Rules for safe investment.

BML

I know nothing about investing money because for the better part of my life I have not had any spare and when I did eventually come into some I gave it to my children as I had no need for it. One of my children recently asked me what they could or should do with a £100,000.00 they would have if they sold their house and I did not have the faintest idea what to say to them so I thought I should post this conundrum here. I have occasionally looked at the range of suggestions one comes across in the financial columns of the press but I know nothing about Financial Advisors and whether they are efficient, effective or can even be trusted so the question is:
Are there any set rules for investing money such as whether one should split up ones investments, where should one place money if one is risk averse and I'm sure the questions could mount so does anyone have a suggestion to make as to what are the rules for safe investment if indeed such rules exist?

eskbanker

BML wrote: »

Are there any set rules for investing money such as whether one should split up ones investments, where should one place money if one is risk averse and I'm sure the questions could mount so does anyone have a suggestion to make as to what are the rules for safe investment if indeed such rules exist?

There are no simple rules as such but it's generally considered sensible to spread investments to minimise risk and volatility, i.e. diversifying across geographies, sectors, asset classes, etc, rather than piling everything into shares in one company for example.

Risk is really a scale rather than binary yes/no, so IFAs will use profiling questionnaires to establish what your attitude to risk is.

And just in case you're unaware of the difference, investment and saving are sometimes used synonymously but inaccurately - saving is keeping money in cash form earning interest with no risk of capital loss, whereas investment involves buying products where there is greater risk but greater potential reward too, from growth and dividends (for equity products) or inflation of property values (owning a property is already an investment).

In terms of being asked what to do with £100K, there are a number of questions to be asked over and above attitude to risk, such as objectives, timescales, family/dependents, work security, willingness to work a bit harder, etc, together with a view about overall financial circumstances, such as whether the person concerned has adequate pension provision for example.

AnotherJoe

What are they planning to do with this £100k? Buy another house with it in a month or , or invest it for 30 years for their pension? Or something else?

So, perhaps you can see why there's no simple answer to your question. "It depends".

BML

I had never thought of "saving as keeping money in cash form earning interest with no risk of capital loss, whereas investment involves buying products where there is greater risk but greater potential reward." So thank you very much for that so as my child is risk averse I suspect that the next step is to look for a form of savings that at least keeps pace with inflation that is if there is such a thing.

dunstonh

Are there any set rules for investing money such as whether one should split up ones investments,

Simple "rules" would be
1 - know what you are doing and what you are trying to achieve
2 - if you dont know then use someone that does but try and understand as much as you can.
3 - take no more risk than you need to but dont go too "safe" that is almost pointless investing.
4 - structure and reason. Random selections will not work out for the best.

where should one place money if one is risk averse

What risks are you averse to?
investment risk, shortfall risk, inflation risk, provider risk etc

Risk is not on/off. It is a sliding scale and everything have some risk. The risks will vary with each option. Even cash savings have risk. Indeed, in some scenarios, cash savings can be higher risk than investments.

I had never thought of "saving as keeping money in cash form earning interest with no risk of capital loss,

yet cash savings are subject to inflation risk and shortfall risk. In the short term, that is not likely to be an issue but long term it will be.

Pincher

The rule is: You have money, "they" want it.

They will all want a cut for handling your money.

If you invest £100k, and get back £101k, how much do you think had to be made and spread across all the middlemen?

I like to think that it's a bit like Pilgrim's Progress, by John Bunyan.

Once you see the process in motion, by discovering more and more of it, you realise that it is nothing but a food chain, and how big a cut you get depends on how predatory you are.

Study to be a financial adviser, get a suit, get paid for saying things like: "Investment is for the long term. It will bounce back in a few years. You shouldn't have put in money you need to live on. It's a bad time to cash in."

AnotherJoe

BML wrote: »

the next step is to look for a form of savings that at least keeps pace with inflation that is if there is such a thing.

There isn't.

dealer_wins

Put it all on red every 20 years. That will keep it ahead of inflation (as long as you win)

BananaRepublic

Where will they live after selling their house? A house is a very good investment as a) you need somewhere to live b) it is free of tax when you sell (but not when you buy) and c) historically it has performed very well. If they really do want to sell, sensible rules are to reduce risk by buying collective investments such as unit trusts and to spread across multiple markets. Do your research, you'll see that emerging markets tend to be volatile, the UK market tends to be less volatile, but less 'exceiting'. If you don't know what you are doing, an IFA is safer than DIY, if you do your research, educate yourself, DIY is the preferred choice for some. I accept no responsibility for any huge losses you might make as a result of my advice, but I'd appreciate a decent wodge if you make big gains ....

paddyrg

Keep absolutely well away from exotic investments with tempting brochures and speculative upsides. Graphene was widely promoted some years ago, and you can find all kinds of people still happy to take your money, but http://www.antifraudnews.com/investing-graphene-expensive-soot/ shows the risks of investing in such a fashionable unknown resource!

I'd also suggest steering absolutely clear of any other exotic investments, including anything to do with Movies.

Eco_Miser

BML wrote: »

Are there any set rules for investing money such as whether one should split up ones investments, where should one place money if one is risk averse and I'm sure the questions could mount so does anyone have a suggestion to make as to what are the rules for safe investment if indeed such rules exist?

A good place to read about (fairly safe) investment is Monevator

For savings, that currently beat inflation, but are limited in amount, and probably in time, see this thread and this article.

As already mentioned, avoid newspaper, and other, tips; exotic investments and bank advisers.