Investment Options for £80000

jpg1982

Hi,

I'm posting on behalf of my mother who is about to retire. She has a lump sum of £80000 and is looking for ideas of where to place it.

The lump sum is not needed for living costs and she has money saved in an emergency fund for unexpectated occasions (held in savings accounts). She is mortgage free with no dependants (now). My father is also retired.

With Cash ISA rates being so poor I have suggested a stocks and shares isa looking at a low risk fund. The thought being the money could be put in over a few tax years.

My questions are, does anyone have any other suggestions? And any suggestions for suitable funds?

Thanks in advance

bowlhead99

The problem is that 'low risk funds' are not returning a great deal more than you would get on a cash ISA on £80k, while carrying risk of value drops. But it depends what you mean by 'low risk', which is something that's different for everyone.

For example, if she doesn't need the money for living on or emergencies or any major planned expenditure, and does not need to draw an income from it and can afford to just forget about the money for 10-15 years, then it doesn't really practically matter if the fund drops in value by 30% or so one year, because it has another decade to recover and grow back above the original investment value.

Many people could handle that just fine. To some people, that would be a 'medium risk', with 'high risk' being 50-60% loss potential in equity funds before a long recovery and 'very high risk' being anything from 70% and up.

But to others, especially those who haven't invested before, a 30% drop sounds like 'high risk' and they may panic if they see their £80k investment grow a little and then later crash from that higher value down to less than £60k. If they panic and sell the investment when it is only worth £58k because they don't want to lose as much as 30% off their original value, and then the market bounces back up without them, they have lost over a quarter of their wealth, which probably wasn't in the game plan.

So, while I'm not suggesting an investment with 30% loss potential in a given twelve months is something that would be right for your mum, it is difficult to steer without knowing whether her risk tolerance or mindset would be, "hmm, that's a bit more risk than I'd be comfortable with", or "that's a lot more risk than I'd be comfortable with, I could only really stand to see the value go down 10-15 percent before becoming overcome with worry".

Remember that very 'low risk' investments, just like cash deposits, have little chance of going down in value in nominal terms but may offer relatively little 'upside'. There are different types of risk. If she had the £80k under the mattress with 3% inflation each year for a decade, there is no 'investment risk' (there is of course risk of fire and theft...) but the £80k is worth less than £60k in real terms at the end of a decade of 3% inflation, and there is a risk that even if inflation was covered, the money wouldn't grow to as much as she needs for her later life (whether that is holidays, care fees, inheritance or charitable objectives, etc).

So, cash and low yielding bonds might sound 'low risk' but have an expectation of real terms loss or a big potential failure to meet whatever her long term goals are. In such circumstances actually 'medium risk' would be a better thing to take, if she can handle it.

kidmugsy

https://forums.moneysavingexpert.com/discussion/5656184

See particularly comment #7.

Pincher

Everybody and his mother is clambering to get on the stocks and shares life boat. Too much money from QE sloshing around. They are talking about "liquidity trade", in the sense that the historic height in stock market indices are buoyed up by too much cheap money.

Read the Sunday Times Money section.

They have a How to Invest £10,000 section every week.
Plenty of suggestions on what to buy.


Preservation of spending power is top priority for retired people.

If you look at the hyper-inflation gripping Venezuela and Zimbabwe, what do you say to yourself?

1. It will never happen to sterling?

or

2. I want some non-sterling assets under my belt?