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Advice on IFA stuff

135

Comments

  • mcooke999
    mcooke999 Posts: 196 Forumite
    Seventh Anniversary 100 Posts Name Dropper Photogenic
    Of course they are, to some extent at least... No doubt they will be then getting you to sign various paperwork to the effect of 'the value of your investments are not guarenteed and can go down as well as up' so they can wipe their hands of any real promises they are making you now.

    My personal belief is you can't beat the market over the long term and the evidence overwhelmingly supports this... So you're going to get what you're going to get when it comes to return and income from your investments. No one can tell you in advance what this will be, and if they do tell you something along those lines they are liars unless they are going to be putting it in NS&I for you.

    In my opinion you need to find an equity/bond balance that you're happy with in terms of risk and just use a VLS type multi-asset type product to achieve this. The return & income you will get will be whatever it is going to be, same as for everyone else! You're only 30 so obviously you cannot retire or rely on £700k as your only source of income for the rest of your life but if you do work it could become quite a substancial retirement pot in 20+ years! I'd kill to have a pot that size at the age of 30!

    IMO, forget paying an IFA x%/yr to 'manage' your money, I mean what are they going to do that will somehow protect you from the market over the long term? Also I'd stop trying to get everyone to tell you what return/income you can expect from your money because it's just not possible to predict with certainty.
  • Linton
    Linton Posts: 18,345 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    One problem is that no-one knows what future drawdown rate will be sustainable. The best people have to go on is what has worked in the past. The recent past is considered a poor guide because it provided the longest period of generally rising prices ever seen.
    The second problem is that whatever number you choose has some chance of being wrong. So do you want to be very cautious in your estimates and quite possibly die leaving a large amount of money for your grieving beneficiaries or do you want to live the high life on an optimistic assumption and risk living in poverty in your old age having run out of money? The best compromise I think is to start off with a fairly cautious plan and review every few years. If you find that your pot is increasing in value you can raise your drawdown rate or reduce it if your money is being depleted too quickly.
    On Dunstonh’s 2.5% figure: my feeling is that is too low. However perhaps it could be justified on your stated risk level of 5-6 out of 10. The primary long term problem is inflation. The only investment with a good chance of beating, or even matching, inflation in the long term is equities (shares or funds investing in shares). But high equity portfolios would imply a risk greater than what you may be able to accept.
  • Does the 4% figure happen to give you the amount you could live off, as your only source of income? If so, then (as already mentioned) I don't think you should rely on being able to draw that amount indefinitely.
    But that still leaves you plenty of options about to how to proceed. One thing a large sum of money like this does give you is choices. The main thing is to work out how you want to use it, at a high level. (Things like whether to use an IFA are then more of an implementation detail.)
    For instance, you could decide that you could easily live off an significantly lower amount, at least if necessary. That might make this sum enough to live off indefinitely, by reducing the draw rate.
    Or you could decide to invest your capital, and reinvest all the income it produces over the next few years, while living off your earnings alone. That would enable the invested capital to build up, so that it would (after an unknown number of years) become enough to live off.
    You mentioned doing a masters; you didn't say whether that would be full- or part-time. You might want to assign a small part of your capital to cover living expenses while doing a master full-time, or at least to let you drop some or all work while doing it. Similarly, you could reasonably use some of your capital to cover any other gaps or dips in earned income. Obviously, any capital used up by dipping into it isn't also available to generate a long-term income, so it's either/or (or a bit of both).
    You could also (or instead) use investment income as a supplement to your earned income. If the investment income is being spent on extras, you could take the view that you'll start by drawing 4% from investments, and if that proves unsustainable, you'll just draw less, which is no problem since it's being spent on non-essentials anyway. Or, if you don't want to risk having to cut your spending on extras, start with a lower draw rate.
    So I think you need to clarify what is important to you. Perhaps you read through my suggestions above, and immediately knew which ones make sense for you, and which don't. Perhaps you're still hesitating between a few of them, in which case some more introspection may be needed.
  • Aminatidi
    Aminatidi Posts: 588 Forumite
    Sixth Anniversary 500 Posts Name Dropper
    edited 10 March 2020 at 6:05PM
    sixpence. said:
    There are 2 questions that affect what is a sensible draw rate to use. Do you expect to have little or nothing other than however much you can draw from investing this £700,000 to support you for the rest of your life? And do you want the amount you draw to be reliable, or are you prepared to flex it up or (especially) down depending on how investment returns are going?
    Drawing 4% initally might work out, with a little luck from favourable investment returns. But if you're not so lucky, could you drop down to drawing only 2% instead? Or, are you likely to have some earned income in addition, even if isn't very regular?
    If you require a pretty bullet-proof draw rate, rising with inflation through thick and thin, then you need to start by drawing a relatively low percentage. With more flexibility, or other likely sources of income, you could be a little more ambitious.
    I am nearly 50, and am projecting drawing about 3% from investments (which are about 75% in equities), but I could spend less than that if necessary.
    Yes I was not very specific because didn't want to go into it too much. For various personal reasons, I wasn't able to work in my twenties and therefore don't have an established career now. I work now part-time in the public sector (so it's not too well paid and probably won't ever be). My plan is to do a masters and work part-time to try and get a better paid job that I find fulfilling in the future.

    It would frankly be great if I knew that I could live on this money. I am also planning to have kids one day so want to supplement what I earn. But people seem to be saying not to bank on living on this investment (excuse the pun)...
    This site is very useful for looking at historical returns for different portfolios/asset types albeit with a US emphasis.
    https://www.portfoliovisualizer.com/backtest-asset-class-allocation

    Personally I would look at being cautious with most of the money on the basis you don't want to start out with £700K and wake up one day with £400K and the way to do that is to not lose money.

    Look at the power of compounding and accept that you almost certainly need to take some degree of higher risk with some of the money.

    Also look at all-weather and institutional portfolios as it's quite fascination how little many of these depend on conventional equities.

    I should add that for my mum who has recently dropped an IFA as the amount she has doesn't warrant the cost I suggested she go with a simple option of LS40.
  • Albermarle
    Albermarle Posts: 28,965 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    and anyone who I might doesn’t know anything about S&Ss and is obsessed with the idea of investing in property (silly them, in my humble opinion).

    Not sure what your living arrangements are but buying  your own property to live in , is certainly not a silly idea. Probably at age 30 this would be the priority for most people and they would be ecstatic to be able to even put down a £50K deposit . 

    Maybe some of the £700K could be put to better practical use now, rather than concentrating 100% on income/returns stretching out decades into the future ?

  • fiisch
    fiisch Posts: 511 Forumite
    Part of the Furniture 100 Posts Name Dropper
    edited 10 March 2020 at 7:40PM
    Read this post with interest, and little to add to what's already been said, but do you need to supplement your income from Day 1?  Has your hours/earnings changed as a result of receiving this money?

    Do your circumstances allow for you to invest the money and defer taking an income for a few years, thus allowing the £700k to grow further in the (relative) shorter term?
  • Not sure what your living arrangements are but buying  your own property to live in , is certainly not a silly idea. Probably at age 30 this would be the priority for most people and they would be ecstatic to be able to even put down a £50K deposit . 

    Maybe some of the £700K could be put to better practical use now, rather than concentrating 100% on income/returns stretching out decades into the future ?

    Good point. Add this to my list of different general ways you might want to use (some of) your capital.
  • MarkCarnage
    MarkCarnage Posts: 701 Forumite
    Sixth Anniversary 500 Posts Name Dropper
    8% net (or gross) of fees is not in any way a realistic long term target from now. Historic nominal returns are not a helpful guide to what to expect, precisely because a significant driver has been a remorseless grind downwards in bond yields to levels rarely if ever seen before.
    A  portfolio invested 100% in equity and similar risk assets might deliver 6% p.a. from where we are today (I'm talking about a diversified equity portfolio here not taking a punt on half a dozen stocks). I think that 4-5% is more realistic for that. If you dial down the risk and add bonds, then you dial down the return too. 
    The maths for 8% do not work from here, and anyone telling you this should be questioned very closely as to how they derive this figure. If they quote historic returns, walk out. 
  • sixpence.
    sixpence. Posts: 295 Forumite
    Sixth Anniversary 100 Posts Name Dropper Combo Breaker
    All of these replies are massively helpful. It's really great just to have people to bounce ideas off of to be honest. So thank you. I've read through the posts carefully and have some thoughts / questions. Please note: I am currently in the process of speaking / meeting with IFAs. It's a bit like buying a place to live (my mortgage is paid off by the way) in the sense that I want to meet lots of people before I pick one. I set myself the rule that I would have to meet at least three that I liked and felt I trusted before signing up with anyone. Just to prevent me from getting into anything too soon. 
    mcooke999 said:
    Of course they are, to some extent at least... No doubt they will be then getting you to sign various paperwork to the effect of 'the value of your investments are not guarenteed and can go down as well as up' so they can wipe their hands of any real promises they are making you now.

    My personal belief is you can't beat the market over the long term and the evidence overwhelmingly supports this... So you're going to get what you're going to get when it comes to return and income from your investments. No one can tell you in advance what this will be, and if they do tell you something along those lines they are liars unless they are going to be putting it in NS&I for you.

    In my opinion you need to find an equity/bond balance that you're happy with in terms of risk and just use a VLS type multi-asset type product to achieve this. The return & income you will get will be whatever it is going to be, same as for everyone else! You're only 30 so obviously you cannot retire or rely on £700k as your only source of income for the rest of your life but if you do work it could become quite a substancial retirement pot in 20+ years! I'd kill to have a pot that size at the age of 30!

    IMO, forget paying an IFA x%/yr to 'manage' your money, I mean what are they going to do that will somehow protect you from the market over the long term? Also I'd stop trying to get everyone to tell you what return/income you can expect from your money because it's just not possible to predict with certainty.
    - It is honestly so tempting just to stick the whole thing in a VLS 60 and wait (this would bypass all fees and the, somewhat painful, process of interviewing IFAs). However I know that I wouldn't covered under the 80K loss scheme. Also, despite how diverse the VLS is, I don't think it's diverse enough for this amount of money.
    - RE: "Also I'd stop trying to get everyone to tell you what return/income you can expect from your money because it's just not possible to predict with certainty." I hear what you're saying but some returns are obviously ridiculous and others are obviously realistic so I think it's a good idea in terms of risk and working out if people are solid.
    Linton said:
    One problem is that no-one knows what future drawdown rate will be sustainable. The best people have to go on is what has worked in the past. The recent past is considered a poor guide because it provided the longest period of generally rising prices ever seen.
    The second problem is that whatever number you choose has some chance of being wrong. So do you want to be very cautious in your estimates and quite possibly die leaving a large amount of money for your grieving beneficiaries or do you want to live the high life on an optimistic assumption and risk living in poverty in your old age having run out of money? The best compromise I think is to start off with a fairly cautious plan and review every few years. If you find that your pot is increasing in value you can raise your drawdown rate or reduce it if your money is being depleted too quickly.
    On Dunstonh’s 2.5% figure: my feeling is that is too low. However perhaps it could be justified on your stated risk level of 5-6 out of 10. The primary long term problem is inflation. The only investment with a good chance of beating, or even matching, inflation in the long term is equities (shares or funds investing in shares). But high equity portfolios would imply a risk greater than what you may be able to accept.
    - Following this and Tropic's post, I might try not to make any withdrawels for the first year. I'm currently living off quarterly financial support which my family (kindly and generously) give me. I'm a bit embarrassed about this, but I think that's what happens when you aren't able to work and you've got family who care and have money. I want to work towards financial independence because they aren't super loaded and also it's good to be independent. Sounded a bit like Prince Harry there. Cringe. Anyway, what I'm getting is that I need to think of the ideal situation as NOT relying on this money but using it as something for the future / that can supplement. 
    - I think maybe the best option is if try to ground myself and get on with pursuing a good career. I like what Linton said about being cautious at the beginning and reviewing every few years. So I can do this while I try to make more money. Like what Tropic said, I can always change my approach depending on what is happening if I keep an eye on it and my spending. 
    - Are 60% equities enough to beat inflation? Maybe a better way of asking that is: can you beat inflation with a 6/10 risk level? 
    8% net (or gross) of fees is not in any way a realistic long term target from now. Historic nominal returns are not a helpful guide to what to expect, precisely because a significant driver has been a remorseless grind downwards in bond yields to levels rarely if ever seen before.
    A  portfolio invested 100% in equity and similar risk assets might deliver 6% p.a. from where we are today (I'm talking about a diversified equity portfolio here not taking a punt on half a dozen stocks). I think that 4-5% is more realistic for that. If you dial down the risk and add bonds, then you dial down the return too. 
    The maths for 8% do not work from here, and anyone telling you this should be questioned very closely as to how they derive this figure. If they quote historic returns, walk out. 
    - One guy said that he would stick half of it a VLS 60... I told him I knew what a VLS was and he proceeded to explain to me what is was (always slightly irritating lol). When I asked him why he said this was because it has "done very well in the past". I told him that I thought past success was not supposed to be an indication of future returns and he was like "yeah that's what all the disclaimers say..." All a bit suspicious, but I'm not sure if he was just being glib.
    - Should I just drop any IFA who has told me that they believe a 7-8% return (after inflation and costs) is doable? They don't seem like they don't know what they're doing is all. There is this one woman who works with a company (her name is in the title of the company) and she has over twenty years experience and is very professional seeming. Is she taking me for a ride or is she an optimist?

    Thanks again, and, once again, all comments appreciated. 
  • sixpence.
    sixpence. Posts: 295 Forumite
    Sixth Anniversary 100 Posts Name Dropper Combo Breaker
    I am using Unbiased to find IFAs (don't know anyone IRL who can recommend, although continuing to ask people in my social circle just in case). Do people know of any other ways of finding an IFA? Any other websites that are trustworthy?
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