Question re 700K investment

SonOf

I already have a VLS (in my ISA) which I invest in for retirement.

Why ISA and not pension? Pension trumps ISA in most scenarios

4. I’m with Hargreaves Lansdown. They are offering free consultations this month so I’m going to take one with them. Will obviously take it with a pinch of salt. I would also like to consult another IFA. Does anyone have any IFA recommendations? I figure if the stamp duty for a property is 3-4% then there is no harm in speaking to a couple of IFAs, who I think normally charge about 1%.

HL are not IFAs. They are FAs. Their advice service uses their own funds (which are damned expensive) on the HL platform (which is expensive).

All IFAs have a free first meeting.

but please don’t suggest that I go for growth instead;

Why not?
Many people rely on growth to provide their income. It is a valid strategy.

atush

Thrugelmir wrote: »

Why an ISA for retirement? Sounds as if pension provision needs to be your first port of call.

This.

While S&S isas (not cash) have a place in providing for retirement, they are not as effective as pensions. Have both. And as far as ISAs go, if for retirement and not first house purchase, look at a LISA as well.:money:

atush

but please don’t suggest that I go for growth instead;

Oh but we will. AS you need some cash (12 months outgoings) pay off any debt, and you can have the majority in lower risk passives but you do need some risk or you may not stay ahead of inflation and suffer inflation and shortfall risk. So dont put all your eggs in one basket, spread it around.

There are more kinds of risk than just investment risk.

And put some of those passives into pensions. AS you dont really want/need all that income now. And you dont want to pay tax on it either.

sixpence.

Thanks so much for all the helpful replies. I will definitely check out all of the information here. Please see some more details below based on the responses :j

1. Why an ISA? Because I don't earn above the first tax income bracket presently so this makes sense to me. I will look into other options but that's not the subject of this thread so I don't want to derail too much!

2. Bowlhead - thanks for writing such a long and helpful response. I will definitely check out that directory. You're right that HL aren't independent and I falsely assumed they were. I did an OU business course actually. The one I am on was only £12! But free is even better, and I will check those out. I don't have loads of free time, and honestly I'm not in love with this stuff, I just do it because, well, it's part of life really! So I want to make this as painless as possible without leaving out anything important; any vital information etc, as it's obviously a lot of money

2b. I live in London so is a local IFA still a good idea?

3. So while I am expecting 3-4% income per year, I am also hoping that the fund will grow (becuse most income funds do grow a bit, let's be honest, unless they are really dull) by about 3% per year to cover inflation. Does this seem realistic? I guess maybe the fund is going to be low to moderate risk, rather than low risk; say a 3/10 rather than a 2/10 if I were to class it that way. Although I am aware that funds are not classed this way.

4. I figure if I can get myself £24,500 income per year (that would be at 3.5% income per year) then that's quite good.

5. Does anyone have any idea what an IFA might suggest? With my current knowledge base (which I have to be aware, as Bowlhead says: "a little knowledge is dangerous") I am imagining have 4-5 large multi-asset funds. I just want a solid diverse investment across geographical region and asset class. No bells or whistles.

If there was a set way of doing this, I would probably follow it. My siblings have invested in property, but with the knowledge I currently have I dont think that is diverse enough.

bowlhead99

sixpence. wrote: »

1. Why an ISA? Because I don't earn above the first tax income bracket presently so this makes sense to me. I will look into other options but that's not the subject of this thread so I don't want to derail too much!

And not trying to derail the thread but you could put your annual earned income into a pension and get basic rate tax relief on all of it (25% uplift) and then in retirement when you come to draw it out you will be able to take an element of it tax-free, so essentially you have got free money from the government (unless you are likely to be a higher rate taxpayer in retirement and pay more in tax on the pension than you got relief on the way in).

The 'cost' of using a pension is that you can't access it until your late 50s, but no real hardship as you may live for four decades beyond that and will need some money during that time

2b. I live in London so is a local IFA still a good idea?

London has higher cost of living and cost of premises and relatively more affluent people who might be clamouring for professional financial advice and thus be expected to bid up the 'market rates' for advice fees, compared to those service providers with a lower cost base out in 'the regions' who do not need to charge as much of a fee to still have a profitable client relationship.

However, the local (out in the regions) IFA firms still have the same regulatory costs, insurance costs etc. so finding good advice is not dirt cheap just because it's away from London. If you go to regional cities or country towns you still get wealthy people buying advice. If you go the absolute middle of nowhere you might find there is only one local guy who gets away with charging what he likes because his clientele can't be bothered hopping on a train to the big smoke to have their IFA meetings. A tied audience.

If you are a busy person who does not want to take a train to some non-London regional town for face to face meetings you might just have to accept that the cost of doing things in London is higher. Even within London you are likely to see a cost disparity between offices in Mayfair or City or Canary Wharf where the city slickers drop in to enjoy the IFA's prestigious premises, vs being out somewhere less affluent.

You don't necessarily need to meet an IFA face to face of course which opens the possibility of working with someone remotely with a better price. When I bought my London flat I used a solicitor firm from 200 miles away to do the conveyancing and it cost me less. However, for an ongoing relationship it may make sense to meet an advisor in person if you want to get some sort of spidey-sense about whether you trust them and can get along with them, as with any personal professional service.

3. So while I am expecting 3-4% income per year, I am also hoping that the fund will grow (becuse most income funds do grow a bit, let's be honest, unless they are really dull) by about 3% per year to cover inflation. Does this seem realistic? I guess maybe the fund is going to be low to moderate risk, rather than low risk; say a 3/10 rather than a 2/10 if I were to class it that way. Although I am aware that funds are not classed this way.

You should not be banking on a low risk or low-to-moderate risk fund giving you 3-4% plus 3% for inflation equals 6-7% nominal. Maybe over the long term inflation-plus three is a middle of the road risk and inflation plus four or five is a higher risk while inflation plus one is lower risk.

Also the scale seems a bit off. 2/10 risk is barely above cash. So, no chance of 7% a year with that. 3/10 is not much more and doesn't seem like moderate to middling risk. However perhaps you are thinking of 10/10 being punts on bitcoin and entirely speculative commodities and so on, whereas others would think the top of a sensible scale meant funds spreading your money over 100s of stocks, but all in a single region or (say) emerging markets, naturally more volatile than a more broadly diversified equities fund.

If this is supposed to deliver you growth and income over a lifetime (e.g. 50 years investment period from now) it seems like 3/10 is too low because you have plenty of time to ride out peaks and troughs; instead of restricting the overall exposure and focussing only on lower risk areas, it could be sensible to simply moderate the expectations of how much to take out in any one year and then you will have a better chance of riding out any early volatility (sequence-of-returns risk).

However, an IFA can discuss that sort of thing with you in more detail to understand your perceptions of what you mean by risk, what your behaviour might be like in a crash, and long term goals (other than just taking monthly cash in perpetuity).

5. Does anyone have any idea what an IFA might suggest?

Investment is about opinion and opinons are like a5sholes - everyone's got one. . We can probably speculate on the kind of thing an IFA might suggest and what we have seen people talk about for sizeable income-and-growth portfolios debated here hundreds of times.

It would be more useful to actually approach IFAs to discuss your actual personal circumstances and find out what *they* think they might suggest in the context of those personal circumstances (which you can discuss with them at an initial fact find)

If there was a set way of doing this, I would probably follow it.

The fact that there isn't and that people don't share the same circumstances and attitude to risk, is one of the reasons that there are a large number of investment choices and a large number of people employed by the industry to help you find something that works for you.

Some will say that anyone working in the industry is just there to make a buck for themselves by convincing you that it's very tricky and you need their help to navigate it, and all you need to do is throw your money at an index and ride it up and down and it will be fine, especially if you have a big inherited pile of cash while still holding down a day job so that it doesn't really matter if you have a good year or a bad year. However, what some people are comfortable with, others are not.

My siblings have invested in property, but with the knowledge I currently have I dont think that is diverse enough.

I would agree - if you are invested in property you are invested in property, and you can leverage/gear up your capital to exaggerate the gains or losses ; but what about all the other things that make decent investments, that are not property, and come with useful tax wrappers etc.

The key to long term success (preservation and growth of capital) is really to hold a diversified mix of assets, which are each capable of growth or income and not fully correlated with each other so they go up and down at different times and you actually benefit from the diversification.

comment_as...

I would suggest taking quite a bit of time to learn before you invest. There's not much point hiring an IFA because by they'll tell you to invest in what is popular and by definition that will be what's overpriced. (it's popular because IFAs push it, plus it's safer for the IFA to be wrong when everyone else is too rather than standing alone) Better to do your own research.
Trustnet is useful for browsing income funds from lots of different providers. You could also look at picking your own shares, perhaps using the top holdings of income funds as a guide. Stockpedia is good for its stock screener.
I would be extremely sceptical of the online investment course. Who is providing it? If it's very cheap might they be making money some other way such as earning hidden commission or outright scamming you with pump and dump? I don't see how you can teach investment per se, you could teach accounting or economics but investing is a matter of opinion. No teacher knows what the market will do tomorrow, if he did he wouldn't still be working!

SonOf

There's not much point hiring an IFA because by they'll tell you to invest in what is popular and by definition that will be what's overpriced.

Evidence for that?

Better to do your own research.

Woodford's fund was invested in by more DIY investors than advised.
Just because you DIY does not mean you will DIY well.
Two of HL's top selling funds are their own brand funds. People choosing those are paying more for DIY than they are for using an adviser.

And newbie DIY investors are notorious for fashion investing.

You could also look at picking your own shares, perhaps using the top holdings of income funds as a guide. Stockpedia is good for its stock screener.

Not for new investor it isnt.

sixpence.

Once again, Bowlheads's post is really helpful. I have some general points below, inspired by what you've written but anyone can chip in obviously

1. I think I should say that I haven’t really been transparent here (sorry!) I actually have some health issues and am not able to work full time, which is why I want to set up a source of passive income. I hoping to start part-time work soon, but the bulk of my income is going to be from this for the time being. I hope to be able to work fulltime one day but it is unlikely I'm going to make more than 20-30K. Is this something I can discuss with an IFA? It feels quite personal but I know money generally is when it comes to circumstances.

1b. Would an index be wise in this situation?

2. I’m happy to speak to a couple of London IFAs. I just looked up the training to become an IFA. It seems most of them train on the job? If there a year long course I would probably do it online myself as this would be a good investment I'm sure. I don't really have a head for numbers (although have done some short courses in accounting for general knowledge) but rather wish I did! If anyone has a 3-12 month course they would reccommend please do say. I am honestly not sure I would enjoy this though. My undergraduate degree is in English and I'm the artistic sort!

2b. Does anyone know what I should be looking for in a first time meeting with an IFA? I will google this obviously. I checked the directory and these guys came up https://adviserbook.co.uk/financial-advisers/advanta-wealth/605977 but I have no way of telling (without calling up) if they are decent or not. Even if I meet them, I am not sure what to look for tbh.

3. Re risk: wow okay yeah you’ve kind of opened my eyes. I can see my risk assessment may have been naive. I’m basically looking for the multi asset fund equivalent of what I would get with a buy to let? So like a certain amount of growth per year (maybe 3-4%) and, say, 3% income. You say this middle of the road risk. I think it is (because of the diversification factor) it is less risky than owning, say, two London flats.

bowlhead99 wrote: »

You mention that you'll take the free consultation with HL with a pinch of salt. Which is wise, as your interests will not be aligned with theirs, and they can only advise on what they sell - for example their own income portfolio suggestions and their own packaged funds of fees (sorry I mean packaged multi manager funds-of funds).

Importantly, any free guidance does not have any comeback on them because it's not purchased advice. And even the purchased type of advice from them is unlikely to be to "find a cheaper platform than them" or to "buy fully independent advice for an investor solution sourced from across the whole of the investment market".

I'm sure you recognise this (thus your pinch of salt reference) but the reason for my labouring the point is that in the next sentence you say that you would like to "consult another IFA". That would imply that HL were your first IFA and you were looking for another one. But they are not IFAs, even though they offer some paid advice. Really you should consult a few actual IFAs (like shopping for a builder or decorator, see three first to go through what they propose and for what price), rather than one HL and one IFA. Look a few up in your area via (e.g.) adviserbook or other available directories (ensuring you're filtering to independent ones).

I'm not sure what you would get from a "level 4 online investing course". Presumably that's not some sort of actual qualification like CFA or the ones that advisers themselves would take? If not, I have no idea what would make it a level 4 rather than level 2 or 200. While if it's issued by a university or professional industry standards organisation, the content would need to be seen in context of their other courses and exams and the professional and other experiences usually being gained at the same time as studying for it.

There are some free courses about which might cover some basics (and free is sometimes better than very cheap), such as Openlearn's 'managing my investments' course which builds on 'managing my money' ; (https://www.open.edu/openlearn/comment/27151)

Openlearn is a brand of Open University so no need to worry that the '.edu' instead of '.ac.uk' might imply its America focused.

I have little to offer in terms of reading materials other than to suggest you search the various other threads that ask for book and website recommendations, as there's no particular source that gave me my general knowledge -it was certainly helped along by a career in the investments sector and a broad curiosity. No real substitute for experience, but you can't get yourself a couple of decades of practical experience in the weeks before an inheritance arrives.

Rich Dad Poor Dad is accessible, if you're looking for a popcorn movie rather than an education, and Intelligent Investor was ahead of its time (though the time was literally seventy years ago and then revisited in the 1970s). They are not going to tell you whether you should prefer a REIT or PAIF or an investment trust holding privately owned infrastructure projects. Things like 'Harriman's New Book of Investing Rules', (£12 on Kindle or more for a hardback for your coffee table, unless you get one from the second-hand bin) might tell you what 'the world's best investors' consider to be 'Do's and Don'ts', but surprise surprise, people have contrarian views.

If you have a lot of free time, so that you can consider 'getting comfortable with owning £700k of investment assets' to be a job in its own right, it absolutely makes sense to consume as much literature as you can find. Until you have consumed it all, remember the adage that 'a little knowledge is dangerous' and that there's no one best way to do everything - no matter how passionately someone argued in the last thing that you read, that they were telling you very sensible things.

Until that point it is quite sensible to get an IFA to help (notwithstanding there are plenty of anti IFA people here) and as you mention, thousands of pounds worth of fees are not the end of the world, despite this being a money saving site. You could always become more 'hands on' in due course. Some will imply that compounding of IFA fees will cost you many hundreds of thousands or millions over the next fifty years, but it won't cost you that over the next five.

SonOf

1. I think I should say that I haven’t really been transparent here (sorry!) I actually have some health issues and am not able to work full time, which is why I want to set up a source of passive income. I hoping to start part-time work soon, but the bulk of my income is going to be from this for the time being. I hope to be able to work fulltime one day but it is unlikely I'm going to make more than 20-30K. Is this something I can discuss with an IFA? It feels quite personal but I know money generally is when it comes to circumstances.

An IFA is frequently used as a sounding board on many things in life and not just direct financial planning. It really depends on the relationship you want with an adviser.

1b. Would an index be wise in this situation?

Unlikely. "an" index tracker suggests only one investment sector. Single sector investing, whether managed or passive is bad quality investing. The exemption is global equity trackers but the average UK consumer doesnt have the risk profile to invest solely in a global tracker with their money unless they hold back a lot of cash. A portfolio of index trackers is viable but not the only option and it will require work and knowledge from you (assuming non-advised).

2b. Does anyone know what I should be looking for in a first time meeting with an IFA? I will google this obviously. I checked the directory and these guys came up https://adviserbook.co.uk/financial-advisers/advanta-wealth/605977 but I have no way of telling (without calling up) if they are decent or not. Even if I meet them, I am not sure what to look for tbh.

All you need is common sense. You can generally tell if the advice seems suitable. That is not really the issue with IFAs. The main two issues are cost and whether they are genuine IFAs. Cost varies significantly. You need value for money. City firms tend to be more expensive than rural but if you want a city firm then you need to accept that. The other is firms that tag themselves as "wealth management". What I am about to say is a generalisation. So, not a 100% rule. Many "wealth Management" firms are clinging onto their IFA tag when they should really be using the FA tag. Wealth Management firms tend to use one platform and use a discretionary investment manager for the investments. So, in other words, everyone ends up in the same place using the same investment manager. Not would many would consider independent. Whereas a general practitioner IFA will use multiple providers, less likely to use a DFM but if they do, maybe only on certain cases and will use multiple investment methods to suit the client. Not a DFM for everyone that suits the adviser.

So, it pays to be on guard with firms that tag themselves as wealth management. Maybe ask the question about who they use as an investment platform and their investments. If the answer is one platform and a DFM, then dont consider them IFAs. If the answer is vague because they cant tell you until they do their research then that suggests they are using the whole of market.

I just looked up the training to become an IFA. It seems most of them train on the job? If there a year long course I would probably do it online myself as this would be a good investment I'm sure.

There are different ways but learning on the job is commonplace. For example, we have just taken on a 19 year old who is going to spend the next 6 years sitting at least 9 exams to become qualified as an IFA by 25. In the meantime, she is supporting the existing IFAs in administration tasks and will build on that over time.

Passing the exams is not good enough. Many of the text book answers do not stack up in the real world. Passing the exams is just the start of your knowledge. You learn more in the decade after the exams than you do during the period you sit the exams.

I doubt sitting 9-15 exams would be a good investment for you.

comment_as...

It sounds like we have quite different attitudes, which is a good thing as it makes for a more informative discussion.

SonOf wrote: »

Evidence for that [professionals are a waste of money]?

There's quite a bit actually, have a look at this article: https://www.cnbc.com/2019/03/15/active-fund-managers-trail-the-sp-500-for-the-ninth-year-in-a-row-in-triumph-for-indexing.html

It's logically true if you think about it. Most money is managed by professionals, they can't beat the market because they are the market! Over time they give you average performance less their fees.

An IFA in particular is fees upon fees as they then tell you to buy a managed fund.

SonOf wrote: »

Woodford's fund was invested in by more DIY investors than advised.

I think we're using the term DIY differently. If Woodford is picking stocks for you then that's not what I would call DIY.
I would only invest in a trust if I liked its holdings and the trust was trading at a big discount i.e. if I would have spent more money buying the same stakes myself anyway.
I think that means our conclusions are similar, we're just using different terms to mean staying away from Woodford et al


QUOTE=SonOf;76259755]Not for new investor it [stokpedia] isnt.[/QUOTE]

True, you wouldn't really understand what it was telling you at first. You have to start somewhere though, and you can look up the different ratios on Google. It's certainly more accessible than reading the actual accounts. I don't know a better site to suggest, but hopefully there is one. You could try iii maybe? i'm not completely au fail with it. Or look at Lemon Fool if that's still going.