Have a large amount of cash that needs investing

Newly_retired

I notice you say this money has been left to your mum and yourself. In what proportions? Most replies so far seem to infer that it is all your Mum's. You will probably be in a different tax situation from your Mum. Also you may need to keep your money separate so that in the event of your Mum having to go into a care home, your share of the money is not used up.

dunstonh

NS&I certs are a valid option on the assumption that a portfolio is being built with some growth potential to offset inflation (which is running closer to 5%).

This is why a decision is required on what monthly income is required.

jem16

Wilsonio wrote: »

Firstly I really appreciate your advice, dun . You are helping me greatly(more so than lloyds) :beer:

I have taken inflation into account, inflation at the moment is 2.7% and I have found an interest saver with 5.088% Net in which I shall be looking more into.

Inflation rate is usually measured on CPI which is 4.4% at the moment so if your mother takes an income from the account paying 5.088% the capital is not going to keep ahead of inflation. Another measure is RPI which is at 5%.

I think I have also found a gem in the Natwest Combi Saver Green edition, which has a net rate of 6.22%, which amazed me. Its a two part investment with the otherside being a 3.5 year investment into the Green index, in which the capital is secure and the market for the future looks really worthwhile.

Another GEB that's not very good at all.

http://forums.moneysavingexpert.com/showthread.html?p=13053335

You really need to see a good investment specialist IFA if you want to make a success of this money.

Farway

Given her age 65, is investing it really a good idea?

Shares we are always told are long term, she may need the money after say 5 years, age 70

I can't provide links but in the news lately it points out that share prices are same as about 10 years ago, and savers over the ten years have beaten shares, OK I know timing and stock picking is crucial, along with hindsight, but I do think givenr her age that a large chunk should be in savings and not investments

jem16

Farway wrote: »

Given her age 65, is investing it really a good idea?

Why not? She might live another 30 years like my gran.

Shares we are always told are long term, she may need the money after say 5 years, age 70

It doesn't all have to be invested in shares.

I can't provide links but in the news lately it points out that share prices are same as about 10 years ago, and savers over the ten years have beaten shares,

You mean this highly flawed article?
http://news.bbc.co.uk/1/hi/business/7584227.stm

Already been discussed here;
http://forums.moneysavingexpert.com/showthread.html?t=1121659

OK I know timing and stock picking is crucial, along with hindsight, but I do think givenr her age that a large chunk should be in savings and not investments

Some of it should be in savings for immediate/emergency use. However to put a large chunk of it in savings exposes it to a risk of inflation eating away at the capital. As she needs a monthly income it's important to preserve the capital in real terms.

TomsMom

Minimal risk and monthly interest - what about Northern Rock for some of the money if you want to put it into savings? It pays 6% gross/AER and a higher interest rate can be obtained elsewhere, but the whole amount (not just £35,000) is covered and the account limit is £250,000.

Dave2112

A slightly different scenario but I think has some points worth considering. My Dad is late 70's with severe parkinsons and my mum is early 70's. We are trying to get them to sit down and look at what they want in the future and what might happen - ie Dad into a home in the next year or two/mum in flat, stay at home needing a lot of home care etc. Only when they have a future plan with possible different options can they then look at what range of income they might need. They can then set up their finances to try and support the different scenarios.

I would suggest you and your mum sit down and really decide what you want - ask the hard questions. Health? Expectations? It's emotionally hard but really should be done IMO. Then get a financial plan to suit ie £x to provide income, £y growth. There's no point in generated more income than you need with an erosion of capital.

dunstonh

TomsMom wrote: »

Minimal risk and monthly interest - what about Northern Rock for some of the money if you want to put it into savings? It pays 6% gross/AER and a higher interest rate can be obtained elsewhere, but the whole amount (not just £35,000) is covered and the account limit is £250,000.

With respect, it is impossible to make any suggestions at the moment as it isnt known how the money is going to be used.

The OPs mum is going to be a tax payer and the amounts involved coupled with state pensions and possibly other pensions are likely to see a 100% savings based solution take her income above the age allowance reduction creating an tax liability or nearly £1000 a year. That does not need to happen and can be avoided with a bit of planning.

However, lets place £300k into Northern Rock at 6% and take 20% tax from it.
That turns £18,000 interest a year into £13,400. Lets deduct another £1000 tax for age allowance deduction. That makes the actual tax deduction around 25% and the 6% gross return becomes 4.5%.

Inflation is running at 4.4% at the moment so the actual gain in real terms is 0.1%. However, the OP mentioned that an income is required so if the mum draws the £14,400 interest (and deducts £1000 for the extra tax bill) that means the capital is losing money each year in real terms. That not only hits the capital but the spending power of the interest as well. This will guarantee the OPs mum to a reducing income in real terms which will lower her living standards over time.

The risks involved on a transaction like this are:
1 - investment risk
2 - inflation risk
3 - shortfall risk
4 - security of provider.

Out of all those the one that is least an issue is the last one but its the one that seems to be getting the most comments.

the OPs mum needs to work out what she needs from income and make some provision to cover inflation. It may mean that some investment risk is required. It may not. However, it is unlikely that a single option is going to meet her needs. She was clever enough to realise that a bank sales rep wasnt up to the job so you hope she is clever enough to spend the time understanding what she needs to do and learn a bit about the options and the different risks rather than just focus on one or two things and ignore the rest.

ChloeRadshaw

dunstonh wrote: »

With respect, it is impossible to make any suggestions at the moment as it isnt known how the money is going to be used.

The OPs mum is going to be a tax payer and the amounts involved coupled with state pensions and possibly other pensions are likely to see a 100% savings based solution take her income above the age allowance reduction creating an tax liability or nearly £1000 a year. That does not need to happen and can be avoided with a bit of planning.

However, lets place £300k into Northern Rock at 6% and take 20% tax from it.
That turns £18,000 interest a year into £13,400. Lets deduct another £1000 tax for age allowance deduction. That makes the actual tax deduction around 25% and the 6% gross return becomes 4.5%.

Inflation is running at 4.4% at the moment so the actual gain in real terms is 0.1%. However, the OP mentioned that an income is required so if the mum draws the £14,400 interest (and deducts £1000 for the extra tax bill) that means the capital is losing money each year in real terms. That not only hits the capital but the spending power of the interest as well. This will guarantee the OPs mum to a reducing income in real terms which will lower her living standards over time.

The risks involved on a transaction like this are:
1 - investment risk
2 - inflation risk
3 - shortfall risk
4 - security of provider.

Out of all those the one that is least an issue is the last one but its the one that seems to be getting the most comments.

the OPs mum needs to work out what she needs from income and make some provision to cover inflation. It may mean that some investment risk is required. It may not. However, it is unlikely that a single option is going to meet her needs. She was clever enough to realise that a bank sales rep wasnt up to the job so you hope she is clever enough to spend the time understanding what she needs to do and learn a bit about the options and the different risks rather than just focus on one or two things and ignore the rest.

Dunstoh - Your posts here are greatly valued!

Just out of interest : If the income requirement was not required what would your advice be? Something like invest in a fund over and above savings?

Have you got a link to a thread where we actually discussed (with your input)
these sorts of questions - Like what should be done with xK and actually drawn up solid conclusions?

bitsnbytes

I'm not really that great in investments, so I do apologise if this advice is totally rubbish

However, wouldn't investing a portion of the money (say £150,000) in property which yields a rental income of close to 7-8%pa and then investing the rest which gives a monthly interest close to £500 per month?

The property should take care of inflation since technically its value should rise every year (possibly the rent too). So you could be getting close to £1200 - £1400 a month and also taking care of the inflation. The only downside I see is your mum at her age managing the property however possibly you could help with that or go with the full management option via one of the estate agents (although I'm not sure how good they will be with that)

Sorry if this advice is rubbish or just not practical