I've saved £350,000 - should I see an IFA?

The_Bleurk

I have been the beneficiary of an IFA's recommendations for the past 15 years and now retired with a good private pension but still six years off state pension.

I have had a similar amount that you quote invested over that period and have enjoyed an average rate of 3.61% total return after tax which beats inflation over the period by more than 0.5% per annum. (this includes the impact of the financial crash which cost me an 8.3% loss one year, on paper)

As a previous post mentions the first thing an IFA will do is ask what your financial objectives are. For me it was being able to enjoy good extended holidays, replace my car with a new one every few years, keeping our computers and gadgets up to date, maintaining and renovation our house and to enjoy our social life (eating out regularly with friends and family for example). We have been mortage free for all of the period I am talking about and like you have no intent to move.

Everyone is different you can only decide this for yourselves.

The next thing the IFA will want to know is your attitude to risk and return. For me I was OK with moderate risk which in their language equates to having a "balanced" portfolio.

So for me about half is in what they call "near cash" that you can get at if you need to and the rest salted away in tax efficient insurance bonds.

In the near cash element an IFA will likely say take the maximum amount of Premium Bonds (£50k) currently. The prize rate is 1.4% and you will routinely get about 1% per annum in small prizes tax free ie £500 - easily on par or better than most easy access accounts with the outside chance of hitting the big time. My best single prize so far was £500.

The rest of the near cash is invested by me in rolling 5 year fixed ISAs and bonds.

The point here is that if you need it you can get any fraction you want of the £50000 PBs back in your pocket with 10 days - I have experienced the need to do that during the financial crash and it works much quicker than the FSCS thingy although that responded within 6 weeks and enabled me to put the money back into the PBs.

I can not comment on the merits of using pensions as investment vehicles as I have not had the need nor opportunity to use the new things that are possible.

Like you whilst at work I was always busy and although I did manage to save I didn't have or spend the time to really address investment properly and in retrospect wish I had done more sooner.

Sorry this has turned into something of an essay but I hope you can see that there is value in getting proper independent advice.

For the record I am not and never have been an IFA I just want to record some real experience rather than the flashy figures you are bound to be shown.

Malthusian

Thrugelmir wrote: »

Not a position I'd feel comfortable with personally. There's good reason why the return of offer is so high.

For what is probably investment in obscure unlisted micro-cap companies or sub-prime personal loans, the return of offer is miserably low.

The_Bleurk wrote: »

So for me about half is in what they call "near cash" that you can get at if you need to and the rest salted away in tax efficient insurance bonds.

Insurance bonds are now a very niche product as unwrapped funds are typically more tax-efficient. To To oversimplify, onshore bonds are taxed on all income and gains within the bond, while gains in offshore bonds are taxed all at once as income on exit. In both cases this is typically less tax-efficient than unwrapped investment making full use of your allowances.

They can still be useful under very specific circumstances.

In the near cash element an IFA will likely say take the maximum amount of Premium Bonds (£50k) currently.

Maybe - I don't know if I would go so far as to say as "likely". Most IFAs would only suggest Premium Bonds if a) it makes sense to keep a stonking big pile of cash and b) you (and your partner if applicable) pay higher rate tax on interest, which makes the tax-free return of Premium Bonds more attractive.

At least one of those things apparently applies to you. But when you mention insurance bonds and Premium Bonds I can't help but wonder if your IFA is a bit old-school.

Audaxer

Dunc3823 wrote: »

Is it time for a trip to an IFA? I'm well aware I should probably have done this years ago but I've been busy. :-) Thank you in advance!

I would suggest you learn a bit more about investing and the use of tax wrappers like SIPPs for holding your investments, different types of funds etc., before you contact IFAs. That will enable you to have some knowledge to ask the right questions when deciding if you want to go ahead with an IFA after the first meeting to see what they have to offer. It might be an idea to contact a few IFAs to compare costs and which you feel most comfortable with.

You can learn a lot by searching on this forum and reading up on sites like Monevator. Once you do learn a bit more you might decide you want to DIY rather than using an IFA. If so it would be worth considering low cost globally diversified multi asset funds. These funds come in versions suitable to different risk tolerances and are much discussed on this forum.

You have done well in building up a decent pot over the years. I wouldn't rush into anything until you have researched some more. That is apart from moving the £20k out of the easy access account with a 0.25% interest rate to an account such as a Marcus Savings account that pays 1.45%. Good luck.

Dunc3823

Thank you everyone, you've really confirmed what I though in that I need some professional help with this. Some great pointers here. Btw, the P2P thing is 2 separate accounts with 2 separate providers for myself and my wife, just to spread the risk a bit, so it's not £50k in a single account. But appreciate there's probably safer ways of getting a better return. I've clearly got some homework to do so that will give me something to do over the Christmas break.



Thanks again, absolutely amazing responses. Merry Christmas!


Duncan

Thrugelmir

Dunc3823 wrote: »

Btw, the P2P thing is 2 separate accounts with 2 separate providers for myself and my wife, just to spread the risk a bit, so it's not £50k in a single account. But appreciate there's probably safer ways of getting a better return.

The return is potentially good. The downside of liquidating P2P is getting ones capital back. That's what diminishes the overall final return achieved.

If there was a safe way of getting a better return of 5% it wouldn't be around for long. There'd be a clamour to get in first. To achieve positive returns one has to accept a degree of risk. Unavoidable at the current time to think otherwise.

cfw1994

The_Bleurk wrote: »

I have been the beneficiary of an IFA's recommendations for the past 15 years and now retired with a good private pension but still six years off state pension.

I have had a similar amount that you quote invested over that period and have enjoyed an average rate of 3.61% total return after tax which beats inflation over the period by more than 0.5% per annum. (this includes the impact of the financial crash which cost me an 8.3% loss one year, on paper)

“Enjoyed” an *average* rate of 3.61% pa over the past 15 years?
Maybe I’m wrong, but that feels wickedly low. “Suffered”, perhaps, but not enjoyed! What were the fees on that?

Struggling to find firm evidence, & maybe someone will correct me, but certainly the past 10 should have been around 9-10%, & this suggests 7% should be acceptable....

atush

rawhammered wrote: »

I'd start dumping £40k a year into your pension.

Yes you both need pensions. Start putting money into them and S&S isas now.

What does your OH do? Do they have any pensions?

atush

I'm not 100% convinced putting huge sums in to pensions is the best move here.

Lets start here. Every 100 into a pension will ony cost you 80. Does that sound good? We like to call it free money.

Malthusian

cfw1994 wrote: »

“Enjoyed” an *average* rate of 3.61% pa over the past 15 years?
Maybe I’m wrong, but that feels wickedly low. “Suffered”, perhaps, but not enjoyed! What were the fees on that?

Struggling to find firm evidence, & maybe someone will correct me, but certainly the past 10 should have been around 9-10%, & this suggests 7% should be acceptable....

If the average return of 3.61% includes the very large sum Bleurk holds in cash, it looks more acceptable.

Bleurk's paper loss of 8% during the financial crash backs that up. For a diversified capital-at-risk investment you would normally expect to see paper losses of 20% - 40% depending on risk level. But if half your investment is in cash then the paper loss will naturally be halved.

What Bleurk refers to as "near cash" is in reality cash (Premium Bonds and 5 year ISAs / fixed rate deposits are cash). "Near cash" would normally mean something like money-market instruments and short-term bonds. These will fluctuate in value, unlike a retail deposit account, but to a very minor extent in normal conditions.

If you got 9-10% over the last 10 years then a) you were almost certainly invested at a much higher risk level than the vast majority of retail investors are prepared to tolerate and b) you had a good deal of canny asset allocation / stockpicking / luck. The FTSE World returned 8.2%pa over the last 10 years. That is a 100% equities index so at a higher risk than most people would tolerate.

The_Bleurk

Quite right Malthusian.

The paper loss on the insurance bonds at the time of the crash was 23% which took 5 years to recover.

I could not have tolerated a loss like that across the board.

Perhaps I should have said total compound return of 3.61% after tax.

Anyway my key points are everyone needs to decide for themselves as their circumstances will be unique to them and it is worth getting that independent advice.

BTW when I first consulted I had two seperate IFA's consult initially and then chose one. Both of them said the same things in principle the only difference was the insurance bonds they recommended.