Investment strategy £320K

andrewm1981

Hi,

I have been considering my options for a short while now, but am very aware that inflation is eating away at my funds on a daily basis. I have asked a few questions on here previously which have guided my thoughts, but after making some decisions I still need some direction!

I am 33, earning £45K, living in SW London. I live with my girlfriend. I would like to retire at age 50.

We have joint mortgage of £250k on a house worth £350K, at BOE+0.99% for term (24 years to go)

I have around £10K in shares (all in Tesco - where i work) not doing too well I know. I also purchase £400/month in Tesco shares through buy as you earn / save as you earn which is fairly tax efficient i understand . I pay into my work DB pension scheme the standard amount which is 5%

I have recently inherited £320K. Currently this is sitting in my account earning nothing. I want this out of here asap, as the protection is 85K.

I would like to retire at 50, or before if possible. My 45K salary is enough, just about, but i would like the flexibility to dip into it to the tune of 5K / year should I need to.

I plan to get married in the next year, and have a couple of kids soon after that.

Ok, I think thats all the info!

So my plan:

Buy 1 property, invest £80K, mortgage on the remaining £100K. This would buy a 1 bed flat, in zone 3. rent would pay the mortgage, should be paid off in 17 years, plus small capital gain. I wouldn't bank on making profit, just knowing that id be paying £300/month off the mortgage would be good. yield would be 7-8% Possibility of buying 2nd property, depending on how first played out.

This leaves £240K.

I would like to have some liquid, and so I will transfer £20K into my santander 123 account.

£220K remaining.

I would like to spread the risk.

I'm thinking maybe £100k into stocks and shares, and maybe £100k into a savings account? £20k into something a little random, maybe peer-to peer? Or should I top up my pension by around £1k month, (very tax efficient) and live off the money?

The only certainty is to invest in one property, and have £20k in cash. Im open to a medium level of risk.

If i choose to invest money in shares, is it a case of phoning up someone, e.g. HL, and stating my situation and then considering the options given to me? Im not super keen on going to an IFA TBH.


thanks in advance guys :-)

Archi_Bald

If I were you, I'd first put the lot somewhere save, such as into an NS&I Direct Saver. It will earn pennies only but you don't need to worry about the safety whilst you decide at your leisure what to do with the funds longer term.

Then I would find a really good IFA and make investments in agreement with the IFA. Not sure why you would accept the opinions of strangers on the internet, or those of a platform provider, but not those of a professional advisor who you can hold to account. (I am no IFA myself btw).

TheTracker

In today's money, and inclusive of any assumed state pension, what would you wish your retirement income to look like at age 50?

Why the attraction to BTL? Most professional advice would say that's the last thing you should do.

Is your house big enough for the kids?

Does the mother of your future kids have savings or earnings potential?

Your goal to retire at 50 looks ambitious to me.

Linton

The best approach can only be determined from a detailed financial plan based on your specific circumstances and attitudes/preferences. With a sum of £320K at stake it's not a job for an internet forum.

If you dont know how to begin to sort this out for yourself you should talk to an IFA who will ask you the right questions and discuss appropriate options with you. A few £K spent on advice will be well worth it.

Of course H-L would be happy to talk to you at a price via their advisory service, but they would just be acting as IFAs. You would probably be better off with a local IFA who can work with you face to face more easily. Standard use of H-L or any other execution only service means that you do all the deciding.

Linton

TheTracker wrote: »

In today's money, and inclusive of any assumed state pension, what would you wish your retirement income to look like at age 50?

Why the attraction to BTL? Most professional advice would say that's the last thing you should do.

....
Your goal to retire at 50 looks ambitious to me.

I agree with Tracker. To give you some idea of the money involved multiply the annual amount you need to live on by 25-30 say to get an order of magnitude estimate of the lump sum required if you want an inflation adjusted income and avoid depleting the lump sum. Dont forget that between now and retirement your needs and therefore your required lump sum will be steadily increasing by inflation.

atush

Fist of all you are getting married, that could put paid to 20-35K of your pot.

then you talk about kids. No way you can afford to retire at 50 with 3 sprogs. I ought to know lol. They wont even be done with school when you reach 50 much less Uni (which is putting off our early retirement). they cost about 200-300K to raide to age 18.

BTL is an interesting idea, but I would not be buying in london which sees very low rental yields. I'd buy ( I f wanted BTL and have considered it) in areas with high rental over owner occupiers such as university towns, near teaching hospitals or poorer areas where rental yeilds of over 6% or even 10% are more common.

AS you will pay tax on the rental income, and you have to pay taxes, maintenance etc. And if you are in a housw worth only 350K in SW london, not sure it is big enough for a family so you might need some of that cash to upgrade your own place instead.

As for pensions, i'd put some into a personal pension perhaps, and S&S isas. Does your OH have a pension? Once married, you can help pay into one for them (i'd wait til then for obv reasons).

With your amt to invest, you could possibly consult an IFA as mentioned.

Ryan_Futuristics

Yeah, just another word of caution on property - although it's nice to have money in bricks and mortar, rental yields in London can be abysmal (under 2% in Kensington) and there is a looming risk that as Quantitative Easing has inflated asset prices (in things like property), its withdrawal, and any economic hiccup, could spark a capital outflow from the city

I was looking at BTL a year ago, and talked myself out of it - since then London house prices seem to have stopped growing

I'm actually doing a similar thing to you - quite cash-heavy, and had been focused on career more than on making the most of my capital ... I've still got most in cash, but I'm drip-feeding more into stocks and shares at the moment, with 10% or so in P2P lending (an old rule of thumb is "Don't be less than 25% in the stock market, and don't be more than 50%" ... Means even in a worst case, of markets dropping 50%, you biggest loss to your overall capital will only be 25% ... and don't sell at that point - it's amazing how many people did with the previous crash)

I tend to prefer property funds and investment trusts, because you get the rental yield, the capital gain, but you can get out very quickly (unlike trying to sell a house)

Perhaps split the money in £80k chunks between bank accounts (for the protection) - earning as much interest as you can - and work out a drip-feed into the markets

Otherwise with London I've often liked the idea of buying a larger place where you can create a self-contained studio flat or annex to rent out for an additional income

Thrugelmir

andrewm1981 wrote: »

Buy 1 property, invest £80K, mortgage on the remaining £100K. This would buy a 1 bed flat, in zone 3. rent would pay the mortgage, should be paid off in 17 years, plus small capital gain. I wouldn't bank on making profit, just knowing that id be paying £300/month off the mortgage would be good. yield would be 7-8%

Have you factored in the tax implications?

Is the yield gross or net? More to running a property business than just collecting rent and paying interest.

andrewm1981

Hi, first of all, thanks for your replies.

I have bought in Mitcham, and would look to buy-to-let in mitcham area. The house is 3 bed, 3 story, 110sq/m so not huge but good for a couple of kids. rental yields are around 7-8% (lots of flats around for 140-160K that can return 800-1K/month) so not too bad either. what attracts me to buy-to-let is that Ive always had a strong interest in property, and like the monthly income plus the likely inflationary gain on the capital. This is obv not guaranteed, but on a 15-25yr timescale, is likely. The rough maths detailed below is after accounting for voids / repairs / tax, and would leave me little extra every month, except for the mortgage being paid off. so 300/month x 12 =3600 on an 80K investment, so roughly 4% (post tax) plus capital gain.

My girlfriend currently earns 30k which is enough to pay the mortgage and have an ok standard of living which I support with my wages..

If the retire at age 50 goal wasn't reached then should things change then working towards a goal of retire at 55 would be fine. current mortgage will be paid off around then, so required income would be around 40K / year to be comfortable.

Perhaps a few hours with an IFA would be money well spent after all!

Ryan, you say you're drip feeding into stocks and shares, what method?

thanks

Ryan_Futuristics

andrewm1981 wrote: »

Ryan, you say you're drip feeding into stocks and shares, what method?

Well I mainly use Hargreaves Lansdown (not the cheapest broker, but very reliable, and well suited for regular savings into stocks and shares) and in essence what I'd do is set up a monthly savings plan - where it will take a certain amount each month from my bank - and it divides the money into a selection of funds

Beyond that, it depends how involved you want to be and what you want to make back ...

You could save £500/month into a multi-manager fund, and leave it alone, and let it build up gradually, and perhaps pay you an income on the side of 4% (minus about 1% fees and charges)

Or you could pick a selection of highly rated funds each specialising in different regions and sectors if you like to be more involved

With a passive approach, you can probably expect long-term returns of about 5% above inflation (with inevitable dips and swings) - which will grow over time with compounding

With a more involved approach, it depends how well you can steer the ship ... Most DIY investors make around about 2% returns (but that's not to say it's difficult to do better ... more that the masses will always act slightly irrationally)

I pay a regular amount into two top-rated funds (Woodford UK Equity Income and Murray International), both paying 4% back into my bank, while growing capital long-term ... then I've got about 40-50% of my portfolio I manage more actively, where I'll use valuation tools, like CAPE ratios, to buy low value regions and sectors (things that are out of favour) - but that's a good month or two worth of research before I'd embark on anything like that ... Potentially you can make a lot more, but you've got to be quite disciplined and analytical (most investors aren't) ... A good introduction to that could be Meb Faber's book Global Value - but it's certainly not necessary unless you enjoy investing (and probably strategy games)

ACF95

If you go to an FA ask them about a SIPP, your tax rate would mean that if you invest £8,000 you automatically get £2,000 back and can claim another £2,000 back on your tax returns. The plan to retire at 50 might have to be pushed back though as you can't touch the money till you're 55.