Advice sought on what to do with £1.2m pay out

Albermarle

a strong argument that you've already won so why take heady risks that you simply may not need to.

In fact I thought something similar. Even without the £1.2 million , the OP is already in a  good financial position, especially as he has a well paid secure job.  

me107

Aminatidi said:

I hope this doesn't sound out of turn given the situation you find yourself in to receive the money but I think there's a strong argument that you've already won so why take heady risks that you simply may not need to.

No, it doesn’t sound out of turn. I agree with you. I wasn’t expecting to receive compensation, so it does feel like something of a win. Or at least, a small positive in an otherwise v bad situation. 

But presumably you would advise taking some risk with some of the money, in order to preserve its value long-term?

colsten

Some people seem to forget that the OP  is in a wheelchair, needs adapted accommodation / transport, might need to pay for a carer at some stage, has a wife with minimal income and without a pension, and two young kids who might want a decent education. OK, he has a good job and probably a reasonable DB pension but £1.2m really isn't a lot in those circumstances.

Aminatidi

me107 said:

Aminatidi said:

I hope this doesn't sound out of turn given the situation you find yourself in to receive the money but I think there's a strong argument that you've already won so why take heady risks that you simply may not need to.

No, it doesn’t sound out of turn. I agree with you. I wasn’t expecting to receive compensation, so it does feel like something of a win. Or at least, a small positive in an otherwise v bad situation. 

But presumably you would advise taking some risk with some of the money, in order to preserve its value long-term?

Absolutely take some risk.

Just consider how much risk you need to take.

How would you have felt if you had £1.2M in February and you woke up in March looking at £800K?

You're wouldn't starve with £800K but would you have honestly felt comfortable enough in that scenario to sit back and do nothing?

If not what do you think you would have been comfortable with?

That might give you some idea what sort of volatility you can stomach.

Even then it's different thinking you can stomach it to when you see it happening.

Personally if someone gave me a million and a bit quid tomorrow I can think of several trusts or funds where I'd have no concerns about parking the lot though the merits of having your money in a single fund is a different matter and is perhaps where "planning" comes into it more than "ongoing advice"?

Aminatidi

Albermarle said:

a strong argument that you've already won so why take heady risks that you simply may not need to.

In fact I thought something similar. Even without the £1.2 million , the OP is already in a  good financial position, especially as he has a well paid secure job.  

I'm a very simple person but I like using compound interest calculators as I think sometimes they give a pretty handy reminder that you don't need to be chasing crazy rates of return if you have a large pot.

I'm not suggesting don't take some risk with an amount.

Simply that for the bulk of the pot I would have thought "slow and steady wins the race" would give an entirely comfortable and almost guaranteed lifestyle from a starting position of over a million quid.

steampowered

me107 said:

Also, any thoughts on funds themselves. In both Isa and SIPP I would be looking for long-term capital protection and growth (like everyone I guess) but wouldn’t want to take a tremendous risk, even though I am youngish. I think a 60/40 or 70/30 split is probably my risk appetite.

You are only talking about one type of risk here. You are talking about "investment risk". 

There are other types of risk. You will face "inflation risk" - the risk that inflation will erode the value of your investment each year. You will also face "shortfall risk" - the risk that your investments are not adequate for your needs.

When we are looking at long time periods, inflation risk and shortfall risk become more important; and investment risk becomes less important. If you try to reduce your investment risk by selecting a lower equity weighting, you will increase your inflation risk and shortfall risk.

As you are only 36, you are potentially looking at a 50+ year investment horizon for this money. Over that sort of time period, inflation poses a much greater risk to your capital than short term swings in the stock markets. 

As this article demonstrates, even with a 100% equity weighting, the probability of making a loss on a stock market tracker drops to zero after about 12 years, even if you at invest at the worst possible time. That's well within your timescale! https://www.nutmeg.com/nutmegonomics/increasing-your-chances-of-positive-portfolio-returns-the-facts-about-long-term-investing/

Given the sorts of timescale you are looking at I personally would go for a 100% equity weighting for the amount you are investing (though I would also use some of it to buy a larger/nicer house!). Perhaps with a small chunk of it 60:40 for money you think you might need within the next 10 years.

Albermarle

colsten said:

Some people seem to forget that the OP  is in a wheelchair, needs adapted accommodation / transport, might need to pay for a carer at some stage, has a wife with minimal income and without a pension, and two young kids who might want a decent education. OK, he has a good job and probably a reasonable DB pension but £1.2m really isn't a lot in those circumstances.

I had not forgotten, and was just thinking that what he might do with the compensation would be affected by the fact he was in a relatively comfortable position financially already .

mark55man

I think you need to look at the big picture - namely you will need an up front spend to ensure you have a house you can live in.  then you should expect greater than normal costs (ie up to possibly hiring someone full time as a carer) later in life - which however shortened it may be could still be 20 years (fingers crossed) so I would look at a very short term strategy with what you need now and then a very long term plan for what you might need then.  In the middle I think you have a well paid job and without the normal costs of mortgage you should be very comfortable.

I do agree with the earlier poster who said you need to ensure your other half has enough provision, but also that you use her allowances to keep money in the family and be tax efficient.  You also need to to give yourself some flexibility at 55 to retire early so don't bung it all into final salary pension which might limit you to 67 

Malthusian

mark88man said:

I do agree with the earlier poster who said you need to ensure your other half has enough provision, but also that you use her allowances to keep money in the family and be tax efficient.  You also need to to give yourself some flexibility at 55 to retire early so don't bung it all into final salary pension which might limit you to 67 

He should bung the maximum he possibly can into final salary pension - anything else is terrible advice, and when he wants to retire doesn't matter. If he is forced to retire by ill health, he can take the pension early without penalty. If he isn't forced to retire but wants to retire earlier than the Scheme's Retirement Age anyway, he can either live off some of his other funds or swallow the penalty.

colsten

Malthusian said:

mark88man said:

I do agree with the earlier poster who said you need to ensure your other half has enough provision, but also that you use her allowances to keep money in the family and be tax efficient.  You also need to to give yourself some flexibility at 55 to retire early so don't bung it all into final salary pension which might limit you to 67 

He should bung the maximum he possibly can into final salary pension - anything else is terrible advice, and when he wants to retire doesn't matter. If he is forced to retire by ill health, he can take the pension early without penalty. If he isn't forced to retire but wants to retire earlier than the Scheme's Retirement Age anyway, he can either live off some of his other funds or swallow the penalty.

I am saying it again: he has special accommodation / transport needs, a wife on very low income and without a pension, as well as two children to consider, too. Not that it would be possible to bung £1.2m into a works pension in the next decade or two.