Investment advice

grumiofoundation

2_4 said:

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.

Well you put a ? At the end of your sentence - so could be seen as just answering your question. 

dunstonh

2_4 said:

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.

You asked a question and I answered it.

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

I replied that is overly complicated and unnecessary (sp check changed to unnecessarily in error) and nothing to gain from it.  All of which is true and correct.

2_4

True and correct but not helpful or constructive and of no assistance when it comes to the main thrust of my post which was essentially "Is this (Vanguard, be it 20, 40, 60, 80, 100 or a combo of one or more of those) a decent option for them?"

If anyone could answer that, or suggest what would be a good option, that would be greatly appreciated.

bowlhead99

2_4 said:

True and correct but not helpful or constructive and of no assistance when it comes to the main thrust of my post which was essentially "Is this (Vanguard, be it 20, 40, 60, 80, 100 or a combo of one or more of those) a decent option for them?"

If anyone could answer that, or suggest what would be a good option, that would be greatly appreciated.

It can be hard to determine the 'thrust' of a post when the actual wording of the post says 'to keep things simple could they do worse than: [a mix of six investment products at various percentages, most of which use the same underlying building blocks]. Maybe that is overcomplicating it? Maybe some variation on that though"

1) Yes they could do worse - they could try to solve the problem with ten or twenty funds instead. Whereas they could do better by solving it with fewer funds. 
2) So yes, that is overcomplicating it. 
3) Yes, some variation could be better. If by a variation you just mean changing the specific percentage allocation among the 5 vanguard funds then you are looking at it wrong. As Albermarle said you could get to the same overall percentage mix of equities and bonds by using two funds instead of 5. As Masonic said you could get to roughly the same by just using one, which would probably be OK given your percentage mix was only arbitrary anyway.  You could vary it further by not using Vanguard at all, because plenty of investment firms offer mixed asset solutions to allow you to hold a blend of investment assets for ten years or so, which is what you are trying to do for them.

You've suggested that £10k in premium bonds will be enough for them. A question would be, what happens when they decide they want a new car or a new roof to their house in a few years time to 'see them out' and fancy spending £x thousand on it which can't be covered from their pension income that year? If the answer is, don't worry they already have £70k of other savings... then isn't the answer to 'should they get £10k in premium bonds instead of investments within this £80k?' going to also be 'don't worry, they already have £70k of other savings'... meaning the premium bonds are unnecessary and the whole £80k could be put into conventional investments?

bowlhead99

Also - you mentioned they could each put £20k in this year and £20k next year to do this investing in an ISA within each of their allowances. If they are looking to make good use of allowances, they could also benefit by contributing £2880 to a pension each year until they turn 75, getting the tax relief to gross it up to £3600, so they could do some of their investment in a SIPP instead of only doing it in ISA.  Whether they have capacity to take income from that new pension without giving most of the tax relief back in income tax depends on the level of their other income. But if for example one of them is deferring their state pension and their private pensions are not huge, they may have capacity within their personal allowance to take further pension income at a tax rate of 0%, making the tax relief a particularly useful boost over and above the small boost they'd get from the tax free lump sum. 

A reason why one or both of them may be deferring their state pension (as my mother does) is that it is a very good deal for someone reaching SP age before 6/4/2016; choosing not to take it now lets them have an enhanced weekly pension later.  If they are looking put some of their money 'to work' in an effort to make a modest inflation-proofed return, then using up some of this spare cash to substitute state pension income for the next few years, to enhance state pension for the rest of their lives (over 10% extra per year they don't take it) can be a valuable thing to do. This effectively allows them to get an annuity of a higher state pension in future years at a low cost - very low compared to market rates for buying an annuity and a great insurance policy against living to a 'ripe old age'. And on the scheme for people reaching SP age before 6/4/2016, the additional pension you get by deferring is inheritable by the spouse, so the benefit can last until the last of them dies.

2_4

Cheers. I'll mention the pension idea to them and hopefully they will understand it.

Regards the PBs, not really sure why they want it. I guess they just want the tiny chance of a decent win and the small excitement of smaller ones.

With regards the Vanguard product, I didn't really know exactly how it worked and didn't think about it logically but I understand the point people are making now. Based on what I have said, which I know isn't loads of info, is the Vanguard a reasonable option and more to the point is there anything that might be obviously better.

I appreciate it is hard getting third hand info that is incomplete but I suppose they are looking for a modest return, perhaps 3-5%, with as little risk as possible based on most of the money being invested for 10 years. If anything they would err towards accepting more risk to achieve that return rather than less risk to protect the capital.

2_4

OK, they are both under 75 but taking their pensions already. As they both pay tax at 20% is there any benefit to paying into the pension? I don't really understand and neither do they so any further advice with regards to how and why to use the extra £2880 allowance would be great.

In terms of the investments, their "other" cash is mainly in low yielding bank accounts so is instant access. As such they don't need the Premium Bonds but have decided they want them for a bit of fun.

I suppose the real question is, is there an option that is obviously better than the Vanguard one for people wanting a simple investment that gives them a chance at a decent return with a medium risk (based on it being pretty diversified and that they would hold for 10 years)?

Lastly they/we are considering perhaps starting with the 20% equities in case shares suffer another big Covid-related fall and then maybe moving some or all into a higher one as and when that happens. Then, perhaps after a few years as they get older they could move back down again to a less risky one. Does that seem reasonable?

Thanks for all and any imput.

grumiofoundation

2_4 said:

OK, they are both under 75 but taking their pensions already. As they both pay tax at 20% is there any benefit to paying into the pension? I don't really understand and neither do they so any further advice with regards to how and why to use the extra £2880 allowance would be great.

In terms of the investments, their "other" cash is mainly in low yielding bank accounts so is instant access. As such they don't need the Premium Bonds but have decided they want them for a bit of fun.

I suppose the real question is, is there an option that is obviously better than the Vanguard one for people wanting a simple investment that gives them a chance at a decent return with a medium risk (based on it being pretty diversified and that they would hold for 10 years)?

Lastly they/we are considering perhaps starting with the 20% equities in case shares suffer another big Covid-related fall and then maybe moving some or all into a higher one as and when that happens. Then, perhaps after a few years as they get older they could move back down again to a less risky one. Does that seem reasonable?

Thanks for all and any imput.

The 2880 allowance will get tax relief up to 3600. But as they are 20% tax payer 75% of that is taxed at 20%. Works out at a 6.25% uplift upon paying into pension (based on 25% being tax-free), with downside of money being less accessible.

Could consider (don't know if this has been mentioned) is rather than going for all the money in 20/80 equities/bonds to go for 20% in (100%) equities and 80% in cash?

2_4

grumiofoundation said:

2_4 said:

OK, they are both under 75 but taking their pensions already. As they both pay tax at 20% is there any benefit to paying into the pension? I don't really understand and neither do they so any further advice with regards to how and why to use the extra £2880 allowance would be great.

In terms of the investments, their "other" cash is mainly in low yielding bank accounts so is instant access. As such they don't need the Premium Bonds but have decided they want them for a bit of fun.

I suppose the real question is, is there an option that is obviously better than the Vanguard one for people wanting a simple investment that gives them a chance at a decent return with a medium risk (based on it being pretty diversified and that they would hold for 10 years)?

Lastly they/we are considering perhaps starting with the 20% equities in case shares suffer another big Covid-related fall and then maybe moving some or all into a higher one as and when that happens. Then, perhaps after a few years as they get older they could move back down again to a less risky one. Does that seem reasonable?

Thanks for all and any imput.

The 2880 allowance will get tax relief up to 3600. But as they are 20% tax payer 75% of that is taxed at 20%. Works out at a 6.25% uplift upon paying into pension (based on 25% being tax-free), with downside of money being less accessible.

Could consider (don't know if this has been mentioned) is rather than going for all the money in 20/80 equities/bonds to go for 20% in (100%) equities and 80% in cash?

Cheers, thanks for clarifying. OK, I think the pension idea would probably be a good one as they did mention possibly taking some income from their investments so doing the pension would effectively be a tax efficient way of doing that.

In terms of the 80% in cash, I think they are prepared to take on a little more risk and already have around £50-70k, plus the 10k Premium Bonds which would be more or less risk-free.

bowlhead99

2_4 said:

OK, they are both under 75 but taking their pensions already. 

For the state pension, the fact that they have started to take it already doesn't prevent them from saying they want to stop taking it for a while, unless they have already stopped at some point in the past and then decided to restart again. 

You can only stop and restart once, but state pension deferral is about the most lucrative investment that someone who has surplus cash and is looking for a low-risk return can make.  That is, for someone who reached state pension age before 6/4/2016 (which they did, if they are around 70 now).   

The terms for deferring if you hit pension age after that date (5.8% increase for every year deferred, instead of 10.4% for every year deferred) are far less lucrative because the government realised they couldn't afford to keep offering the same tremendous rate of return, and they also stopped allowing the additional pension 'earned' in that way from being inheritable by a spouse.

https://www.gov.uk/deferring-state-pension/what-you-get