Investment advice

2_4

Hi

A friend is looking to invest around £80k. For some reason they have a desire to put 10k in Premium Bonds. They are 70 and looking to invest for a period of around 10 years. I think the 10k PBs would be all they need on instant access. Looking for a mix of income and growth I think but they are a bit unclear on that. Any thoughts? I don't know all that much but I was thinking that on of Vanguard's Lifestyle options might be ok, one towards the lower end of the stocks, say 20 or 40. They are a couple so could put a total of 40k straight into it as ISA and then move the other 40k in next April. Would that be the best option from a tax POV?

Thanks a lot!

grumiofoundation

Are they actually looking to invest (as in willing to risk capital)?

You say 'you think' 10k is enough for easy access - not to sound harsh but its not really for you to say how much they need in easy accessible cash?

As they are under 75 they are still able to get tax relief in pension contributions (up to £2880), depending on the tax they pay this may be better from a tax POV.

Practically without more info on their financial situation no-one will be able to really comment in that much detail.

Do they pay rent, is the 80k all the money they have in the world, do they have children/grandchildren/great grandchildren they want to give money to, what is their plan for paying for care if this is needed?

Are they actually wanting you to advise them on investing or are you just being helpful. If the latter you want to make sure they are making decisions they are comfortable with, rather than just following your advice, in case they end up making the 'wrong' decision (for them) and blame you. 

2_4

I think as in that's what they've told me re the 10k but it is a little unclear. They have asked for my advice. I asked them the sorts of questions I knew I'd get asked on here, having seen lots of other similar threads but didn't really get proper answers and didn't want to push it too much asking them. I can do though so will try and get proper answers.

They own their own house, have 2 kids and one grandchild. I think their aim is to leave the house to the kids but not other funds. They have other savings too but I';m not sure how much, most of which is no risk with a small amount individual shares accrued over the years. They both have reasonable private pensions. Again I'm not sure but I think in the past they would have just put the money in a savings account and been happy with 4% so probably looking for that sort of an investment with low risk but they realise they would have to take some risk to get that return now. I think that they think, and I agree, that the 10 year timeframe means the risk would be quite low.

eskbanker

From a financial perspective, the right thing to do is undoubtedly to look at their situation holistically, rather than considering what to do with one chunk of their wealth without full visibility of how the rest is arranged, so one response to them would be to say that you can't realistically offer selective advice without a more comprehensive understanding of their circumstances, including objectives, attitude to risk, etc, as well as how their finances are currently deployed.  For example, you say they have other savings too, but the reliance on the £80K pot will obviously differ depending on whether their other savings are £5K or £500K....

2_4

OK, they have 70k other savings. Both are basic rate tax payers. He said they are broadly looking for an alternative to a very low interest savings account so in general want very low risk but would be happy with 20-30k in a slightly more risky option and 5-10k in a higher risk still but potentially invested for 10 or more years.

Hope that helps. I'm seeing him on Thursday and will discuss and show him this thread so any comments appreciated.

Albermarle

so in general want very low risk but would be happy with 20-30k in a slightly more risky option and 5-10k in a higher risk still but potentially invested for 10 or more years.

Assessing someone's risk tolerance is quite difficult , as they will often say they want low risk but a reasonable return ( many posters on here look for that Holy Grail ). If not already done so then maybe best to really spell out the options in black and white terms eg

Savings/PBs etc - no risk but over 10 years will slowly lose out to inflation 

To have a good chance to  beat inflation you need to at least invest in a medium/low risk product ( say 30 to 40% equities) that could drop up to 20% in a bad  market crash ( and then hopefully recover again , hence why you need the 10 years time frame)

To try and actually make a decent return above inflation you need to be in 50% to 60% equity product , that could drop 30% in a bad market situation  and could drop at least 10/15% in the regular market ups and downs.

Higher risk would mean 80%-100 % equities and a roller coaster ride but with potentially good returns .

Better to be clear about all this risk vs reward in advance and dismiss any notions/dreams they may have that somewhere there is a product that can beat inflation with no /little risk.

2_4

I think they are aware of that as they are reasonably financially savvy and have done bits of investing over the years. With a very diverse portfolio, a la the Vanguard lifestyle, are the odds of losing money over a 10 year period not very small though, especially if, say, they went for the lower equity ones.

To keep things simple, could they do worse than, say:

£10k Premium Bonds
£25k - Vanguard 20
£20k Vanguard  40
£15k Vanguard 60
£5k Vanguard 80
£5k Vanguard 100

Hmm, I said "simple", maybe having all five options is overcomplicating it? Maybe some variation on that though?

Albermarle

If my maths is correct you would effectively end up with Vanguard 44.
£40K in 40 and £30K in 60 would give you roughly the same result.

dunstonh

To keep things simple, could they do worse than, say:

£10k Premium Bonds

£25k - Vanguard 20

£20k Vanguard  40

£15k Vanguard 60

£5k Vanguard 80

That is an overly complicated way of doing things.  Totally unnecessarily with nothing to gain.

masonic

2_4 said:

I think they are aware of that as they are reasonably financially savvy and have done bits of investing over the years. With a very diverse portfolio, a la the Vanguard lifestyle, are the odds of losing money over a 10 year period not very small though, especially if, say, they went for the lower equity ones.

To keep things simple, could they do worse than, say:

£10k Premium Bonds
£25k - Vanguard 20
£20k Vanguard  40
£15k Vanguard 60
£5k Vanguard 80
£5k Vanguard 100

Hmm, I said "simple", maybe having all five options is overcomplicating it? Maybe some variation on that though?

How about £10k Premium Bonds and £70k Vanguard LS 40

Essentially that's what you'd be building from a bunch of other funds.

2_4

dunstonh said:

To keep things simple, could they do worse than, say:

£10k Premium Bonds

£25k - Vanguard 20

£20k Vanguard  40

£15k Vanguard 60

£5k Vanguard 80

That is an overly complicated way of doing things.  Totally unnecessarily with nothing to gain.

I find it incredible that three people have thanked this post. I suggested myself it might be overcomplicated so for someone to say, with nothing constructive and no explanation, it's complicated, is hardly helpful.