Low Risk Strategy for Lump Sum ?

baldbloke_2

Hello there. This is definitely a savings question rather than an investment one. I keep looking back over the 10 yr funds returns and the period 1997 to 2002 just frightens the life out of me. No matter how hard I try to convince myself that reasonable risk is necessary for potentially better returns I can't bring myself to leave money in funds when the bad days arrive. So I'm dependant on the savings route I guess.

A £180k lump sum will be coming to me in the new year and I am wondering whether anyone out there manages that sort of sum actively in a low risk manner - and if so how they deal with it. My present combination of NS&I certs, 1yr BS Bonds and best-rate variable accounts seems ok for what I've saved myself but the sudden arrival of such a large sum (by my standards) has made me think anew. The capital is not needed at present and may well stay there until retirement in 10 years.

I have considered fixed-interest and bonds funds as a half-way house but the returns seem very poor - or even negative - over the past year or so and that has left me clueless and concerned.

Would an IFA be appropriate even with my reservations in mind?

Many thanks for any suggestions.

egamar

baldbloke wrote: »

Would an IFA be appropriate even with my reservations in mind?

Definitely, especially. Without question.

egamar

baldbloke wrote: »

I have considered fixed-interest and bonds funds as a half-way house but the returns seem very poor - or even negative - over the past year or so and that has left me clueless and concerned.

I have never understood that market, either. I mean how can a fixed interest instrument go down in value! (Yes yes I know, it's because it is of relatively less value at a moment in time when other just-as-safe or safer vehicles offer a greater reward, but still!)


BTW: You get good tax-planning advice from an IFA as well as an investment strategy. it may be that paying a wodge into a pension plan will benefit you as you get a 20% or 40% tax subsidy on money going in (although you pay it on any money coming out except your tax-free allowance)..... or something: the IFA will know!

Jonbvn

I too would say that advice from an IFA will be invaluable to you.

You have mentioned the Index Linked Saving Certs (my fav). Remember you can put 15k in each issue (3 & 5yr terms) and there are approx 2 issues per annum. This means you could get up to 60k into them.

I assume you have no debts or mortgages, which naturally should be paid off.

dunstonh

I think an IFA would not be of use if you are just looking at savings options. However, if you want some "training" and understanding on the different types of investments and the risk with them then that would certainly be beneficial to you.

I have considered fixed-interest and bonds funds as a half-way house but the returns seem very poor - or even negative - over the past year or so and that has left me clueless and concerned.

They would be. They always perform below par when interest rates rise. They become more desirable as interest rates drop. So, usually a good time to buy them is after interest rates have topped out and long term trend it looking downwards.

baldbloke_2

Jonbvn wrote: »

I too would say that advice from an IFA will be invaluable to you.

You have mentioned the Index Linked Saving Certs (my fav). Remember you can put 15k in each issue (3 & 5yr terms) and there are approx 2 issues per annum. This means you could get up to 60k into them.

I assume you have no debts or mortgages, which naturally should be paid off.

Thanks.

No debt and no mortgage I'm pleased to say and my modest wage covers my bills and general outgoings because I make it work that way - and yes I realize just how lucky I am.

I have saved heavily in the index-linked certs - my favourite as well - and am possibly in danger of ending up with it all in there. It seems ok to me as long as inflation and base rates tick along nicely together each rising and falling in perfect harmony over the years. Personally I can't fault that strategy with a safe cash isa as the supplement. I just wondered how others view the situation I am about to find myself in bearing in mind my lack of the risk-taking gene.

And I see that the Fidelity Moneybuilder UK Index Fund has averaged 17.29% over 3 yrs and 14.63% over 5 yrs. How nice! What is a risk-fearing man to do?!

egamar

baldbloke wrote: »

What is a risk-fearing man to do?!

:rotfl:Hmmmm ...... consult an IFA? :rotfl:
:beer:

But seriously just 10 years off retirement (as am the wide and I, more or less, but I'm not working currently) an IFA will offer tremendous assistance (and peace of mind, which is just as important) for the next 10 years and beyond.

dunstonh

And I see that the Fidelity Moneybuilder UK Index Fund has averaged 17.29% over 3 yrs and 14.63% over 5 yrs. How nice! What is a risk-fearing man to do?!

Certainly not invest in a medium/high risk fund like that. Plus it has underperformed sector average so you wouldnt be picking a good fund there.

That fund lost 43.75% between 23/8/2000 and 10/3/2003.

Its not a good fund. Its a cheap fund and thats all it is. And its above your risk profile.

baldbloke_2

dunstonh wrote: »

Certainly not invest in a medium/high risk fund like that. Plus it has underperformed sector average so you wouldnt be picking a good fund there.

That fund lost 43.75% between 23/8/2000 and 10/3/2003.

Its not a good fund. Its a cheap fund and thats all it is. And its above your risk profile.

Sorry Dunstonh - I wasn't being serious - I fully appreciate the substance of your comments.

I blame it all on the internet! :rolleyes: The opportunity to research and apply for savings and investment products that would not have even bleeped on my radar 10 years ago - it has made us all give much more shallow consideration to such important matters.

I have - seriously - considered MultiManager funds from Fidelity and HL but still the nagging doubt persists and if that's how one is then there's not much than can be said.

I appreciate your earlier comment that for a 'savings only' review an IFA might not be best - and from the time you have given to this board I have come to accept your observations as being of considerable merit.

Thanks

jamesd

baldbloke, your situation is where sector allocation with annual rebalancing comes into its own. You get the growth during the good times but rebalancing moves some of the money from the good years into the lower risk investments. Those then fall less during the bad times so you gain from the good without losing as much from the bad.

You're way into the territory where an IFA like dunsonh would love to have you as a customer so you might consider seeking advice from one of them. Or even two, each getting half of the money to manage so you can diversify your IFA performance risk as well.

I suggest that you read Ok then - How do I choose a S&S ISA to get an idea of what a sector allocation is and what an IFA should be doing. Then it's really time to hunt for one who will do that work, preferably one who does a lot of investment work. The services should include:

• Initial sector allocation using Watson Wyatt or comparable method.
• Investment selection advice within the sectors.
• Annual rebalancing.
• Advice on fund changes if a fund manager changes.

You should be expecting to see 10-15 different funds used. If an IFA suggests one or even five that's not really a good sign.

Your ten year time horizon cries out for use of a significant portion of equity funds. But your risk tolerance also suggests use of lower risk funds as part of the mix so you can get that assrance that the sector allocation and rebalancing will protect you.