Investment / savings advice for £50,ooo please?

jamesd

irishjohn, to start out, for the first 10,000, to 15,000 put each 1,000 into a different fund, and work on having one fund in each sector initially. This way you'll get a lot of risk spreading and are less likely to see another big drop like the tech one. Cheerfulcat gave some sectors to consider: equity income, gilt/bond, global growth.

As you get beyond an initial spread of at least 4-5 sectors you can start adding money to other types of fund (big companies, small companies, value or growth) and/or adding money to some existing funds to get you the risk balance you want.

From April next year it's expected that you'll be able to move money from cash ISAs to stocks and shares ISAs so that'll let you increase the proportion of your investments which are in a good tax wrapper.

What do you expect your total pension income, including the two state pensions, to be in retirement? Possibly above 20,000? If so we should discuss that also, since you have some opportunities to reduce your future tax bill by choosing suitable tax wrappers.

Please also say more about the values and types of the two Legal and General policies and the pensions. It's possible that changing one or more or using one early might help your tax position by letting you get more of your money in a tax reducing wrapper and then taking income without tax.

The first part of your best plan for avoiding tax in retirement is probably to look to use the maximum stocks and shares ISA limit every year. You can use corporate bonds to get safety comparable to cash if necessary, though mixing in European property and equity income will increase likely returns without adding a high amount of risk.

Today you can buy unit trusts of investment trusts for most of the money and you can switch them into the ISA each year in chunks of the ISA limit.

EdInvestor

Hi Irishjohn,

Sorry you took my remarks to heart so much: they weren't aimed at you personally at all, just a general comment on what seems to be a widespread tendency. Obviously this tendency even affects some advisors , as in your case.

I quite understand your bewilderment: What's a newbie to do?

The thing is I think to take on board as dunstonh says that there are many levels of risk, on a scale of 1 (cash) to 10 (tech stocks or equivalent.)

You probably need a mix of investments on levels 1-5.Forget about levels 6-10.

That might include cash, bonds/gilts, commercial property funds, and some of the safer types of equity funds (the ones that focus on dividend income).

Keep asking questions on this thread so you can learn more about how to do this.

irishjohn

Thanks to everyone - I am grateful for this info - I think I am like a lot of people - lived most of my life with no spare cash and then suddenly benefit from moving from England back to Ireland and what was a much cheaper housing market so able to take £50K out of my sale and purchase. Before this year there was no point in looking for stocks and shares etc as there was no money.

My views on investing were a bit like the cash ISA - find what looks like the best one and put £3K in and move as necessary - I was thinking I had to more or less do the same with the S&S one - but can see that is not the right approach and might have just given me a history repeating itself situation!!! Now you have all given me a much clearer idea of how to get started - take my time - spread things a bit - and get learning - thank you all and I will keep posting (Ed - now I have found the starting line - please DO tick me off if you see me going off course!! )

jamesd

That's the idea. Now, here's how you can hold tech fund equivalents, say a China-only fund, and make money from them without going way outside your risk tolerance.

Lets say that you buy 1000 worth of UK government bonds, gilts, and 1000 worth of one pound units of the China fund and that their risk levels are 1 and 10. You average risk is 5.5 = (10 + 1) / 2. That's close to the risk level of sticking 2000 into a UK equity income fund so it's not hugely risky.

After one year, the gilt is worth about the same and say the China fund has doubled in value. Your risk level is now (1 + 10 + 10) / 3 = 7. That's higher than the 5.5 you were after so you sell 500 worth of the China fund and buy gilts. Now you have 1500 in each and you're back to a 5.5 average.

The next year the China market plummets and it's now worth just 20% of its value last year. The gilts keep plodding on and we'll pretend that it's still worth the same. Now you have 1500 in the gilt and the 1500 in China is worth only 1500 * 20% = 300. The total value is now 1500 + 300 = 1800.

That's a terrible year for the China fund - doubled one year, reduced to a fifth the next - but even with that huge drop you're only down 10% from where you started.

You did that by "banking" the money while it was up, even though it then fell to just a fifth of the price it was at when you originally bought it. This pair of principles is called sector allocation - picking the sectors to choose your desired overall risk level - with rebalancing - the buying and selling to keep the risk level at your target level.

At this point your risk level is mostly low - you have 1500 in risk level 1 and just 300 in risk level 10. Here's where you start to arrange to make money from the drop. Rebalancing time again and you want 900 in gilts and 900 in China. But for this China buy the price has fallen so far that your 900 is buying them at 20p each instead of the Pound when you first bought them.

Next year and the gilt is worth the same and the China ones have doubled, taking them to 40p each, still way below your original buying price in year one. You're at 900 in gilts and now 1800 in China, total 2700. Rebalance time. 1350 in gilts, 1350 in China.

Next year the China fund doubles again and you're at 1350 in gilts and 2700 in China. Rebalance to 2025 each and the China fund is still only at 80p each.

Same China doubling again. Now you're at 2025 in gilts and 4050 in China. Rebalance and it's at 3037.50 each and the China prices are at 1.60 each, not a huge gain on where you started. But you have 6075 total and 3037.50 of that is in the "bank" gilt fund and safe. Not bad for 2000 starting money.

You've just weathered a huge crash and a few years of recovery without a huge loss and made a substantial profit. Rebalancing to take the profit at the top and buy cheap after the crash is how you did it. After five years your money has grown by about 25% compounded each year.

No need to avoid the high risk ones, just mix them in in small quantities and know how to exploit their bouncing up and down. And remember to buy low, not get out when it's low - as long as the fundamentals are sound - China isn't going away, unlike some of the tech stocks.