Property fund advice needed please

chris190

Hi all,

Just start by saying my wife is the money brain in our house so sorry if this is a bit vague but hopefully you will get the idea of what im on about:embarasse

Two year ago i had a critical illness insurance payout for £67,000, following us taking advice we invested the money in what at the time (sept 2007) was a fairly low risk investment, commercial property funds with Aviva (norwich union at the time),

uk fund got £20,000
European fund got £47,000

Unfortunatly they almost immediatly started to loose value, the total fund is now worth £44k! and £41k if we cash it in.

Our IFA has now advised us to dispose of the units, and switch them to equities, (think he means stock market shares?)

Does this sound like a good idea? my worry is that we may just end up loosing more money when at the end of the day we do still have the initial no of units in the property fund and the value should eventually come back up (we are not looking to withdrawn the money in the next ten years at least).

My wife wants to just cash it in and put it in the bank where at least it is safe for now?

Whatever we do we cannot get anything for six months right now but we want to put the wheels in motion.

Also not happy with Aviva right now as the have locked the fund so we cannot take our yearly allowance out (7.5% of the initial £67k, £4875), which is a right nightmare as my wife is self employed and on maternaty leave:mad:

Sorry if this does not make much sense but if anyone can give us some advice it would be greatly appriciated.

Thanks Chris

jon3001

chris190 wrote: »

Our IFA has now advised us to dispose of the units, and switch them to equities, (think he means stock market shares?)

Yes - it'll be a stock-market based investment. Is this advice on the basis that you're looking for a low-risk investment?

chris190

Yes low risk really, because as it was a critical illness payout (im ok now) i cannot get cover on our mortgage for me or any life insurance for a few years so am a bit worried about loosing any more of the payout.

jon3001

You need to get clear on your objectives.

If you're after preservation of capital then I'd be moving at least 80% of the money into bonds and gilts. You could still keep some property funds (or even have some equities) with the remainder.

If you're looking to recover your losses (in real terms) over the next 10 years then you'll have to take on additional risk. To get from 44K back to 67K would require 4.3% pa over the 10 years. And you'd want to add on maybe 2.5% for inflation (6.8% total). The property funds you have are probably yielding over 4.3% right now and you'd expect the capital value to rise with inflation.

I don't like your IFA's single asset-class strategy (all property, all equities). A spread involving property, equities, bonds and other asset classes would give better risk adjusted returns. Especially if you're looking to liquidate 7.5%/year.

Reaper

There are those who take the view commercial property is a good bet right now because it has fallen so far, possible more than it should have done. However even they say it should form only a small part of you portfolio.

The problem is all your eggs are in one basket. Was that orginally your idea or the IFAs? Poor advise in my opinion if it was his.

It sounds like there are penalties for withdrawal. If it were me I would see about moving part, but not all, of it to spread the risk.

It it were me I would go for equity because I believe there will be recovery eventually at some point int he next 10 years, and bailing out at the bottom is to be avoided. However if you have asked for low risk I would quiz your IFA as to exactly what he is thinking of investing in and asking us here. Equity is not generally low risk. It does mean another slice of commission for him though!

If you really want low risk then your wife's idea is the safest.

pete80

Like Reaper, I would go for Equities (well spread mix) and maybe include a commodity fund in your selection.

Some property funds like Glanmore have actually put a ban on withdrawals, Glanmore having closed it's doors for well over a year now.

I haven't got figures going back too long ago but property funds normally seem to recover some time after the general economy so personally I would not be buying or holding property funds at present.

bendix

If you genuinely got that advice from a real IFA (and not a bank-tied IFA) then they should be shot.

The idea of putting 100% of £67,000 into one asset class is - frankly - unbelievable.

chris190

Thanks for the replies,

Looking really to preserve the capital as much as possible and try to recover some of the losses over the long term, obviously recovering the losses sooner would be better but realise thats very unlikley.
From what you have said i am definatly keen to split things up, i have always had a doubt about having it all in one thing but was a bit nieve when we took the initial advice and think the advice we got was not very sound.
Think i will definatly make an app with a different IFA and see what he can come up with?

Liking the idea of keeping some property bonds and a spread mix of Equities, 60/40 maybe?

PS: prob will not be taking the 7.5% allowance every year.

yelf

A good portfolio should hold some property. Most REITs have risen 50% already from their bottom - so thr market was a great buy 6mths ago. Short term property investment isnt wise, but long term its a low - medium risk.

edit: property is on its way up. I would say your IFA is an idiot. My advice would be stay put - you cant withdraw straight away, plus you would incur a penalty. To recoup property losses you need to be in property for the gains.

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/5985117/Value-of-commercial-property-rises.html

dunstonh

Property seems to have bottomed around March-May time. This is the first period of stability in almost 2 years. So, selling property funds/switching out could end up being the wrong thing. However, you are far too overweight in property and that lack of diversification has hit hard.

If you genuinely got that advice from a real IFA (and not a bank-tied IFA) then they should be shot.

The idea of putting 100% of £67,000 into one asset class is - frankly - unbelievable.

Exactly.

EdInvestor

I'd have thought you have grounds for complaint against the advisor who sold you this investment (I assume it's an investment bond.)

-The investment does not seem in accordance with your attitude to risk: while comm prop is seen as low-medium risk, that is in the context of a mixed portfolio, 100% property is high risk (as you found)
-It seems unsuitable as the bond could not guarantee to pay out the annual amount you require
-If it is an investment bond and you are a basic rate taxpayer that would be another ground for complaint as the bond only conveyed benefit to high rate taxpayers.

Since you can't do anything right now anyway, I suggest you focus on putting in a complaint. If they reject it, you should take it on to the FOS.

https://www.financial-ombudsman.org.uk

You should not IMHO sell out of property investments right now as they could well bottom out and start to recover quite shortly.Your gut instinct is right. Your advisor on the other hand, sounds like a 'mug punter' - buy high, sell low.