Investing a LARGE lump sum for income

Mr_Dudley

Hi

I posted on here a year or so ago and my plans are still on track. I hope to be in a position to stop "formal" work about 20 years before my pension starts.

I would like an income before any tax of around £60,000pa

I have around £1.8 million to invest for income to get me through the 20 years. I want to keep the capital intact over the period (although I realise the REAL value of the capital will fall).

I have invested £250k in 2 small houses (purchased as repossessions) which will be let out on AST's producing around £10k pa net (4%)

I have also invested a further £450k into several unit trusts (equities) which should produce a further £13.5k pa of dividend income (3%)

The above income streams should (hopefully) broadly rise to keep pace with inflation.

I also have £85k on a 5 year fixed rate with a Bank at 4.5%pa producing nearly £4k pa gross.

So far the above investments should provide me with an annual income before tax of around £27,500 so I still need to find £32,500pa to get to my target gross income of £60,000

So I still have £1065k to invest..... and £32.5k pa to achieve

So far I have steered well clear of bonds but maybe there will be some attractive bond oppotunities if prices continue to slide?

Anyway my question is where would you invest the remaining monies for a) income and b) income that might keep pace with inflation....

Thanks!

Mr D

Paxli

Where are you getting 4.5% on a bank account?

Mr_Dudley

"Where are you getting 4.5% on a bank account?"

State Bank of India - I invested it in September 2012 - the rate is now 2.5% for new funds.....

Forget about getting anything over 3% from a bank and that won't change for years yet.....

vectistim

I see you have a couple of houses, have you considered buying some freeholds? (eg: A block of flats might have 20 leaseholders paying say £150 ground rent a year for the next 80 odd years.)
Some such leases also include an element of indexation - a common option I've seen is the ground rent doubling every 25 years, which is a rather lumpy form of indexation at about 2.8% pa.
I'd expect gross yield to be around 7-8% for this sort of thing, then maybe lop a bit off to pay the management company to do administer the payments for you.

innovate

What's stopping you from getting proper, tailored, advice from an IFA? Why would you invest a million on the say-so of some strangers on an internet forum?

Reaper

Mr_Dudley wrote: »

I want to keep the capital intact over the period (although I realise the REAL value of the capital will fall).
...
Anyway my question is where would you invest the remaining monies for a) income and b) income that might keep pace with inflation....

For those sums of money you would be better off going to am IFA rather than getting opinions on a forum. I would be looking at all the tax free opportunities first ranging all the way from a safe cash ISA to risky EIS/SEIS.

You mention bonds as an option. Being fixed income you have to realise the market value of the bonds changes over time depending on the likelihood of the company going bust and what interest rates and inflation are doing. So if you sell them again later you will get more or less than you paid for them. If you plan to hold them forever that matters little.

The fixed income example I always use is RSA preference shares (similar to bonds but check you understand the differences). If you bought them today you could earn 8.1%. That is not inflation proof but you would be earning more than your target so could re-invest the extra to provide a growing return.

Please note that is just an example of what is out there, please don't sink a million in a single share!

jabba42

Mr_Dudley wrote: »

"Where are you getting 4.5% on a bank account?"

State Bank of India - I invested it in September 2012 - the rate is now 2.5% for new funds.....

Forget about getting anything over 3% from a bank and that won't change for years yet.....

IN GBP? In rupees you can get 9% now.

Mr_Dudley

Reaper wrote: »

For those sums of money you would be better off going to am IFA rather than getting opinions on a forum. I would be looking at all the tax free opportunities first ranging all the way from a safe cash ISA to risky EIS/SEIS.

You mention bonds as an option. Being fixed income you have to realise the market value of the bonds changes over time depending on the likelihood of the company going bust and what interest rates and inflation are doing. So if you sell them again later you will get more or less than you paid for them. If you plan to hold them forever that matters little.

The fixed income example I always use is RSA preference shares (similar to bonds but check you understand the differences). If you bought them today you could earn 8.1%. That is not inflation proof but you would be earning more than your target so could re-invest the extra to provide a growing return.

Please note that is just an example of what is out there, please don't sink a million in a single share!

Hi

Re why don't I use an IFA because I want to be very involved in these investments going forwards as I don't fancy playing golf all day. Maybe it's worth just having some good IFA advice initially and then self administer beyond that?

Is there such a thing as a "rated" IFA search engine? I did sit with St James's place but left the meeting with a distinctly uncomfortable feeling - having all my money tied up with them for many years and paying NO tax on the income seemed too good to be true.....

Thanks

Mr D

Reaper

Mr_Dudley wrote: »

Re why don't I use an IFA because I want to be very involved in these investments going forwards as I don't fancy playing golf all day. Maybe it's worth just having some good IFA advice initially and then self administer beyond that?

In that case I think you have a lot of studying to do. For example Venture Capital Trusts for a small part of your investment might appeal but you have to understand them first. There is risk and they are hard to sell but you can expect income from them and a hefty tax break. A good IFA can talk you through these options and you can weigh up the risks v rewards.

Mr_Dudley wrote: »

Is there such a thing as a "rated" IFA search engine?

Not so much, though a recent web site has started trying to get customer feedback. I rather wonder how qualified those customers are to give feedback - will they give good reviews during boom years and bad reviews during crashes?! I have only looked at it briefly myself but if you want to give it a go it is at:
http://www.vouchedfor.co.uk/

Mr_Dudley wrote: »

I did sit with St James's place but left the meeting with a distinctly uncomfortable feeling - having all my money tied up with them for many years and paying NO tax on the income seemed too good to be true.....

Possible but there must have been risk involved. Are you willing to share their suggestions?

Chickereeeee

People think that investing for income means investing in income producing assets (eg dividends from shares).

Don't forget you can also invest in growth funds, and sell as needed (using you capital gains allowance each year) to achieve your income target. Also, growth shares/funds tend to perform better at different times to income shares/funds.

c

vectistim

Mr_Dudley wrote: »

Is there such a thing as a "rated" IFA search engine? I did sit with St James's place but left the meeting with a distinctly uncomfortable feeling - having all my money tied up with them for many years and paying NO tax on the income seemed too good to be true.....

Unless things have changed as far as I'm aware St James Place is just a rebrand of Allied Crowbar with a pretty brochure, which isn't quite the same as an IFA