Investment Novice needs help

mrshey

I wonder if somebody on this forum can help me come to a critical financial decision of my life. I am 49 yrs. old male. I had 100k from life cover for critical illness and would like to invest some of the money. The cover on my mortgage was also paid so I am currently mortgage free. I have also paid all my credit card and other loans and now relatively debt free. I have a good public service pensions which I have been paying into for 12 years. Apart from the 100k currently in an online saving account (2.8% interest) I have no other savings


I have thought of investing in stocks and shares and the risk involved. I have seen a couple of IFAs and have been advised to go for a balanced portfolio. The more I read about investment the more my risk level is shifting to cautious. I am mindful of the fact that it will be difficult for me to get life cover and travel insurance in the future.



My thoughts are to put 50k into saving options and 50k in stocks and shares through an IFA for 8-10 years minimum.
These are the advice of the 2 IFAs I have consulted:


IFA 1
After risk profiling, suggested a balanced portfolio on the Nucleus wrapper. Charges as follows
IFA initial charge of 2% of investment and 1% annual charge (AMC)
Nucleus wrapper set of fees of £100 and AMC of 0.5%
AMC of Weighted costs of various funds in portfolio are 0.7910 and 0.2796% additional expenses
The total annual management cost of portfolio including IFA AMC, wrapper AMC is 2.57% of funds
IFA 1 was very professional and explained things clearly and put down everything in writing


IFA 2
Initial meeting discussed charges of 5% to set up portfolio and 1% AMC with possibility of negotiating charges
If happy with agreed charges then need to sign agreement then risk profiling, then set up portfolio possibly on TRANSACT wrapper or oanother wrapper depending on my risk profile. Charges on funds to be ascertained once portfolio is set up.
Despite IFA 2 keeping info close to his chest, got on well with him. The chap was very amiable.

I am new to this and I am not comfortable doing it on my own so will really like the use of an IFA but my questions are:

1. Are these charges reasonable? If not what should I be negotiating the charges down to
2. If one is paying charges of at least 2.57% from possibly gains/losses from investment, is stocks and shares really better than savings then?
3. Any other thing I can do to secure growth to some degree
4. How can I maximise the other 50k set aside for savings.

Thank you all in anticipation for your help

dunstonh

Are these charges reasonable? If not what should I be negotiating the charges down to

Give the small size of the investment, you are not going to get great terms with IFAs. The second one is just greedy at 5%. The first one at 2% is very reasonable. 1% p.a. for servicing is fairly common now on smaller investments.

The total annual cost is on the higher side for number 1 but it would depend on the funds used. Both platforms are unbundled and non-commission paying (so commissions are rebated to you). The second one doesnt give any investment charge costs.

If one is paying charges of at least 2.57% from possibly gains/losses from investment, is stocks and shares really better than savings then?

Savings have charges as well. However, they are implicit. you see the rate after charges have been considered but you dont know what they are (historically it tends to float around 1-3%). Investments are explicit and you are told what they are. Charges eat into the return but if the return is say 8% after charges then you beat savings at say 3%. However, if the return is -5% then you lose money.

Any other thing I can do to secure growth to some degree

investing is largely about opinion. There are not many rights and wrongs but with over 50,000 conventional options out there and an infinite number of variations, you will get differences on what people think. So, there is no real answer to that other than say the concept of what you are doing seems fine.

How can I maximise the other 50k set aside for savings.

Well that is purely down to interest rates. Higher the better as long as timescale is suitable.

gadgetmind

As Dunstonh says, those sums are on the small side for an IFA so you'll find it hard to get a screamingly good deal. Over 2.5% pa in fees will seriously impact performance, but as you say you're not happy investing this money yourself, you don't have many choices.

BTW, within these wrappers, would the IFAs be moving your investments into Stocks and Shares ISAs over the years?

jamesd

The one proposing Nucleus is probably better in tune with your investment size and current objectives. I also tend to like the discussion approach that you've described.

Transact is good in many ways but is geared more to the 200k+ sort of level, combining pension and ISA and unwrapped non-cash investments at one place with handy tax reporting for the unwrapped ones. The one using this is probably geared more to those investing more money. Not necessarily good or bad that they are and it's quite a nice platform for those who need what it offers.

Best to avoid using "AMC" for annual charges made by an IFA, that particular abbreviation is used for fund annual management charges and anyone reading it in the context of IFA charging will have to do a doubletake and wonder if it's the total fund charge including IFA commission portion or an extra on top of the AMC of the funds. I've assumed that you mean on top of the fund AMC.

Either doesn't seem to be charging particularly badly for £50,000 invested. Without experience you'd probably do better with than without an IFA unless you want to put quite a bit of work into learning. I like the learning personally but it's a significant time commitment particularly at the start.

mrshey

[FONT=&quot]dunstonh, gadgetmind[/FONT] and jamesd thanks for taking the time to respond to my post. I found your contributions very enlightening .
Thanks for taking the time to respond to my post. I found your contributions very enlightening .

Thinking of entrusting the 50k with IFA1 and splitting remaining 50k into 3 lots and saving the 3 lots into fixed 1 2 and 3 years saving bonds.

Thanks again for your contributions

mrshey

gadgetmind wrote: »

BTW, within these wrappers, would the IFAs be moving your investments into Stocks and Shares ISAs over the years?

Yes gadgetmind, IFA is planning to be moving investments into stocks and shares within the wrapper.

mrshey

jamesd wrote: »

I like the learning personally but it's a significant time commitment particularly at the start.

Jamesd, I will like to learn about this new world and hopefully be able to do it myself in the future or at the very least have the skills and knowledge to be able to communicate with my IFA and also on this forum. Does anybody know of any descent books, courses, online sites that one can learn about investments?

saveonarola

mrshey wrote: »

Does anybody know of any descent books, courses, online sites that one can learn about investments?

These are perfect places to start:

http://www.fool.co.uk/Investing/guides/The-Difference-Between-Saving-And-Investing.aspx

http://www.candidmoney.com/investment/default.aspx

Also, I learned a lot just from lurking on this forum. Don't worry if there are things you don't understand, just follow what seems interesting and relevant to you. It can seem complicated, but once you build up an overall picture, it gets a lot clearer.

Tim Hale's Smarter Investing is probably the most frequently recommended book on this forum. Hale is an advocate of 'passive investing' (don't worry if you don't know what that means - if you do any reading around this subject, you'll soon come across the distinction between 'active' and 'passive' investing), but the book is also a great introduction to the basics.

oldtoolie

What are you looking for with your capital. Do you want to increase your income or to build capital for the longterm, perhaps to leave an estate?

If you have retired early and received a critical illness insurance payout, you are perhaps facing a reduced life expectancy. If you are looking to increase your income now to make your life more comfortable, you might consider an impaired life annuity. These pay better than the usual annuity because they reflect your situation.