Advice sought on investing my recently-bereaved mother's £100K

Doraemon72

Firstly, many thanks for reading my thread.

I just wanted to seek some advice from those on the MSE Forum as to the most prudent way of investing about £100K. The situation is that my 75-y-o mother's husband (my father) passed away a short while ago and yesterday I managed to finally complete the sale of their Spanish villa. Subsequently, and with one thing and another, my mother now has £100K to her name, something I'd like to invest wisely given that her state pension is not especially substantial and she doesn't have a private pension.

Of course, the decisions around investing any amount of money largely depend on how much risk one is prepared to take. In this instance, a small amount of calculated risk is fine, but the emphasis would be on making a little bit of money as time goes by without jeopardising the original capital.

As such, I'm just wondering what options might be available above and beyond simple savings accounts and ISAs?

Should anyone have any suggestions, they'd be most welcome!

Again, thank you very much for reading.

All the best

bugbyte_2

I once read a really interesting article about how to invest in the stock market without the possibility of loosing money. It went something like this -

Find the best savings account you can. Say 2.5% (Don't laugh). Put the majority of your money in there.

Then, pick a stable investment - i.e. M&G Strategic Corporate Bond A. Its Standard deviation - how much it wobbles up and down is - 4.28%, Therefore, you are unlikely (but not impossible) to loose more than 5% in a year. But to be sure, lets say in a REALLY bad year, this fund has the potential to drop 10%

The trick here is to get the gains on the guaranteed 2.5% cash account to cover potential losses on the investment.

Using this method, you could invest £80,000 in a 2.5% account and gain £2000 interest.

You could invest the remaining £20,000 in the corporate bond fund, which has the maximum unlikely potential to loose £2000. (Anything above that you could put a stop loss on).

BTW I know the above method does not take into account inflation.

dunstonh

but the emphasis would be on making a little bit of money as time goes by without jeopardising the original capital.

So, in other words you do not want any investment risk but are prepared to accept inflation risk and shortfall risk. Is that correct?

What is the purpose for the money? income, growth to spend herself, pass on to dependents on her death.....

atush

I don't understand from what you said your mothers complete situation.

Such as, dies she have a full basic SP, or was she getting 60% off your father's contribs? Did your father not leave her a survivors work pension? as they had a Spanish Villa, did they not have other savings and investments? How much per year does she need to cover her outgoings?

What about debt? A home in t he UK? A mtg?

Debt should be paid first, then she needs a certain amt in cash such as living expenses for a year, Fill a Cash ISA, any upcoming home maintenance/replacements. Then, you should probably think of investing some of the money while keeping the rest in cash.

Cash will not, at today's rates, beat inflation much less increase in real terms. So if she keeps it in cash, it will shrink in real terms each year. Which is what the inflation risk above is about. Shortfall risk is that the money generated off a savings acct won't cover her needs.

merlingrey

I'd say keep 20K in cash put 30k in a managed corporate bond fund as suggested above and pick 4 blue chips with high dividend yield stocks like vodafone sainsbury's and tesco's, stick £5k in each.
And go for £30k in premium bonds (older people enjoy those).

Linton

Until we know what the money is for we cant say what would be a wise investment.

Does mother need extra income? If so how much? On the other hand she may have all the income she needs and wants the £100K to grow in value for the benefit of her child(ren).

Does she want a lump sum set aside to cover care costs in her very old age or to pay for frequent cruises? How much would be sensible?

donniej

This is quite a tricky one, particularly in today's climate.

All investments involve an element of risk - so you couldn't go for investments without putting the original capital at risk. The risk can be smaller or greater depending on what you want to invest it, but no investment is completely risk-free (and that includes bonds.)

So that leaves cash. The problem with cash is that interest rates currently on offer are mostly below inflation; which means that although the amount of money you have in your account goes up a little each year, what that money is worth actually goes down a little each year.

If you want to reconsider investments in that light; bonds are usually considered lower-risk than stocks/shares. However, they are not risk-free. I'd invest in a form of collective investment rather than buying bonds individually, to reduce risk (eggs not all in one basket.) That would mean investment funds, ETFs or investment trusts. Funds are the most popular, but ETFs can be a good option if you have a good idea of how you want to invest (and can work out cheaper depending if you don't trade often).

dunstonh

We cannot have solutions until we know what the objectives are.

Doraemon72

Thank you so much to all your advice -- it is so greatly appreciated.

To answer a few questions posed above -- again, thank you! -- the aim of trying to do something with this £100k is chiefly to grow the amount for the sole benefit of my mother rather for her offspring (me). She can survive on her pension (we've managed to improve the weekly state amount since my father died, but still it's not an awful lot), but I was just hoping that, say, over the next 3-5 years we might be able to invest the money wisely in such a way as to make the money work for my mother rather than it stagnating in a bank (or, of course, losing money in real terms).

Just to be a little more specific (because I wasn't so in my original thread), I am certainly prepared to accept some risk in any investments chosen, but I just wanted to steer a wide-ish berth around those that are potentially quite volatile, i.e. potentially steady gains are the objective, I suppose.

Again, thank you all -- it is tremendously appreciated, as I say.

benalder284

Recently faced a similar situation with regards to my stepmother. Age and prospects of longevity are crucial factors as well as how much income, if any, you need from the capital (given that you state that leaving an inheritance is not a primary concern) are issues you need to work out as they help clarify objectives and timescales - only you and your mother can really assess this and even that is for some families quite a difficult conversation especially after a bereavement - I'd be tempted to go for a savings account with reasonable interest until you and your mother can focus on these issues.

Linton

Doraemon72 wrote: »

Thank you so much to all your advice -- it is so greatly appreciated.

To answer a few questions posed above -- again, thank you! -- the aim of trying to do something with this £100k is chiefly to grow the amount for the sole benefit of my mother rather for her offspring (me). She can survive on her pension (we've managed to improve the weekly state amount since my father died, but still it's not an awful lot), but I was just hoping that, say, over the next 3-5 years we might be able to invest the money wisely in such a way as to make the money work for my mother rather than it stagnating in a bank (or, of course, losing money in real terms).

We still need to know whether she wants an extra steady income or just a pot available should she ever want to access it.

At one extreme she could purchase an annuity which would use up all her money but could guarantee say £7000/year inflation adjusted for the rest of her days no matter how long she lived. Or perhaps she could spend half her money on an annuity and keep the rest as a lump sum.

Note: the £7K may well not be the right number for her health and circumstances but it gives an idea.

Another possibility is that her money is invested in dividend paying shares. That may give her sustainably say £4500 per year tax free without too much inroad into the overall value value of her money.

Or you put the money in a bank account which perhaps will give a fixed £2K per year subject to income tax, its value and the value of the lump sum falling by inflation each year. Compared with the other options that doesnt look too good to me.

There are any number of possibilities depending on precisely what is required. For £100K it could well be worth talking to an IFA - as you can see from the sort of figures I have suggested the wrong choice would cost far more than paying an IFAs charges.