invest lump sum or pay off mortgage

feesarefare

lazysloth wrote: »

I think now what's holding me back is the question of using this IFA and what seem to be fairly high charges.

Are the charges you refer to IFA charges on top of the fund maangement charges? If it is 1% trail, then that is double the average.

I've been burned by DIY investment, and I know that my money is a bit all over the place at the moment. but I can see a fund manager's performance at a glance, but I can't investigate my IFA's performance with his other portfolios.

No you cant unfortunately - lots of IFAs act as investment managers but they have no way of proving to their clients or themselves that they are any good.

I realise it's a question of trust, but it seems a bit bonkers getting someone to invest 40K when I know next to nothing about them or their abilities

Your dead right!!! You might want to ask your IFA what specific investment qualifications he/she has. Its not mandatory for them to have any formal investment qualifications however I think any IFA who is charging over the odds for their "expertise" would at least have something to back them up.

jamesd

lisyloo, those performance figures are missing a critical piece of information: how the volatility of the investments compared to the volatility of the benchmark. This is critical because you can generate out-performance by increasing volatility, but when you do that you're no longer matching the target risk level.

feesarefare

jamesd wrote: »

lisyloo, those performance figures are missing a critical piece of information: how the volatility of the investments compared to the volatility of the benchmark. This is critical because you can generate out-performance by increasing volatility, but when you do that you're no longer matching the target risk level.

Totally agree. Im surprised they get away with putting that on their website, could be viewed as being misleading leaving out the vital information you mention.

lisyloo

how the volatility of the investments compared to the volatility of the benchmark. This is critical because you can generate out-performance by increasing volatility, but when you do that you're no longer matching the target risk level.

Sorry, you'll have to excuse me as I'm an unsophisticated investor, but is this not at least parted catered for in the risk rating???
So if you have a "very cautious" portfolio, I would not expect that to be highly volatile. Isn't that the whiole point of the risk rating? If it was volatile the it's risky?
Perhaps there is something I'm missing but I'm not clear on the difference between volatility and risk?
Perhaps it's a bit more subtle, but if something is volatile then it's risky isn't it??
I probably sound really dumb, but chances are there are other people out there who don't get it too, so an explanation would be great.

BTW - feel free to pass your comments onto the company concerned.
I'm not connected with them in any way, so if they are valid, then pass them on directly.

My orginal point was that if the IFA was not prepared to shown anything at all then I think that's a bad sign.
I'm not saying that showing half the picture is good either.

jamesd

lisyloo, yes, the risk rating is supposed to cover it. But there's nothing to guarantee that the risk rating they are using matches the risk rating of the investments they are benchmarking against.

The easy example to explain this is to use a benchmark that's half FTSE All Share Index tracker and half cash. You can outperform it by using 60% shares and 40% cash but your volatility will be higher than the 50% cash mixture because you'll have less of the bit that doesn't move much.

This doesn't mean that your place isn't doing good things, it may well be. It's just that you don't have the full picture on that page. Almost no consumers would even be aware of the issue.

getmore4less

lazysloth wrote: »

I've come into some money (50K) and seen an IFA. He wants me to invest a lump sum in stocks and shares, inc. ISA allowance. As well as fund charges, I have his 3 per cent one off fee and 1 per cent annual charge to consider.

He is not keen on me paying off 10 per cent of my mortgage with some of my money, although this would still leave me with 30K to invest in markets.

Any thoughts on lump sum vs mortgage pay off (i'm a higher rate tax payer)?

A simple test.

Would you borrow money with a mortgage to invest elsewhere?

jamesd

getmore4less, that's not what is being considered here. Whether to pay it off immediately or invest with the desire to pay more of it off later is the interesting question.

I've made a similar decision myself recently, buying a property that I could buy for cash if I sold investments to do it. That would compromise my long term plans to retire early by limiting the amount invested, so I'm using a mortgage instead of selling the investments.

ViolaLass

Surely if you don't want to put a large sum in in one go, then you should just pay £40k off your mortgage and then put the money you would have paid into the mortgage each month into the markets?

e.g. if paying £40k drops your monthly payment by £100, then you put £100 into the markets each month.

lisyloo

Would you borrow money with a mortgage to invest elsewhere?

I would, yes.
I'm borrowing at 0.99% to save/invest in
a) cash ISAs fixed at 3% (risk free)
b) investing adventourously hoping to beat 0.99%
c) savings in NSI ILS and hoping that RPI+1% beats BOE +0.49%

I'm not tied in, so if at any time I think it's going wrong then I can withdraw and overpay.

I would not borrow at 5%, but at 1%, then yes.

Rollinghome

lazysloth wrote: »

I've come into some money (50K) and seen an IFA. He wants me to invest a lump sum in stocks and shares, inc. ISA allowance. As well as fund charges, I have his 3 per cent one off fee and 1 per cent annual charge to consider.

He is not keen on me paying off 10 per cent of my mortgage with some of my money, although this would still leave me with 30K to invest in markets.

Not surprising when that would almost double what he earns from you. To quote Paul Lewis presenter of Radio 4's Moneybox:

There are three types of advisers, tied, multi-tied, and independent. All three are salespersons.

Commission is a cancer at the heart of the financial services industry.

The problem with commission is simple. Commission creates a conflict of interest between the customer and the adviser. As a customer you cannot know if the person sitting opposite you is suggesting a product because it is right for you – or for them. And people in financial services ask me why does no one trust us?

I'd suggest the exception is the adviser working exclusively on a fee basis. Commission is to be banned by the FSA by 2013 to try to deal with the problem.

The idea that it's a good time to invest when things look black is hugely simplistic and shouldn't be regarded as anything other than more sales patter. The same salesmen would have been pushing the same line at the beginning of 2008 after we'd had a 15% drop in markets. The markets then lost a further 40% in the next 12 months. Make no mistake, there are huge risks in current markets and only a fool or a salesmen would pretend to predict the future.

This site is overrun with salesmen so for a more objective view you'd be better off asking at a site like www.candidmoney.com which is run by Justin Modray, a former IFA and frequent commentator on radio and TV.