Looking for saving and investment advice

Josh_bear

Dear All

I would appreciate any guidance. I have been reading the forums but decided to ask directly.

I am 45, do have a mortgage but can't pay that off without penalty until May. Note I have the funds for that set aside already. Both myself and my wife have used all ISA allocations and in addition we have invested the max allowance in Premium bonds. My wife also has her ISAs as well. In addition to the above we have saved approx £300k and have no debts. This capital of £300k has sat in bank accounts and I have not made the most of it by any stretch of the imagination.

Allowing for an emergency fund as many advise on here this would still leave funds for investments. I am willing to take some risk with £50k of this capital and would welcome your thoughts on where to start bearing in mind I am a novice. In addition what would you advise for the remaining £150K. (I have kept back £100k as the emergency fund).

Thanks for any help

Josh

Linton

Given that you have more than enough in cash to meet your medium term needs to make any real return at all you should start looking at investing in share based funds. £50K in a broadly based multi asset fund could be a reasonable starter, preferably in an ISA. Suggest you talk to an IFA.

Josh_bear

Thanks for the response. Regarding IFAs how do you know and good one when you see them?

Josh

Al.

Josh,

Whoever you discuss matters with, choose a few IFA to get a broad feel for strategy, empathy, costs and approach etc. Good luck. And remember, starting isn't a race. Take your time.

colsten

Try this: http://www.moneymarketing.co.uk/paul-lewis-a-consumer-guide-to-finding-good-advice/

Eco_Miser

About the emergency fund: you can spread it around current and Regular Savings accounts to get 3%-6% (around 4% overall). As a couple, you can have a sole account each and a joint account (3 total) for many of the accounts listed here and two sole (4 total) or three sole (6 total) for the others.

bowlhead99

Josh_Bear wrote: »

In addition to the above we have saved approx £300k and have no debts. This capital of £300k has sat in bank accounts and I have not made the most of it by any stretch of the imagination.

Allowing for an emergency fund as many advise on here this would still leave funds for investments. I am willing to take some risk with £50k of this capital and would welcome your thoughts on where to start bearing in mind I am a novice. In addition what would you advise for the remaining £150K. (I have kept back £100k as the emergency fund).

There is some sensible advice above; see a few IFAs to find one you could get on with.In addition to the advice on the link, if you have no recommendations on specific IFAs because you don't have any friends who would in all honesty know a good one from a bad one, you could use the search tool at unbiased.co.uk.

You say you have 300k: 100k cannot be 'risked' because it's an emergency fund and 50k can be risked to make some returns. And you ask what to do with the other 150k that can't be risked.

The obvious first question is if the 150k is not your emergency fund, why can't it be risked? Is it needed for some specific objective like paying off the house in a few months? If so, stick it in the highest paying set of bank accounts or national savings accounts that you can find which don't have a lock-in beyond the date you want to spend the money. If using banks rather than NS&I make sure it is in joint names so you get FSCS protection, or if that is inefficient from an income tax perspective because one of you or the wife pays higher tax on interest than the other, put it in the most appropriate person's name and use multiple banks. The returns after tax will not be very high either way, once you've used up the capacity of all the best accounts for your emergency fund.

If the amount is *not* needed for any fixed objective but still can't be 'risked', then ask yourself what you mean by not risking it.

For example, if you intend to use it in your retirement in 20 years' time, be aware that (e.g.) 3% inflation compounded for 20 years will reduce the real-terms value of the amount by 45%, so £150k becomes an effective £80k unless you can get an after-tax return on it that always equals inflation and is always reinvested rather than spent.

When people realise that's almost impossibly difficult to achieve over the long term, they sometimes reconsider their attitude to avoid all forms of investment risk, because inflation risk and shortfall risk can become just as critical over the long term, and pensions which carry investment risk can also have great tax benefits.

Obviously if you are going to spend it all in a few months or years time then it truly can't be used for any investment opportunities and so a bank or NSANDI deposit account is fine.

Josh_bear

bowlhead99 wrote: »

You say you have 300k: 100k cannot be 'risked' because it's an emergency fund and 50k can be risked to make some returns. And you ask what to do with the other 150k that can't be risked.

The obvious first question is if the 150k is not your emergency fund, why can't it be risked? Is it needed for some specific objective like paying off the house in a few months? If so, stick it in the highest paying set of bank accounts or national savings accounts that you can find which don't have a lock-in beyond the date you want to spend the money. If using banks rather than NS&I make sure it is in joint names so you get FSCS protection, or if that is inefficient from an income tax perspective because one of you or the wife pays higher tax on interest than the other, put it in the most appropriate person's name and use multiple banks. The returns after tax will not be very high either way, once you've used up the capacity of all the best accounts for your emergency fund.

If the amount is *not* needed for any fixed objective but still can't be 'risked', then ask yourself what you mean by not risking it.

For example, if you intend to use it in your retirement in 20 years' time, be aware that (e.g.) 3% inflation compounded for 20 years will reduce the real-terms value of the amount by 45%, so £150k becomes an effective £80k unless you can get an after-tax return on it that always equals inflation and is always reinvested rather than spent.

When people realise that's almost impossibly difficult to achieve over the long term, they sometimes reconsider their attitude to avoid all forms of investment risk, because inflation risk and shortfall risk can become just as critical over the long term, and pensions which carry investment risk can also have great tax benefits.

Obviously if you are going to spend it all in a few months or years time then it truly can't be used for any investment opportunities and so a bank or NSANDI deposit account is fine.

Thanks All. Appreciate the response. Re the question above, good challenge. I think that I am showing my natural stance of being risk averse. The £150k is not needed for the mortgage as I have that set aside already. I also have and additional £180k in ISAs and other products not mentioned above so I guess holding £150 back makes less sense.

My next steps are to find a good IFA. Thanks for the direction.

Josh

crux

Take a close look at what inflation does to cash over a long time and then (unless you really do think we will get pulled into global deflation) take another look at where your risk is.

Al.

Josh_Bear wrote: »

Thanks All. Appreciate the response. Re the question above, good challenge. I think that I am showing my natural stance of being risk averse. The £150k is not needed for the mortgage as I have that set aside already. I also have and additional £180k in ISAs and other products not mentioned above so I guess holding £150 back makes less sense.

My next steps are to find a good IFA. Thanks for the direction.

Josh

Josh,

This may, or may not, be useful to you. Quoted from a blog I did last week, appropriate as it was written as the Chinese markets slumped again.

"So the big question then of course, is, what is investment risk? Put simply, it is a measure of how much uncertainty there is about the return an investment may deliver. The more risk you take, the wider the range of potential outcomes. Taking additional risk can therefore lead to higher or lower actual returns than you would otherwise have achieved so you must balance your desire to receive a potentially greater return from a riskier investment with a lower return from a less risky investment

Let's look at each in turn. Assessing how much risk you are willing and able to take can be complex, although things usually boil down to three basic questions which need to be answered:

1. How able are you to emotionally deal with the ups and downs of investment returns, in other words, how are you able to tolerate the emotional highs and lows?

2. How much can you afford to lose - or how much risk are you capable of taking?

3. What returns do you require to meet your objectives, in other words, what is your investing objective?

Risk tolerance - how much risk are you willing to accept? Risk tolerance is not just an economic concept, it’ a psychological consideration too. The first question addresses your psychological ability to tolerate the ups and downs of investment performance. Understanding your personal risk tolerance is fundamental to ensuring you are satisfied your with investment outcomes.

Risk capacity - how much risk are you capable of taking? This question defines your capacity for loss. While you may be willing to take a high level of risk, you need to balance this with the potential for loss. Your dependency on the income in retirement from your portfolio, or how quickly you will need to withdraw capital, will determine your capacity for loss. No one should ever recommend an investment that exposes you to greater risk than you can tolerate or have the capacity to manage.

Risk requirement - how much investment return is required? The third question focuses on your short, medium and long-term objectives and the required investment return to achieve them. You refer to £300,000. Even if you have significant capital working to achieve your goals and a willingness to take a high level of risk, never take more risk than absolutely necessary - higher risk introduces increased uncertainty, which leads to a greater range of potential outcomes. The result may be significantly above, or significantly below your financial objective.

So, let's be clear. The markets have gone back to work in 2016 and all hell has been let loose, risk us at the forefront of everyone's thinking today. When it comes to investing, risk is inevitable. The three areas might have completely separate and distinct motivations and factors which affect your decision making."