Do I invest?

mother13

I am not sure if to Invest via an IFA or just put the money in a fixed saving account.

I have spoken to an IFA and they have explained ways of saving money and generating income which we need to to up our small pensions as we have retired early.55,57. and taken a lump sum. However, they say we could generate up to 4.5% maybe more over long term and their fees are 4% but because the lump sum would be around £150,000 they would give a discount. If I just put the money in a fixed 3year or % year bond I would get that without paying fees.

What is my best option?

dunstonh

If I just put the money in a fixed 3year or % year bond I would get that without paying fees.

You would. However, you are guaranteeing that you will lose money in real terms and at age 55 you cant really afford to do that.

What is my best option?

Instead of going commission option, go on fee basis instead. Its also clear that you havent understood the difference between cash and investments and the different risks that are available. If the IFA you have seen cant clear that up for you then you need to see another one.

Rollinghome

Would agree with Dunston that you should see at least one, and preferably more, IFAs before doing anything. You wouldn't buy a pair of shoes after looking in just one shop, so investing £150K is worth a whole lot more effort.

Definitely consider paying a transaction based fee where you would expect all commission, including all annual trail commission, refunded back to you. Look for someone who works virtually exclusively on fees and not someone who operates a catch-as-catch-can system of both fees and commission. To end the problem of "commission-bias" the FSA intends to ban all IFAs operating on commission, as most currently do, from 2013.

You also need to consider the timing of your investment as many independent analysts think most asset classes are currently expensive. Make sure you fully understand everything before parting with any money.

jamesd

A 4% charge is too high for the amount involved. IFA's are simply retailers and you can negotiate charges or switch to another. All IFAs are required to offer the option of paying a fee instead of commission, so ask.

CLAPTON

realistically, if you want to preserve the purchasing power of your capital you can only expect about 1-2% return each year.
if you're willing to lose some of your capital then you may get a better return but it would then be a gamble

jamesd

Clapton, that's very low for investments, more like what you can get with NS&I inflation-linked certificates. 4.5% seems reasonably cautious since it's only a little more than the FTSE itself pays and less than payable by a range of funds that seek out high income.

dunstonh

jamesd wrote: »

Clapton, that's very low for investments, more like what you can get with NS&I inflation-linked certificates. 4.5% seems reasonably cautious since it's only a little more than the FTSE itself pays and less than payable by a range of funds that seek out high income.

They could be working on 4.5% income with 2.5% for inflation proofing as a long term average. Or, it could be an illustration being misread (6% illustration with typical AMC bringing it down to around 4.5%). Or it may be the yield on the investments being recommended or maybe they are just being cautious in the projections.

jamesd

Yes, could be any of those.

mother13, you didn't allow for inflation when comparing with a term deposit account: the investment mixture could be expected to pay out and grow both the capital and income with inflation. On average. There will be up and down years for the capital and the income but some cash on deposit can be used to smooth out the income.

CLAPTON

jamesd wrote: »

Clapton, that's very low for investments, more like what you can get with NS&I inflation-linked certificates. 4.5% seems reasonably cautious since it's only a little more than the FTSE itself pays and less than payable by a range of funds that seek out high income.

I was very clear that I was referring to MAINTAINING the PURCHASING power of the capital amount. 1-2% is a reasonable return for a inflation linked very low rish investment.

4.5% is not obtainable after inflation for a low risk investment that maintains the purchasing power of the original capital.

jamesd

Clapton, yes, it was clear that you meant retaining the purchasing power of the capital. So did I. 4.5% is reasonable at low risk (10-20% capital value variation), unobtainable at zero risk (0% capital variation and government capital guarantee).

dunstonh

In reality, if you are using the money for income then there is no risk free option. Cash savings have a risk and investments have a risk.