How to Average 4% a Year Risk Free?

Roland_Flagg

Probably too simple a question, but
Being naive a few years back I thought the answer was to put money into the more well know P2P companies. Zopa, RS, FC etc.
But now I want to move money away from those, but I need more than the 1.5% I'm getting at Marcus.

So say I have £250k and I wanted that to grow by 4% on average every year but didn't need to take any income for at least 10 years how do I archive with as little risk as possible?

Basically I'm aiming at £10k+ a year interest and I'm prepared to just let the money gain interest and not touch it as long as it is as risk free as possible.

I'm looking at Regular Saver accounts and Bank Switches with linked Regular Saver accounts at first but I still have too much money sitting in Marcus. So I'm looking at VLS40 or 60. Drip feeding monthly and not touching it for at least 12 years.

Anything else I should be looking at?

BTW, I did ask a similar question a while back, but I'm slightly changed my way of thinking and my needs, so thought I would ask again with a slightly different thread.
Cheers.

Linton

What risk are you trying to avoid? Do you wish your wealth to never fall? Or do you mean you want protection against losing all your money? Or something in between? If you mean never to fall....

You cannot get a better risk free return than from a fixed rate cash savings account, at least not for substantial sums of money.

Anything less than completely risk free is obviously on a sliding scale. 95% risk free could be achieved by putting 95% in a cash term account and the rest somewhere very risky.

However looked at another way, if you just use savings accounts you have another risk - inflation. It is quite possible that the inflation rate will be higher than the interest rate so although you are always gaining in £s the real value is falling.

Risk is something you have to live with. The first step is deciding what risks you can accept.

AnotherJoe

Roland_Flagg wrote: »

Anything else I should be looking at?
.

Yes, what you mean by "risk free" because as said there is no such thing.
You might think that (say) Marcus at 1.5% is risk free but if inflation is 2.5% then you are losing 1% a year guaranteed. Is that a "risk" you are happy with, a certain 1% loss a year? That might be 10% loss over your ten years.
VLS40/60 arent risk free either but the longer you hold them the lower the risk of dropping below inflation is, especially if you can be flexible when you access it, eg you wont be forced to cash in units after ten years, thats more of a flexible term. I saw a graph the other day after about ten years holding, the risk of having lower than you started is very low and after fifteen its practically zero. This doesn't work though if shortly after you put your money in it drops say 10-20% and you panic and immediately sell up. If you are liable to do that then investing isn't for you

Roland_Flagg

I know investing in S&S are never risk free, but to supplement my Regular Savings and Fixed Rate savings, I'm looking at something longer term that is not seen as very risky and *should* in the long run make more what I already have in the bank.

colsten

What you appear to be asking for is some hot tips about "safe" investments. Nobody can give you those - although there is a school of thought that passive investment is the least risky form of investment. Worth reading up about it to see whether it would suit your risk appetite. Alternatively, you could pay an IFA for advice. IFAs will do a thorough risk assessment with you and then recommend investments. They are not magicians, though, and can't guarantee the performance of investments. Nobody can.

Filo25

colsten wrote: »

What you appear to be asking for is some hot tips about "safe" investments. Nobody can give you those - although there is a school of thought that passive investment is the least risky form of investment. Worth reading up about it to see whether it would suit your risk appetite. Alternatively, you could pay an IFA for advice. IFAs will do a thorough risk assessment with you and then recommend investments. They are not magicians, though, and can't guarantee the performance of investments. Nobody can.

Passive isn't inherently less risky than Active, as always it depends what the Passive is tracking and the Active is investing in.

In answer to the question, it s a simple "No", in an era where base rates have been below 1% for over 10 years you won't find any vehicles that can deliver a 4% risk free return for any significant amount of funds (obviously for small amounts outside of pension or ISA wrappers you have options like regular savers)

So after that you are looking at risk v potential return trade off, even that isn't as easy to do as it used to be as low rates have pushed bond values significantly higher.

Albermarle

Basically I'm aiming at £10k+ a year interest and I'm prepared to just let the money gain interest

It's better to clarify in your thinking that VLS 60 or any S & S investment, do not pay interest.
They offer the possibility of capital growth and the possibility of income . But no guarantee .

AnotherJoe

Roland_Flagg wrote: »

I know investing in S&S are never risk free, but to supplement my Regular Savings and Fixed Rate savings, I'm looking at something longer term that is not seen as very risky and *should* in the long run make more what I already have in the bank.

So, without wishing to pick an argument, your headline is "risk free" and now you are looking for something thats "not very risky".

It comes down to how much of a drop you coudl tolerate.


Lets say you put your £250k in VLS40 and it dropped 10% to £225k or perhaps 15% to £212k within a year. What would you do? Sell up? Or keep it? And if the latter would you sell as soon as it got back to £250k thinking "phew I'm not doing that again"?

Would you have the the stomach to put it in and leave it come what may?

Audaxer

Roland_Flagg wrote: »

I know investing in S&S are never risk free, but to supplement my Regular Savings and Fixed Rate savings, I'm looking at something longer term that is not seen as very risky and *should* in the long run make more what I already have in the bank.

Think of risk meaning volatility. VLS60 will be a bit more volatile than VLS40 as it has a higher percentage of equities, but that doesn't make it any more risky in my view. If there was an equity crash VLS60 would probably fall more, but that would only be a problem if you panic and sell at that time. If you are going to be investing monthly over the long term, you should not be concerned when prices are falling as you will then be buying units at cheaper prices at these times.

steampowered

Here is a graph which shows, statistically, the chance of making a loss had you invested in the world share markets on any given day from 1971.

As you will see, when you are invested for a 10 year period, the chance of making a loss is close to zero.

When you are looking at investing for longer periods, the risk of inflation eroding your capital is a much greater risk than volatility. For a 10 year investment you really should be in stocks and shares.

MarkCarnage

colsten wrote: »

What you appear to be asking for is some hot tips about "safe" investments. Nobody can give you those - although there is a school of thought that passive investment is the least risky form of investment. Worth reading up about it to see whether it would suit your risk appetite. Alternatively, you could pay an IFA for advice. IFAs will do a thorough risk assessment with you and then recommend investments. They are not magicians, though, and can't guarantee the performance of investments. Nobody can.

To claim that passive is the 'least risky' form of investment is very misleading. Market risk, which is what you get when going passive tends to overwhelm active risk (from stockpicking) in most cases.

Passive may be cheap and predictable (in that you get the relevant market index return less costs), but least risky it is not. There is also an upper bound to the extent that investors can invest passively in that there has to be a price discovery mechanism, which is provided by active investors. Passive has its place, but not all the arguments for it are well founded.