Want 5% on £300k

confusedsteve

I am now retired and have £300,000 to invest. I want it to grow by at least 5% per year. I regard myself as a low to medium risk investor and I plan to take out 5% of the value each year, and yes I realise that with inflation this will have the effect of reducing the value as the years go on.

I've seen an IFA who has recommended various investment funds and has shown me many illustrations where the growth exceeds 5%. However when I research some of the funds myself the one year returns only show growth of 4% or 5%. By the time I have paid AMC's and all the IFA fees I am a long way off my 5%.

Am I being over ambitious, or have I not understood what the IFA has advised? Should I just be looking at some Income Bonds or even no risk savings bonds?

Lokolo

He's giving you a portfolio based on your risk profile. He cannot gaurentee 5%, no matter what you ask. You can ask to have growth of around 5% a year and he will choose funds based around this.

property.advert

confusedsteve wrote: »

........ or have I not understood what the IFA has advised?

If you left this meeting bamboozled by the spiel from the IFA then you have to dump this twit and get answers you can understand from someone who can actually do their job and communicate their finding to you in a language you can understand.

FLAPJACK

We are in the exact situation, we have a cautious view as regards what to do with the money. For the last 3-4 years it has been split up into bonds earning between 5 and 7%...those were the days!

As I have a healthy pension coming in we don't need this money on a day to day basis therefore I'm now battling to find suitable accounts for it to sit in for another couple of years. As we all know.... things are different than they were 3-4 years ago. We have maxed the Lloyds Vantage accounts, we have S&S ISA's, cash ISA's and a OEIC bond...these investments all in all match our cautious nature to investing.

I am increasingly getting PO at any adviser I see (except one who understood where I was coming from) who instantly suggests that it should be put somewhere for growth....yes... I understand that, but at our age £300k will last us out... so we don't want (or need) to risk losing any of it. No one can say that the product they are pushing WILL guarantee a return.

So to my mind at least with a cash bond you do know what you are going to get back..yes ok inflation will have had it's bite out of the capital...but so would set-up fees regarding other products and lets not forget commission too..these people have to eat.
The only reason we would risk the capital would be if I had not got a monthly income.

Anyhow we think we have found a home for £80k .....the house nextdoor is for sale, so if we buy that... spend maybe 5k doing it up... (it's not too shabby to start with) then we can rent it out for £400 a month, which is the average around here..no big bucks, but the area is pretty.
A neighbour who wants to sell her place (as she wants money in the bank behind her and no worries of the upkeep of a place) has expressed an interest in renting nextdoor.

So where else would you get a return of £400 a month on 85k these days? Obviously the wife would be the Landlord as she is way under the tax threshhold even with her pension income.

Even if we left it empty it would only cost the Council Tax...with possible 25% reduction for being empty and the water rates, with no standing charges on gas or electric they wouldn't cost much except for the winter months just having the heating ticking over.
Eventually I suppose property prices will increase so in the fullness of time we could even sell the place at a profit....as long as it hasn't increased by more than 37k then we won't get stung for 18% Capital Gains Tax either.
If we pop our clogs then the kids wil have two places to sell (or keep for their kids) plus the capital which is in the bank.

So maybe you could consider the same idea of bricks and morter.

jem16

confusedsteve wrote: »

I've seen an IFA who has recommended various investment funds and has shown me many illustrations where the growth exceeds 5%. However when I research some of the funds myself the one year returns only show growth of 4% or 5%. By the time I have paid AMC's and all the IFA fees I am a long way off my 5%.

The returns that you see on Trustnet or similar are the returns after all charges - this usually includes the 0.5% to the IFA.

An IFA would normally put to gether a portfolio of funds that average the growth you are looking for. Some will grow more, others less. However none of it is guaranteed.

Am I being over ambitious, or have I not understood what the IFA has advised? Should I just be looking at some Income Bonds or even no risk savings bonds?

There is basically no such thing as no risk. You will be replacing investment risk with inflation risk.

However you need to be comfortable with the level of risk.

Have you asked the IFA to explain what you don't understand?

Communication has to be two way - if you don't tell him you don't understand he won't know.

mike88

FLAPJACK wrote: »

Eventually I suppose property prices will increase so in the fullness of time we could even sell the place at a profit....as long as it hasn't increased by more than 37k then we won't get stung for 18% Capital Gains Tax either.
If we pop our clogs then the kids wil have two places to sell (or keep for their kids) plus the capital which is in the bank.

So maybe you could consider the same idea of bricks and morter.

Excellent idea to buy a property for rent. You can avoid CGT on sale. Either purchase the property tenants in common with your wife with her owning say 95% and you 5% (geared towards your respective tax positions) so that you both benefit from the full CGT allowance when you come to sell. The tax allowance is not pro rata.

Alternatively, you can buy the property solely in your wife's name and transfer the relevant percentage to you tenants in common shortly before sale as inter spousal transfers are free of stamp duty and other tax. Doing the legal work for this latter option only requires a couple of forms from the Land Registry and HMRC; its easy as I've done it myself.

Don't forget that any income you receive is taxable but there are allowances to minimise this.

dunstonh

Should I just be looking at some Income Bonds or even no risk savings bonds?

Fixed term deposits are not risk free. Nothing is risk free. You would be replacing investment risk with shortfall risk and inflation risk.

Investments fluctuate in returns. They zig zag in value and you have to average out the returns. 5% (net of charges and tax) has been seen as a historically safe average. Some years it will fail to achieve that, some years it will lose money. Some years it will make much more. You have to average them.

Loughton_Monkey

Yes, currently, you won't get 5% return in 'savings'.

I generally find 5% is a very 'cautious' figure for equity investments. But with such a large figure outside the ISA wrapper, managing CGT could become a little difficult.

If this is the only cash you have, then I would agree it's a bit adventurous to put it all into equities.

There are a lot of people like me, I think, who are retired with pensions that cover some of our spending. I personally keep around 40% in equities and the rest in 'cash' savings of various sorts. About 5 years ago, I 'budgetted' for 4% return on cash savings (!!!!), and 5% on equity investments. And against that background, to 'make up' my pensions, my total savings should have dwindled slightly over 5 years. Currently, though, they total more than I started with! And we have had a stock market crash.

Thrugelmir

FLAPJACK wrote: »

Anyhow we think we have found a home for £80k .....the house nextdoor is for sale, so if we buy that... spend maybe 5k doing it up... (it's not too shabby to start with) then we can rent it out for £400 a month, which is the average around here..no big bucks, but the area is pretty.

At the outset you said that your a low - medium risk investor. Now you are suggesting tying up £85k in a single BTL at a gross yield of 5.64%. A return which will diminish with rental void periods and maintenance costs.

Why do you require the "fund" to grow at 5% per annum?

jamesd

confusedsteve wrote: »

I am now retired and have £300,000 to invest. I want it to grow by at least 5% per year. I regard myself as a low to medium risk investor and I plan to take out 5% of the value each year

Is that 10% total return (5% growth and 5% income) or just 5% to take as income?

confusedsteve wrote: »

I've seen an IFA who has recommended various investment funds and has shown me many illustrations where the growth exceeds 5%. However when I research some of the funds myself the one year returns only show growth of 4% or 5%. By the time I have paid AMC's and all the IFA fees I am a long way off my 5%.

What are those funds?

confusedsteve wrote: »

Am I being over ambitious, or have I not understood what the IFA has advised?

If you want 5% income plus keeping up with inflation it's not too ambitious.

confusedsteve wrote: »

Should I just be looking at some Income Bonds or even no risk savings bonds?

Those won't really do as good a job. We could probably say more if we had some idea of which specific funds, in which proportions, are being recommended.

The sort of funds that might be used and their yields include:

9.6% Marlborough High Yield Fixed Interest
7.9% Newton Global High Yield Bond
7.2% Newton Higher Income
6.6% Invesco Perpetual Monthly Income Plus (pays monthly)
6.2% Invesco Perpetual Distribution (pays monthly)
3.9% Invesco Perpetual Income

Those yields are historic and not guaranteed. The capital value varies, by as much as 40% in some of them.

If I was to give an example I'd start out with Invesco Perpetual Income as core for inflation protection, add the two other Invesco Perpetual funds to increase income and add some of the top three to give a good chance of hitting the income target.

confusedsteve

Thanks to everyone for their replies.
I need 5% income, which on my £300k investment, and my pension drawdown, will give me sufficient income. I am aware that this will not be inflation proof.

I'm interested in what Jem16 says about returns - are you saying that the returns quotes on say HL or Morningstar ar AFTER the AMC's?

Here are the funds currently being suggested,

5% AXA Framlington European Acc
5% AXA/Newton International Bond Life
10% BlackRock Balanced Income A Inc
10% Fidelity WealthBuilder
10% Gartmore Cautious Managed P
10% Henderson Global Care UK Income A
20% Jupiter Merlin Income Portfolio Acc
10% M&G Optimal Income A Acc
10% Skandia Spectrum 5
10% Threadneedle UK Eq Inc Ret Net GBP

Steve