No idea what to do with £300K!

dunstonh

IFAs can't make any money out of telling people to invest in NS&I Index-linked Savings Certificates...

IFAs are the biggest introducer to NS&I products. NS&I even have an IFA dedicated website.

Our IFA, whom we have known for a long time, is the best in our part of the country as far as we are aware. Having said that, he did not mention the NS&I Index-linked Certificates - maybe he assumed we already knew about them, which we did.

It may depend on how you are employing the IFA. Are you using them to only look at your investments and not your deposits. Also, NS&I whilst a good option to hedge against inflation as part of your cash holdings, they are not generally considered great for the larger part of your long term portfolio. So, objectives will come into it.

Aegis

Kohoutek wrote: »

IFAs can't make any money out of telling people to invest in NS&I Index-linked Savings Certificates...

Actually, they can. They can't receive commission for doing so, but if they operate on a fee basis or an assets under advisement basis, they certainly can make money through such recommendations.

Kohoutek

Aegis wrote: »

Actually, they can. They can't receive commission for doing so, but if they operate on a fee basis or an assets under advisement basis, they certainly can make money through such recommendations.

If someone tried to charge me more than a nominal fee to advise me to invest in NS&I products, I would assume they were interested in extracting value from their clients' finances, not adding value as IFAs supposedly do.

Aegis

Kohoutek wrote: »

If someone tried to charge me more than a nominal fee to advise me to invest in NS&I products, I would assume they were interested in extracting value from their clients' finances, not adding value as IFAs supposedly do.

If you'd agreed an hourly fee with the adviser and they gave you the advice, supplied you with the application forms, checked through the details and sent them off to NS&I for you, then they would charge for those activities. Not much, perhaps, but they would certainly be right to.

Likewise if they arranged to keep track and advise on all your assets regardless of whether they were cash or risk assets, then their total assets under advisement fee would include the advice on the NS&I products.

If all they're doing is providing a 1-line recommendation to invest into them, then I'd suggest that even a nominal fee would be unjustified, it should just be included in the report writing costs (whatever those may be).

dunstonh

This is part of what people need to understand more. You are paying an IFA to provide advice. Advice is the product that the IFA is selling. The financial product, whether it has explicit charges or implicit charges is irrelevant. Its the advice and the quality of advice that matters.

If the best advice is to use a financial product with no explicit charges but implicit charges then it is advice worth paying for.

uk1

MrandMrsB wrote: »

If inflation continues to rise, our savings could be almost worthless very soon! At present we need to spend around £3K per year to maintain our home / garden, and another £1-2K for treats and feed ourselves better. So say we need £5K after tax per annum.

Thanks again.

It isn't quite like that.

From my simplistic calculation (you need to check) - and ignoring tax - if you were to simply put your cash into bank accounts and received just 3% per year and it the interest never increased (unlikely!) and you spent £5k in the first year, but increased the spend by 5% each year you would only run out of cash in just over 40 years. If you only increased your spend by 4% each year it would last for around 48 years. Obviously when interest rates improve so will the life of your pot.

If you did your NSI, and maxed out on your cash ISAs into 5 year savings each year eg Birmingham Midshires at 5% you will unlikely ever run out of cash - and you need never worry about investmenting clever or using IFAs. You could relax and enjoy an uncomplicated life ........

Loughton_Monkey

I think your position is much wider than "what to do with £300K". You have done well and built up a decent sum, and I guess that your husband's recent retirement has spurred you on to think about what best to do.

Personally, I think there's a danger of 'cart before the horse'. I would start off not considering 'where to put it' at all just yet. The very first thing(s) to do are to forget ISA's, wrappers, and NS&I for the moment, and simply make some assumptions on inflation and for the sake of simplicity, just as a start, assume you will get income/growth from your liquid assets roughly at the rate of inflation.

So map out your spending for the rest of your days. You shoiuld know what you spend, and how much you want to spend. This should be inflated over time.

Now map out all your other income stream(s). That's mainly pension and state pensions.

It is a relatively simple calculation to project through every year's spending, including taxes, and this will be covered by pensions plus investment/savings income plus eating into capital.

All this is very 'back of the envelope' but it is essential to understand where you are. If you run out of the capital by the time you are 70, then you have a problem. If you don't run out until over 100, then the only 'problem' you have is how much more spending you can afford to make on luxuries.

To be quite frank, whatever you do with your cash resources is not going to change the answer by 'miles'. The 'Financial Advice' will and can only change this equation by a few years. This is partly because, at your time of life, a healthy proportion must stay in 'safe' vehicles, and only a smallerproportion should go into 'investments' of any kind. Most likely, the most valuable part of any advice will be more to do with maximising tax breaks, and optimising savings rates, rather than picking out a bag of investment funds in Peruvian Tanneries or Chinese Salt mines.....

Also, the 'timing' and 'cash flow' planning are also issues to be addressed.

All these things are very personal to you, which is why any comments here can only be 'comments' and not taken as hard advice. Many of us feel competent to plan this out ourselves, others need an IFA to do this sort of 'thinking'. But even when using an IFA, it's far better to have tried to do the job yourself. Only in that way will you have a clear idea of your main 'challenges' - whether it's the taxation aspects, the 'fund choice' aspects, or the savings/investment ratio, or maybe dealing with problems of longevity - or perhaps on how (when) you might need to tap into the value of your house.....

Nothing much will 'spoil' over the next few weeks. It's well worth getting out the pen, paper, and calculator (or spreadsheet) - concentrating on the spending aspect first. It's so important.

kidmugsy

"Nothing much will 'spoil' over the next few weeks." Unless ns&i withdraw their blessed certificates! By the by, we bought them by downloading the forms and sending them in with cheques. The money left our bank account wihin a few days, meaning that it arrived either at ns&i or at some robber.

kidmugsy

P.S. Some of the sages here urge the importance of planning out future expenditure, which sounds pretty wise to me. But I am stumped by what to enter for our medical/care outgoings. There's every chance that the entry should be "nil" but also every chance that it would be a dominant sum in our calculations, while being very hard to estimate. I scratch my head.

jamesd

The book has US authors so it'll probably make a common US recommendation to use tracker funds because on average in the US after tax they outperform the average of managed funds after tax. The US has a higher capital gains tax rate on investments held inside a fund for less than a year. The UK doesn't. In the US the managed funds on average outperformed the unmanaged before tax. The short term tax that we don't have here is what made the difference. Not that anyone would buy the average fund. The first thing you do when selecting active funds is throw out all of those with consistently bad records and only consider the rest.

Coverage of asset allocation is good, though since it's a US book it'll inevitably end up being US-centric and basing recommendations on the performance of US markets, not UK or global.

For an adviser the use of tracker funds makes life easy. A significant part of the work is finding which of the active managers is the most appropriate one to be using, based on their world view and investments being used. Trackers eliminate that work. They also eliminate the chance of making bad managed fund choices that could upset clients, another advantage for an IFA.

You should pick trackers when you can't identify an active fund in the area in which you are investing that you think has a good chance of beating tracker funds long term. That could be in growth or income or it could be in reduced volatility. You should also pick trackers if you don't want to review the funds at least once a year - trackers are ideal for those who don't care about their money and don't want to do any work on it.

MrandMrsB wrote: »

He ... will charge 1% commission for looking after the "investment wrapper" for us - and there is a further 0.75% to pay to the company who runs the "wrapper".

So he's not proposing to do it on fee basis but suggested using commission, at twice the normal rate of commission charged by IFAs. That's an excellent deal. For him. You should be paying him a fee and no commission at all. That is clearly in your best interests. Just one year of the £3,000 commission on a £300,00 investment would be enough to get all of the work done, with no ongoing cost other than the wrap cost itself.

For wrap or platform he might be thinking of something like Skandia. That can reduce costs. It's available for a few hundred Pounds in up-front fee with no ongoing costs from some IFAs. Similar deals for other platforms. So there needs to be some serious justification for charging anything more.

If he mentions "investment bond", a form of tax wrapper, and moving money from ISAs into an investment bond, you should be very cautious because it's unlikely to be a good move. Use the ISA allowances first is almost always the right decision and any advice that doesn't say do that is suspect. The reasons given have to be very good to make it worthwhile.

MrandMrsB wrote: »

My gut feeling is that we should make no major changes at present until we have a better idea of which way the economy is heading.

The time to be buying is when uncertainty is depressing prices. Wait until the answer is known and you've already missed the chance to buy cheap. But the UK economy isn't of huge importance because you can invest in the whole world, easily.

MrandMrsB wrote: »

As for the point about whether we have enough money or not... At present we need to spend around £3K per year to maintain our home / garden, and another £1-2K for treats and feed ourselves better. So say we need £5K after tax per annum.

That's 1.67% of £300,000. You can't get that plus inflation from almost completely safe investments like savings accounts. So you'll really need to make some use of bond and income funds of various sorts, though perhaps less than 50% of the money can be in them.

One easy option is for each of you to put £3600 gross a year into a pension. You get basic rate tax relief on that even if not a tax payer. Net gain on the cost of the money put in is 36% after allowing for the tax free lump sum you can take out. That's before any investment growth.