Investment Portfolio help please!

NoviceInvestor1

Hello all,

I am a medium term lurker, and first time poster so please be kind!

I have spent quite some time on the forums, especially around the Savings and Investments part as this is the area of real interest to me. So far there has been a heap of useful information at hand!

To paint a bit of a picture as to what I am coming to the forum requesting your kind help/advice with, I am in a position whereby I have circa £8 000 - £10 000 p/month to invest, my aim is to see 5-6% return on this and I am here for a bit of a sanity check on my planned portfolio.

From the various bits I have discovered so far (to give some context 6 months ago I hadn't even heard of a fund....) I plan the following;

30% held as cash (some in current account for a rainy day, some in bonds, possibly some tied up in peer to peer lending)
30% in funds of which circa 20% low risk, 20% high risk (Biotech possibly, Brazil possibly), 60% medium/high-ish risk (AXA Framlington Managed Balance, Woodford Equity Income)
40% in property, which I initially thought buy to let

For further context (as I have seen these questions are key to how people answer these such queries);

• I am 29 years old
• I plan to invest for 10 years and then do a "stock take" to see what happens next (I won't need this money over that period of time all being well)
• My ltd company will be paying £500 p/month into a SIPP (separate to this investment portfolio)
• I own a house with my girlfriend which is worth circa £280k with £195k ish left on the mortgage
• Outstanding debts are minimal as I have recently paid most of them off. There is £5k ish owed on a business start up loan and a nominal amount on a credit card which I tend to use then pay off as I get points for using it! I have the mortgage and a PCP on a car (6%)

Having set up an account on Hargreaves Lansdown I have started putting money into funds via my ISA and I will also be looking to utilise my partners ISA allowance too assuming this is ok to do.

My questions are as follows, again I would be most grateful to any of the expert opinions on here;

• Are there any major flaws in my plan?
• Are my objectives achieveable i.e. return of 5-6%?
• I initially liked the idea of buy to let but there are a LOT of comments that put me off within the the various forums - time invested (I work 12 hours a day and importantly my business generating revenue is solely dependent on my input so don't see where I would have time for it), dodgy tenants, missed payments, hassle etc etc. As such I am thinking my exposure to property could be better utilised by using a fund (commercial property funds may get me close to double digit return) or property peer to peer (landbay, lendinvest, returns circa 7%). Does anyone have experience of these alternatives as exposure to property, or indeed any other ideas on property? Part of me is thinking stick to the funds, see where I am at in 10 years time and if I don't fancy the day job any more I "should" have enough to one side to start up on the property side full time i.e. buy to let, buy to refurb, develop etc
• I assume the funds are the best use of my ISA as they'll return the most, so have the most to protect from our friends at HMRC, is this correct?
• Would investing in VCT's be crazy? I understand they're very high risk but good tax breaks...would love to hear of anyone's experience with them
• Finally, I would love to know what to do with my SIPP! Are the funds I am already investing in typically seen as a little high risk for a pension pot? (as an aside the reason I am investing so little into the pension versus outside of this is that I am not planning on working to pension age and like the idea of my money being accesible. I aim to utilise the investments out of my pension and/or a buy to let portfolio as my "income generators" when the time comes to not be working)

Thank you in advance for any assistance!

TheTracker

Where does the 8-10k a month come from? If it's from earnings from your limited company I'd suggest you need more tax advice than planning advice. I couldn't work out why you'd have 8-10k/month yet only be putting 500/month in a company SIPP.

Why so hot on property? Where's the appeal as a sector that would lead to such extreme allocation?

It's fine to explain your planned allocation in terms of how much deployed to each risk profile, but risk spreading is not the same as diversification. Diversification is key.

You're right that the ISA is a good vehicle for sheltering funds, but make sure you have enough of a rainy day plan should they falter significantly.

VCTs are risky vehicles that are most appropriate when you've fully utilised other tax efficient means otherwise available.

NoviceInvestor1

Hi TheTracker,

Thanks for your comments. The 8k-10k is from dividends and is what is left over after I have set aside for tax liabilities and paid my monthly living costs - mortgage, bills, car, monthly train pass etc. The reason for the minimal SIPP contributions is that I don't intend on working until retirement age, and would like to have access to my investments to further invest in future. For example, if in 10 years time I don't fancy the day job any more I may plough my investments into developing a property portfolio to live off, or look to invest in start ups or something similar that will generate income.

Your question on property is more than valid, and when looking at the figures and % it does seem an over allocation. I guess I had always seen property as being a pension pot, in terms of having enough buy to lets to live off plus potentially see capital appreciation as well as income. I was thinking £40k = 40% deposit on a £100k house (in't North) so get a property a year over the next 10 years. BUT 40% of an overall portfolio in property does seem a little OTT particularly now I have done a bit of reading into some of the risks, not to mention unexpected costs. Not that anything is risk free, but property (buy to let in particular) looks to have both risk and the need for time committed to it - which I don't have.

When you refer to diversification as opposed to Risk spreading, are you referring to geographical spread of investments for example? I.e. having money spread across UK, Emerging Markets, USA etc? Or do you mean something else? Thanks for your help again.

AlanP_2

For me diversification on the sums I am dealing with (much lower than yours) in the main means the split between asset types - S&S (via Funds or Direct), Bonds, Cash, Property (Residential & Commercial) etc.

Within the S&S element it then comes down to Geographic, Company Size and Sector (e.g. BioTech).

%'age allocations is at the end of the day down to you but given that you are talking about investing >100k per year I would be taking professional advice from an IFA and my Accountant to minimise tax and set something up that is based on sound principles given your age, intentions, dependants and attitude to risk.

Spending less than 1 month's investment funds finding the "best" homes for 10 years worth ~£1m seems like a no brainer to me.

steelbru

http://monevator.com/portfolio-diversification/
Good summary of diversication, they split it into vertical diversification ( different asset types - eg property, bonds, equities, etc ) and horizontal diversification ( different instances of the same asset types, eg for equities would be by region, sector, etc )

That page is part of a series of articles on passive investing, starting at http://monevator.com/category/investing/passive-investing-investing/

jimjames

Making the most of 40% tax relief while it lasts would seem to be a good idea. You don't need to put all the money in one place but increasing the £500 would look to be worthwhile.

In terms of your other funds maybe look into tracker or Vanguard LS series funds which may be less work to look after long term.

TheTracker

It seems to me you are tax inefficient to the degree investment choices are the lesser concern. What's your accountant say?

If you are pulling out enough dividends from YourCo to have 96-120k ieft after tax then you are paying oodles of income tax. Common practice is to extract only enough divvies to bring you to the HRT threshold. Pay yourself SIPP contributions up to 40k. Invest retained earnings as you wish, ensuring for close investment rules you don't exceed about 20% revenue through the channel. Eventually liquidate the company with entrepreneurs relief at 10%, using VCT/EIS if you dare.

TheTracker

jimjames wrote: »

Making the most of 40% tax relief while it lasts would seem to be a good idea.

It's not 40% relief if he would never have been exposed to it as he draws funds as dividend income at an effective rate of 25%.

NoviceInvestor1

Thanks all for the helpful pointers thus far.

AlanP - good heads up on asset types and I think I have my allocation a bit off. Definitely too property biased, and not enough thought has gone into what funds etc. I need to do some work on this, cheers. Ref an IFA I have a friend who is a wealth manager who has been giving me some ad hoc advice, I am loathed to ask too many questions of him in some respects as I don't want to take the mick given it is free advice! Perhaps you are right and I do need a "proper" session with an IFA rather than combining his advice with what my accountant says.

Steelbru - very handy links, thank you. I hadn't come across monevator oddly, it seems to have loads of good content. Will get stuck into this over the coming weeks.

JimJames/TT - I am a bit restricted as to what I can and can't do with the limited company as my business partner needs to be in agreement! I would indeed rather reduce how much we are taking out and either pay more into the SIPP OR just leave cash sat in the business - after all is there any point paying HRT withdrawing cash which is then going to gain close to 0% interest? Definitely not. Flip side is he thinks paying more tax is a good problem to have as it means we are making more. I can see his point to an extent in terms of it being a good problem to have, but as you've suggested there may be a better way. It is a problem that perhaps doesn't need to exist. Accountant is a top guy and very helpful but hasn't been hugely vocal when it comes to tax minimisation other than the usual "spend what you can before you take it out" type stuff.

One option is to create 2 x share classes so my business partner and I (everything is 50/50) can take different amounts at a time (i.e. he could take 10k dividend, I could take 5k and chuck my other 5k into my SIPP) and I could retain some of mine in the business, but then I don't know how comfortable I would feel having some of my investment or personal wealth effectively tied up in a business which isn't 100% mine if that makes sense.

Again your perspective has been very helpful and I need to give some more thought to the tax inefficiencies you've highlighted here.....thanks.

TheTracker

NoviceInvestor1 wrote: »

One option is to create 2 x share classes so my business partner and I (everything is 50/50) can take different amounts at a time (i.e. he could take 10k dividend, I could take 5k and chuck my other 5k into my SIPP) and I could retain some of mine in the business, but then I don't know how comfortable I would feel having some of my investment or personal wealth effectively tied up in a business which isn't 100% mine if that makes sense.

Again your perspective has been very helpful and I need to give some more thought to the tax inefficiencies you've highlighted here.....thanks.

A further option is to use the jointly held company as a holding company, each of you own separate companies, and invoice the holding company. You'd then be free to disburse funds independently in the manner you see fit. This option comes with its own pros and cons that an accountant can advise you upon. Your company must be making 3-400k profit so tax efficiency is key. Much depends on your business plan. If your company grows even 2 fold tax implications will increase.

If you're a novice investor I'd tread lightly in your first forays. I hazard a guess most seasoned investors tripped up early, but it's best to trip when you have limited funds.

jimjames

If your accountant isn't giving tax or pension advice it might be worth getting a different one or using one specifically for tax planning.