What to do with £1 Million?!...

jamesd

gadgetmind wrote: »

BTW, does that include assets in pensions?

You have to actually hand over the money. So probably not in most cases, though some SIPP providers might have a product that's suitable, I haven't checked. Some of the US options are commercial property related and a mortgage within a SPP might be acceptable for them. For the US type I've read that it's possible to borrow the money and that would provide a way to use pension funds. For the Australian type you need to hand the money over to a state government and also have the same sort of amount again free after doing that.

One of my desirable objectives is getting my assets to the point where I have some of these options before retiring.

gadgetmind

Jonnymac wrote: »

I was really hoping to live off the interest on my lump sum for a bit - but I couldn't on the 1.39% offered by my bank!

Your risk free return will barely keep up with inflation. However, you won't have to take silly risks to create an income stream, and you won't lose the £1m unless you try to take too much from it, or if nearly every company in the world collapses.

You may find the "Investing for Income" MF board interesting.

http://boards.fool.co.uk/investing-for-income-51637.aspx

jamesd

Jonnymac wrote: »

just want to maintain my lump sum into old age as best I can for security, and may be look to get a 7-10% return to fund a decent life for my family if this could be at all possible. I can afford to be a bit adventurous, but if I lost it by doing something stupid I'd never forgive myself.

The long term return of the main UK stock market is about 5% plus inflation. You cannot expect to get 7-10% real from mainstream equity and bond investing. I don't think that you have the money to do anything truly esoteric that would get large parts of your money to grow far above the 5% level without excessive risk.

Some UK P2P is around that will pay around 10% with security that's reasonable. The major catch is that this is likely to be an ephemeral opportunity and in particular the options are likely to be flooded with hot money at the next major stock market downturn.

You've sold a business. What is the tax situation? Do you want or need to reinvest some or all of the money in EIS or Seed EIS investments to avoid a large capital gains tax bill?

I hope you're familiar with VCTs. If you're not read my post in Tax Efficient Options that illustrates how to use them to eliminate income tax. Read the cautions about high allocations to VCTs at the income level aimed for in that description, though yours at £40k a year would be considerably less at peak due to the larger starting capital.

You're old enough that pension restrictions will soon be a memory so you should use your annual £3600 gross pension contribution allowance.

Choice of which part of the country to live in matters hugely. property, water rates, gas and electricity costs and general shopping are cheaper in some parts of the country than others. If you have a home in a high cost area like the south east a modest move northwards or westwards could save a substantial amount of ongoing spending and also release capital currently tied up in a property.

Jonnymac

To JamesD & Gadgetmind,

Thanks for your positive input - I'll need some time to get my head around your suggestions, but I'll try to come back with sensible questions later if that's OK...

If it helps, I currently have £994,000 in cash at HSBC, I will have a smallish pension, and I own some property which was for my retirement. I expect to remain in the UK.

techfy12

First arranged great party for getting 1M, invite all your friends and family your loved ones and yes your haters as well, and celebrate the moment
then next day , be serious and find out all investment plans, or business plan.
invest you money in one excellent plan and generate revenue ...!!! :P

jamesd

So tell us more about the pension and property. You need an integrated plan, not a piecemeal one. So we do actually need to have a good understanding of all of your assets and objectives. If I recall correctly children and a spouse have been at least hinted at. Their situations also matter, like incomes or restrictions of location and maybe desired spending on them for large costs like university (don't let them avoid loans, they are a good deal) or property deposit (a good move).

If you just want to be told what to do, set up an account at Ablrate and have a look around with a view to investing £10,000 there over the next three months. Either in advance or after doing that initial investing decide if you think it's for you longer term. It's currently my favoured place in the UK P2P market.

HSBC is unlikely to become insolvent even if Greece exits the Euro tomorrow or at the end of the month but you should spread that cash at HSBC around so you're within the £90,000 per institution FSCS protection limit. Nine more savings accounts should be in your near future. You don't need to place the money at risk, so don't, it's not that hard to open nine more accounts.

jamesd

jamesd wrote: »

Global equity tracker, bond and property funds are boring. They are also the core of an appropriate strategy. Make extensive use of them.

To expand on this a bit: if you don't put at least half of the money in these core investments, you're screwing things up unless it's for transient reasons like the VCT approach I described. That is, literally, say £300,000 in a single or collection of global equity tracker funds as a core base investment. There's a range of weightings to consider, like cap-weighted, equal weighted and such. Personally I like more even weighted than cap-weighted by market because I think it's prudent to have lower US investment level at the moment, given the relatively high cyclically adjusted price/earnings ratio in that market.

Use income versions of these funds if outside a tax wrapper because that simplifies your CGT accounting by eliminating the need to track each internal reinvestment into the fund, something that gets hugely messy. Of course you should then reinvest the income, but that's explicit and you'll have clear records and the opportunity to choose the timing for your convenience.

Marine_life

Jonnymac wrote: »

To JamesD & Gadgetmind,

Thanks for your positive input - I'll need some time to get my head around your suggestions, but I'll try to come back with sensible questions later if that's OK...

If it helps, I currently have £994,000 in cash at HSBC, I will have a smallish pension, and I own some property which was for my retirement. I expect to remain in the UK.

You haven't commented on how much income you had prior to selling the business and how much you expect going forward - that would be the starting point i.e. if you expect 25k or 50k will make a big difference to your options.

Jonnymac

Marine_life wrote: »

You haven't commented on how much income you had prior to selling the business and how much you expect going forward - that would be the starting point i.e. if you expect 25k or 50k will make a big difference to your options.

Prior to selling, My wife and I took ca. £35K each as Dividends + £6K salary each which we pooled, to remain under the higher rate tax threshold. We didn't really need this much to live on, but it would be nice if we didn't have to take a huge drop in lifestyle...

Regards.

gadgetmind

Jonnymac wrote: »

£35K each as Dividends + £6K salary

So, £82k pa without any tax. Sweet!

To be blunt, despite £1m seeming to be a lot as an asset base, you have a few choices.

1) Find some magic way to draw 7.5% from your funds without depleting them. This is well above the usual 4% rule of thumb so *very* high risk.
2) Need to keep working to bring in extra funds.
3) Need to drop your withdrawal rate down to 4%, or even lower, so about half of what you've been living on.
4) Some combination of (2) and (3).

Can you live on £60k a year, so £5k pcm? If so, that's £10k each from part time jobs, £40k from your investments as dividends, no tax, happy days!