Passive investment options for windfall

darrinm81

I'm looking to invest a sizeable windfall into an index fund or similar. 

I don't need access for the funds so this is essentially a long term, invest and forgot investment. 

I'm thinking a fund with equity heavy exposure across local and international stocks. 

Key questions are:
Average in over the next 12 months? Or all in on day one? 
Single provider or diversify across a few? 
Considerations to capital growth over income growth strategy? 

kinger101

(a) Historically, on average its usually better to invest as a lump sum rather than drip feeding.  The long-term trend for stock-markets is up, so the sooner you can invest, the longer you'll have for compounding.  The downside is bad luck might mean you pick a bad moment to go all-in.  I have in the past, but would probably go lump sum again.  It's a matter of deciding whether you want to maximize growth potential at risk or accept likely poorer performance for an averaged purchase price.

(b) With the likes of HL, your investments are usually ringfenced.  Meaning if they go bust, you should be safe.  There's also an FSCS guarantee of £85K.  Might be worth confirming if the investment exceeds this if you want more specific advice.

(c) You said you were looking for an index tracker, so that removes the decision of income v growth.  Perhaps you meant accumulation v income.  The former automatically reinvests any dividends.  If you don't need income, pick accumulation.  

You might also consider whether its worth investing some of your money via pension scheme.  Particularly attractive if you're a higher rate taxpayer or can use salary sacrifice.
 

Linton

darrinm81 said:

I'm looking to invest a sizeable windfall into an index fund or similar. 

I don't need access for the funds so this is essentially a long term, invest and forgot investment. 

I'm thinking a fund with equity heavy exposure across local and international stocks. 

Key questions are:
Average in over the next 12 months? Or all in on day one? 
Single provider or diversify across a few? 
Considerations to capital growth over income growth strategy? 

In my view.....

- if you are using funds  all in at day 1. If you are using ITs isometimes buying very large holdings in one go may be difficult or a bit more expensive as there may not be enough available for sale.
- if you are using different sorts of accounts, eg S&S ISA, SIPP,  unsheltered, you could reasonably put each with a different platform. There is generally no advantage in them all being on the same platform. Otherwise it could depend on how big “sizeable” is. Perhaps over £250k I might use 2 platforms. If you are not using tax sheltered accounts, why not?
I see no point in going out of one’s way to use multiple fund managers. Choose the most appropriate funds irrespective of fund manager
 - I would only go for income if there is a need to withdraw income, otherwise use ACC funds as it is less effort for relatively very small amounts of money. Although having some income generating investments is useful to ensure there is always cash in the account to pay charges.

dunstonh

Average in over the next 12 months? Or all in on day one? 

Statistically, day 1 results in higher returns in the majority of cases (depending on timescales its something around 75% of the time).

Single provider or diversify across a few? 

There is no one best fund house in all areas.   This includes trackers.      However, it depends on how you intend to build your portfolio.  If you use a multi-asset fund then you really only need to be with that provider/platform.   Although history tells us that the best option today will not be the best option in the future.   So, staying with a whole of market platform/provider gives you flexibility.

Considerations to capital growth over income growth strategy? 

Are you referring to strategy?  Income yield is a viable strategy but it has issues (all strategies have pros and cons).   Income yielding strategies tend to show their weaknesses during financial crisis and downturns.    They also tend to promote home bias and result in lower returns than total return based strategies.    The choice of strategy is a management decision.   So, how passive did you intend your passive portfolio to be?  

darrinm81

Thank you for the responses. 

a) Feels like lump sum the way to go but I'll do some more homework.

b) Single platform appears the simplest however FSFS guarantee is capped at 85k per person. I'd suspect using one of the bigger names would provide some more certainty.

Unfortunately ISA not an option at this stage. 

c) I am after an accumulation fund that reinvests any income earned. However was more asking around what benefits may exist at individual level in terms of tax credits etc

dunstonh

b) Single platform appears the simplest however FSFS guarantee is capped at 85k per person. I'd suspect using one of the bigger names would provide some more certainty.

Single platform is £85k per person if the platform fails in a way and creates a loss that is not linked to the investments.   Otherwise, it is £85k per fund house on that platform if there is an issue with the fund house.  So, you can go much higher than £85k if you use multiple fund houses.

However, most people are not particularly bothered about FSCS protection in the mainstream investment world.

c) I am after an accumulation fund that reinvests any income earned. However was more asking around what benefits may exist at individual level in terms of tax credits etc

Acc units or inc units with income reinvested makes little or no difference.  Some platforms charge on reinvestment.   There is some info to suggest that platforms that prefund results in virtually no difference.  Whereas those that do not prefund may see small differences.

Linton

Yes, the FSCS £85K is pretty irrelevent to investors, at least to those using mainstream investments on mainstream platforms.  It is difficult to come up with a realistic scenario when the FSCS guarantee would apply.

When you put your money in a bank, the bank owns that money and can use it to pay its debts.  Funds are very different.  Investor's money is strictly ringfenced from that of the platform or fund manager.  They just have the right to manage it on your behalf.  So if a fund manager or platform goes bust the funds under management are very likely to be taken over by other managers - the customer base is a valuable asset.  Life will then carry on much the same.

Albermarle

b) Single platform appears the simplest however FSFS guarantee is capped at 85k per person. I'd suspect using one of the bigger names would provide some more certainty.

Many posters on this forum are relaxed about having several hundred thousand pounds with one investment platform . Some with seven  figures even , However that mainly applies to the better known platforms .

darrinm81

The fsfs was less of a driver for asking the question. More so diversity of manager/strategy/risk. Appreciate this is watered down if investing into an index fund tracker or equivalent.

Where is a useful source for selecting a decent provider? I've only ever heard vanguard for index trackers but unsure if this is marketing or not. 

dunstonh

. More so diversity of manager/strategy/risk. Appreciate this is watered down if investing into an index fund tracker or equivalent.

I would be on guard with that statement.  Some index trackers have potential issues that could make them higher risk of such an event.

I've only ever heard vanguard for index trackers but unsure if this is marketing or not. 

Vanguard are popular with some.   They have some of the better trackers but they do not have the best trackers in every area.  HSBC, Fidelity, L&G, Blackrock/ishares, State Street to name a few.

However, are you knowledgeable enough to build a portfolio of funds?   What asset weightings are you going to use?   How will you adjust them throughout the economic cycle?

Would a multi-asset fund be more suitable? 

Sebo027

Why aren't you able to utilise your ISA allowance for your investment? If you are resident in the UK for tax purposes and invest through a UK based platform your money will be subject to dividend and capital gains taxes. A strategy for invested moneys is to sell a holding in line with your ISA allowance and rebuy within a stocks and shares ISA. Gradually, over time, converting the holding to a tax free investment. One risk is your "time out the market" when doing so during periods of high volatility but depending on the value of your investment and time invested it may be statistically insignificant unless you were particularly unlucky. 

A popular option with passive investors are MSCI World Index trackers or FTSE All World Index. There are number low cost (low fee) index tracker ETFs (exchange traded funds) that offer this across a number of providers as @dunstonh has mentioned (ishares, vanguard etc). 

Depending on your financial circumstances and tolerance to risk and volatility in the market you may want to consider your equity to bond ratio. Typically a high proportion of equities results in higher volatility and higher potential returns over a longer period of time. There's a good video on this here that's only 12 minutes long.