Want 5% on £300k

jamesd

You might use unit trusts because:

1. You don't want to limit yourself to only 20 shares, the number that even a very concentrated unit trust might hold.
2. You don't want to be checking the financial news for each company every day so you can react to it if required, instead preferring to leave that to a pro and do more interesting things with your own time.
3. You don't know much about smaller companies in Brazil, Indonesia and China but think that those are good places to be invested.
4 You want something cheaper than the dealing fees of buying and selling shares. Try working out the cost of investing in 20 shares with a monthly contribution of £50. You can easilyt do it with unit trusts, at minimal cost.

darkpool

Aegis wrote: »

3% each year?? Who pays that?

I don't hold a single unit trust with a TER over 2% at the moment, let alone an AMC. Even a bank retail fund at maximum charges wouldn't get up to 3%.

Where are you getting your figures?

but the TER doesn't include all charges levied by a unit trust. It doesn't include dealing charges etc. I read once that unit trusts hold a share for an average 6 months. by the time you include dealing costs/ stamp duty and a cut for the market maker you'll have costs of circa 3% a year.

If you think paying someone 3% to look after your money is a good deal fair enough. I just object to the fund management industry misleading the consumer with terms like TER. TER is certainly not the total amount you pay.

darkpool

jamesd wrote: »

You might use unit trusts because:

1. You don't want to limit yourself to only 20 shares, the number that even a very concentrated unit trust might hold.
2. You don't want to be checking the financial news for each company every day so you can react to it if required, instead preferring to leave that to a pro and do more interesting things with your own time.
3. You don't know much about smaller companies in Brazil, Indonesia and China but think that those are good places to be invested.
4 You want something cheaper than the dealing fees of buying and selling shares. Try working out the cost of investing in 20 shares with a monthly contribution of £50. You can easilyt do it with unit trusts, at minimal cost.

Some interesting points.

1. You could invest in more than 20 shares. With nominee accounts it really is very easy to look after a large portfolio. There is very little paper work.
2. The professionals don't seem to be that good at investing. I think it a widely accepted that active management does not deliver better returns than trackers.
3. You buy shares in the likes of Unilever and Shell and you do get emerging market exposure.
4. You could save up your monthly contributions then invest a lump sum.

dunstonh

2. The professionals don't seem to be that good at investing. I think it a widely accepted that active management does not deliver better returns than trackers.

No its not. Its perceived by many to be that but the evidence doesnt support it. Neither can you say that active management will beat trackers. To suggest either is far too simplistic and both would be wrong. There is more to it than that. In some areas trackers can be ideal. In other areas they can be the worst choice to make.

3. You buy shares in the likes of Unilever and Shell and you do get emerging market exposure.

it gives you asset allocation but not sector allocation. Also, going 100% equity is higher risk as you dont have fixed interest and property exposure that a balanced portfolio would have. Shares will also incur costs when you rebalance them each year.

Costs will certainly be lower with shares but your ability to be as diverse is far more limited. With a balanced portfolio in funds, you will typically have no more than around 2% in any one company. By the time you build asset diversification and sector diversification into a share portfolio you would end up spending a lot of money on charges and it would be more expensive for the smaller investor.

To eliminate shares as an option would be silly just as to eliminate funds as an option would be. Both have pros and cons and you should consider both and even perhaps utilise both.

gadgetmind

No-one seems to have mentioned Investment Trusts yet. These seem to mostly out perform Units Trusts and the annual fees are much smaller.

I'm probably going to start doing annual investments into -

• PNL Personal Assets
• RCP RIT Capital Partners
• RICA Ruffer
• CGT Capital Gearing
• BTEM British Empire Securities
• LTI Lindsell Train

These are all looking to a mixture of growth and income. You can bias things more towards income, but going beyond 4% pa will involve some risk of eroding capital over the decades.

principa

Given you attitude to risk (low to medium) and wanting a return of 5% a year, consider investing a proportion of the 300K in a cautious managed fund and leave the remaining in cash. The cash income should cover your subsistence at least.

In selecting a fund, a good starting place would be the cautious managed or absolute return sectors.

darkpool

dunstonh wrote: »

No its not. Its perceived by many to be that but the evidence doesnt support it. Neither can you say that active management will beat trackers. To suggest either is far too simplistic and both would be wrong. There is more to it than that. In some areas trackers can be ideal. In other areas they can be the worst choice to make.



it gives you asset allocation but not sector allocation. Also, going 100% equity is higher risk as you dont have fixed interest and property exposure that a balanced portfolio would have. Shares will also incur costs when you rebalance them each year.

Costs will certainly be lower with shares but your ability to be as diverse is far more limited. With a balanced portfolio in funds, you will typically have no more than around 2% in any one company. By the time you build asset diversification and sector diversification into a share portfolio you would end up spending a lot of money on charges and it would be more expensive for the smaller investor.

To eliminate shares as an option would be silly just as to eliminate funds as an option would be. Both have pros and cons and you should consider both and even perhaps utilise both.

to be fair i've read numerous times that active management isn't worth the extra fees. AM would have to outperform the market by 3% just to get the same as a tracker. it is possible - but unlikely for every manager to do.

regarding diversification, i've about 60 holdings. as long as they are in a nominee account you don't have that much paperwork.

Yeah I like property as an investment. But I don't think 300k is enough to buy property. I certainly don't think buying flats to rent out is a good investment. I do like the likes of British Land and Land Securities though

I wouldn't rate fixed income as an investment, inflation is 4.4% and 10 year gilts have a redeption yield of 3.5% (or it was last time i looked). That certainly doesn't look like a good investment. i think all those pension funds being forced to buy gilts distorts the market making it a duff investment

VT82

mike88 wrote: »

The point is that as you get older you have to be more careful with any money you have. When you retire you have to bear in mind that any losses are virtually impossible to recoup as you no longer work and any earning potential is reduced.

I have sold my investment properties so now have 50% of my assets invested in the stockmarket and 50% in cash. Even if I lost everything in the stockmarket I would still be comfortably off. But Flapjack only has £300K so he has to be careful with suggestions of putting all his money into investments. His proposal to spread his risk by investing in a house next door to his seems eminently sensible to me.

Surely you are not suggesting that high yielding shares cannot lose money. If anyone thinks that they should go back to the drawing board.

You have misunderstood my point. I was not saying that not investing in shares was an opportunity cost. I was saying that having a house empty, even if it only has minimal bills to keep it ticking over, is an opportunity cost, because they could be earning interest on the money spent on the house by having it in a savings account instead.

But the discussion seems to have moved quite far on from this.

N1AK

FLAPJACK wrote: »

Ok thats a loss of course but as Mike88 says, in the fullness of time that would be recouped by the rise in value of the property in the long term.
Which for passing on to the estate could be better than more risky ways of investing longterm.

Assuming that property price increase. If it does, capital gains on the sale of property is based on the change in price since purchase. As selling a house in small chunks is usually impractical, this makes avoiding a CGT liability harder for whomever were to inherit it.

Buying the property could well be a good financial move. These posts were purely intended to highlight some aspects of your plan which I feel come over as over-optimistic, or simplified by ignoring or dismissing risk.

mike88

N1AK wrote: »

Assuming that property price increase. If it does, capital gains on the sale of property is based on the change in price since purchase. As selling a house in small chunks is usually impractical, this makes avoiding a CGT liability harder for whomever were to inherit it.

Buying the property could well be a good financial move. These posts were purely intended to highlight some aspects of your plan which I feel come over as over-optimistic, or simplified by ignoring or dismissing risk.

The above post has confused the requirements of the original poster (confused steve) who want 5% on £300K and Flapjack who merely wants to purcase a property next door for £80k to spread investment risk.

Nevertheless I shall answer the CGT point raised.

Liability to CGT can be minimised by having the property in the names of husband and wife and you can minimise income tax liability by splitting the ownership in accordance with the individual's income tax status. For example, you can specify a 95%/5% split with your wife while both owners retain their full CGT allowance. You can even vary these percentages prior to sale in order to minimise CGT.

In the 2010/2011 tax year Flapjack and his wife would only be liable to tax on net profits in excess of £20200 not forgetting that any "approved" capital spent on the property can also be used to offset CGT. CGT is of course only payable on sale. There are dangers of getting sucked into a higher tax banding upon sale but this can be managed to minimise liabilities.

The above post mentions "dismissing risk". Some of the suggestions made seem to think its appropriate for a retired couple to invest their lifetime savings in shares and unit trusts rather than have a range of investments to include property.

The question therefore is.................... Is it less risky to have a balanced portfolio of shares, unit trusts, cash and property or is it safer to invest 100% of your available capital in the stockmarket.