 27 July 2014 at 8:48AM

Thanks for the feedback guys...

I have a POA in place and she is giving money away... but given the unknowns of potential future care costs etc she wants to keep a healthy buffer.

I agree that too much of the money is sitting as cash loosing value slowly and have spent some time setting up the S&S ISAs she does have. Indeed, these have done reasonably well so far [not I hasten to add due to my skills]. Given the relatively modest tax advantages provided by the ISA wrapper for stocks and shares maybe just moving a chunk of cash to HL or similar might make sense for the medium term.

Part of me has also been wanting to hold off for the long heralded increase in savings rates due in the next 6 months (for the last 2 years !) before committing to longer term products...

Thanks...

FG

jamesd · 27 July 2014 at 9:39AM

The ISA is great for reducing the paperwork, since you don't need to track all buy and sell transactions for CGT purposes. Also no income tax to pay on income taken in the ISA so if you mix investments, put the growth types outside the ISA and income inside as first priority.

With the POA do also ask her to give her some additional document saying what her priorities are. That's particularly important if she wants to do inheritance tax optimising that might cause her spending to be reduced at some future time.

For the investments do let her know that they are like a roller coaster in reverse and she shouldn't worry about the dips along the way, it's just normal. People do a lot better at handling that if they are told in advance so they know that you expected it at the outset and don't have to wonder whether it was something surprising.

Forget waiting for higher rates. Commercial property funds will pay more and even the FTSE is paying around 3.5%. An increase in interest rates would normally cause bond fund capital values to fall so if you include any of those be careful about which you pick and don't go as high as you might normally want to at the moment. Once bank rate gets to perhaps 3% the current forecasts are for some stability for a while and that might be a time for higher bond exposure.

You might also consider some use of P2P lending as a way to diversify away from the traditional bonds and equities. This can be a useful bit of diversification away from the potential of dips in those and today you can beat normal accounts easily.

Low maintenance savings..

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