where to invest £500k?

zman_2

I have £500k sitting in a 1st direct savings a/c earning 4.75%. I am now thinking about putting the lot into the West Brom 1 year bond at 5.65%. I am afraid of the stock market having lost a lot during the dotcom crash, and I want to avoid property at the moment.
But am I mad to stick this amount into a single place? Does anyone have any better, low risk investment ideas for this amount?
thanks for any ideas.

ReportInvestor

I assume you are a higher rate taxpayer - so you're only going to get 3.39% net on that money which is struggling to beat some measures of inflation.

It's a shame that dot com shares put you off the stock market in general.

You are right to think about diversifying to spread risk - not just between companies but between different asset classes.

dunstonh

500k is something you need to be seeking advice on. You have a range of issues to be concerned about depending on age, income and a whole load of other things. For example, with that amount, if you are aged over 65, it would wipe out your age allowance if invested/saved in the wrong place. If you are a higher rate taxpayer you could be wasting the return on tax.

I am afraid of the stock market having lost a lot during the dotcom crash,

How did you manage to lose money? If you invested in 2001 before the crash, and achieved just sector average returns since then you would have got the following on a sector diversified portfolio (acoss a 1-10 risk scale):
Risk 1 17.45%
Risk 2 30.63%
Risk 3 43.12%
Risk 4 47.60%
Risk 5 52.91%
Risk 6 58.56%
Risk 7 60.92%
Risk 8 66.07%
Risk 9 62.99%
Risk 10 61.33%

My guess is that you invested well above your risk profile and in an inappropriate manner. That doesnt mean that equity investing should be ruled out now. It just means you didnt do it properly before.

meanmachine_2

RPI went up to 3.6% last month, so you must ensure you get at least that after tax.

Putting it in one bank account is crazy. The max should be around 35K per institution, just in case something nasty happens.

Keeping it in cash is risky in itself. Keeping it in one account in cash is a double no-no.

Diversity will help you sleep at night.

Also, you should seek advice, at least from a tax specialist. They'll help you minimise your tax bill.

zman_2

dunstonh wrote:

How did you manage to lose money?

I invested around £100k in various internet funds at the start of 2000. I got depressed watching it spiral down month after month, so eventually panicked and sold out after I had lost 90% value by 2003.

I am in my mid 40s and now very risk averse, so I was hoping for a simple way to invest in 1 or 2 safe places, but the advice seems to be that I should diversify more. It looks like I need to talk to some IFAs...

Thanks for the advice.

dunstonh

The problem is that there is no risk free option.

Savings accounts run the risk of inflation. If you take real inflation to be 3%, then you have to be earning at least 3% just to stand still.

If you ignore interest/returns for the moment and just look at the impact of inflation, you would see that £500k drop to
10 years = £350,000
20 years = £245,000
30 years = £171,500

So whilst the old passbook will still say £500k on it, it would only have the spending power of around £170k in 30 years.

Stockmarket is not all one risk. Its a sliding scale. You can see from the figures in my earlier post that showed an investment placed before the crash that had you had a sector allocated portfolio across 10 different risk profiles (1 low - 10 high) and only got sector averages (so no picking best funds to make it look better) you would have returned to profit. The portfolios at the lower end of the scale would have not even seen a loss in the crash years. So it is important to make sure the portfolio does much your risk profile and not to rule out options which may carry a degree of risk. Modern investment techniques do not involve putting all your money in one or two funds. Its about spreading it around and averaging it out to suit your risk profile.

mystic_trev

I've got the same problem, but most of the cash is from the sale of my home at the end of last year, so I can't really speculate with it!

nrsql

zman wrote:

I invested around £100k in various internet funds at the start of 2000. I got depressed watching it spiral down month after month, so eventually panicked and sold out after I had lost 90% value by 2003.
Thanks for the advice.

So you put in 100k and decided to take it out when it reached 10k?
You just got caught investing in a bubble and didn't heed the danger signs until it had reached bottom, and probably got out when it was about to recover.
A bit of a shame as you have missed the gains to be made in the last few years. Have a look at what your shares would have been worth now.
You might consider drip feeding into funds which will safeguard a bit if you start on a downturn again.

Anyway I think you should take advice. The main reason you lost then was that you invested all in a high risk sector that had no real underlying value (easily done). Diversification is the key (not just stock market) - watch the odd lucky investment increase while everything else evens out to a gentle increase - or vice-versa but over the long term it should do better than you are.

Not saying to do this with everything but leaving all your cash where it is sounds a bit like a no-win (but also no-great-loss). At least take some and dabble.

ReportInvestor

mystic_trev wrote:

I've got the same problem, but most of the cash is from the sale of my home at the end of last year, so I can't really speculate with it!

No one is suggesting speculation. That is what happened last time. Investing does not have to = gambling.

Your "problem" is actually quite different from the OPs, m_t . You just want the best short term savings account - and that is right for you. We are suggesting that is the wrong way for the OP to go with all his money.

Mrs_pbradley936

My husband and I got caught out with shares as well. In what we thought was safe namely BT we bought them for £8 odd a few years ago and sold them earlier this year for about £2.18. The accountant has sorted it all out with gains made elsewhere but I can fully understand OPs concerns.

dunstonh

That was a single share investment though and a world away from multiple sector allocated investments.