Investing large sum in world tracker fund

Consideredspender

Hi all,

I've just had a quick look through all the - very generous! - replies I've received, for which I'm hugely grateful and in your depts for. Before I address specific points and quieries, I thought I at least owed you some clarifications as to my situation and attitudes. So, here goes:

Firstly, it is true that I'd rather not take large amounts of risk. However, where else do I put my savings in order to retain their value? :-( Interest rates are appaling and the governments are inventing money and thus stoking inflation. The markets - especially all of them combined (which as I understand it provide a large amount of diversification) - are something I cannot see failing to keep pace with inflation over the long term. Our dependence on foreign goods surely means that a bet on the world should hedge against costs rises  Sadly, as I'm not unpatriotic, but I also lack faith in the government to help steer the British economy in a positive direction, and thus a bet on the world economies seems more a more reliable way to retain value. Am I misguided?

On the subject of risk and diversification, I plan to maintain a 60:40 split between my stock market investment and cash - or something (?) equivalently low risk.

I do currently pay a decent level on tax on my savings, so I hope noone perceives me as a drain on the state. At the moment I choose to volunteer and not work due to a recent divorce and the death of my father, which made me question what was important in life. I came to the conclusion it was people, and thus I currently live with and help serve a Christian community. I do realise how incredibly lucky I am to be able to do this and I hope I don't come across insensitive to those with lesser financial means.

I will absorb fully all the posts later and reply to specifics.

Many thanks again!

md258

It might be better to switch your ISA/non ISA pots over so that your £50-£90k is invested and sheltered from CGT. You could then replace this as cash with part of the £300k. There is very little difference between interest rates inside an ISA so you wouldn't lose much there.

In a similar way, if you do get a job and they allow salary sacrifice, pay as much of your salary into your pension and live off the remains of the £300k.

csgohan4

if your risk averse, max out your premium bonds and look for the best savings account in the meantime. 

Otherwise the rest of us are investing in Stocks  and shares in a tax wrapper to inflation proof our savings, however to do so wisely in index tracker funds which have a track record, not stellar but will almost guarantee you will more than you put in

Some are more adventurous and add in sectors/ geography to diversify their investments or even dabble in individual shares

tiengomar

You should also consider future wealth taxes as the government will be looking at wherever it can find money to plug the massive holes caused by Covid related policies. Maybe a way out of this is to invest more in pensions? Assuming of course that the futyure Treasury attack will spare pension pots....

Malthusian

On the subject of risk and diversification, I plan to maintain a 60:40 split between my stock market investment and cash - or something (?) equivalently low risk.

That works as long as when the next 40% crash comes, you will be happy that your overall portfolio of £300,000 has "only" fallen 24% to £228,000. And maybe even stick some of your cash into shares at the bottom of the market, to rebalance back to 60:40.

A lot of people however would panic that their £180,000 had "lost" £72,000 and kick themselves for not keeping it all in cash "until there was less uncertainty" (i.e. forever). People are happy to take a holistic, overall view for as long as everything is going up. Once some of their portfolio starts going down (whether that's the equity allocation of their free assets or a single fund within their equity portfolio) they start to compartmentalise. Human brains are hardwired to focus on the negative.

For inexperienced investors who don't yet know how they're going to handle watching their money lose value, a more diversified fund may be preferred even if they've got a giant mound of cash.

tiengomar said:

You should also consider future wealth taxes as the government will be looking at wherever it can find money to plug the massive holes caused by Covid related policies. Maybe a way out of this is to invest more in pensions? Assuming of course that the futyure Treasury attack will spare pension pots....

The OP has no earned income so can only put an almost irrelevant £2,880 net into a pension each tax year without an unnecessary tax charge. Trying to avoid imaginary future taxes by paying extra tax in the present, in the hope the Government will help you out by retrospectively making it a good tax strategy (and why would they do that when the premise is that the Government wants to make you pay extra tax?) doesn't make sense.

steampowered

If you are concerned about short term drops, perhaps you could consider putting most of your money into an equity fund and a portion (perhaps 30%) into a bond fund?

Or selecting a multi-asset fund rather than a 100% equity fund?

That will reduce your likely returns, but will also reduce your likely volatility.

You can rebalance into higher equity exposure over time. It makes sense to increase equity exposure as markets drop, and reduce it as they rise, though you can never be sure whether you are calling it right or not.

Logically, short term drops are nothing to be worried about when you are investing for a 15 year time scale, but they can be challenging emotionally.

Consideredspender

tacpot12 said:

My hope is that stock markets will not fall further, but this does not mean that stock markets will not fall further. Therefore spreading your investment over a number of months might produce a better result than investing everything immediately, but I do wonder if the difference will be material, given that you are planning to invest for 15 years. 

I am just concerned I might have very unlucky timing with a one-hit approach and buy right at the top, only for the market to plummet. At least an averaged approach stands more chance of incorporating some cheaper priced stock. Does that make sense? Perhaps small fluctuations are mere aberrations relative to long-term growth and thus somewhat ignorable...

Thanks for all your other clear and very helpful comments!

A low cost global equity tracker, such a VWRP, would be a good choice. You're right that the choice between a single fund or multiple funds is as much about the stress and responsibility, vs. your view as to whether the single fund is going to perform as well as multiple funds. I am inclined to think that a single fund will be more than adequate. 

I wouldn't bother splitting funds between two brokers unless you need income, which you don't. 

You will have to invest in a GIA once your ISA limit is used, and will have pay CGT via self-assessment. You can move investments in a GIA to your ISA each year as the ISA limits allow. remember you have a CGT allowance each year, so it is possible to sell just enough shares so that the profit you realise will remain within your CGT allowance. Check if HL allow an in specie transfer from their GIA to their ISA. 

Thanks again!

Consideredspender

Sorry tacpot12 l, managed to embed my response in the quoted part of my reply.

Consideredspender

Thruglemere:
To answer your question:
Because my research has led me to understand that index trackers on average outperform managed funds AND the world seems a nice broad diversification within the stocks asset class AND it makes sense to me that there is always a part of the world growing AND it gets my investment out of the British economy, which I sadly lack faith in. Does this make sense? You may pick up me having read Andrew Craig's Own the World :-:smile:

And thanks for your comment!

Consideredspender

Another_Saver said:

Consideredspender said:

Hi all,

I've got circa £300,000 (which I won't need for another 15 years or so) to invest in the markets in a passive world tracker fund and I was hoping to seek the guidance of you wise investors. 

I have 3 conundrums:

1. Should I invest in a single contribution or dollar average, and if so, over what period. I don't want to badly time the market, so a single contribution is open to deep regrets. Likewise, the markets seem to be on the move and i don't want to miss out on the opportunity cost. I was thinking of contributing over between 4 and 6 months?

2. I like the vanguard funds. The accumulating all world tracker etc (vwrp?) seems a good choice and has a fairly competitive off of 0.22. however, I gather a blend of their developed world and emerging markets funds with a 90/10 split could supply very similar diversification for a combined of 0.14. I want simplicity and low maintenance, so what should i go for. I guess it boils down to the ongoing work and stress involved in rebalancing...

3. I have about 50k in cash ISAs already, which I plan to transfer in to a S&S ISA. I will then top this up with this year's, and perhaps next year's allowances; so 90k in an ISA. i no longer work (I am a live-in volunteer in a spiritual centre) so I gather I can't put more than circa 3k away in a SIPP. As such, am I right in thinking a general investment account is my best way forward (and thus have to deal with self assessment in the shirt termnand CGT in the long)?

3. Which broker/s should i use. Given the amount, Vanguard annual holding fees are prohibitive. HL seem well regarded and charge £45 a year for holding. Although their dealing charge is £12 per transaction. What are others experiences with HL, or perhaps other brokers you would recommend for my situation. And would people consider splitting the monies between 2 brokers for FSCS cover safety?

To add to all this, I'm 44 and own a house and have ther funds that I've set aside for living worry-free on.

I would really appreciate your experienced inputs on these questions. I've read a number of investment books and read around the internet forums and feel I mostly know what I'm doing, but there is a lot at stake and thus I won't to give the decision due diligence.

Many thanks.
Kind regards.

1. Statistically, lump sum beats drip feed about 2/3 of the time. If you are going to average it in, do it automatically not manually i.e. setup an automatic regular contribution, prevents emotions getting in the way.

2. That fund choice is fine, I think the HSBC one is cheaper.
3. Covered above, besides which a good broker should be able to help with it in some way but I'm not rich enough to know about that (yet).
4. iWeb would be even cheaper.
5. ... There's no harm using multiple brokers other than slightly higher costs. If splitting it 3-4 ways by platform and fund makes you feel more secure than go for it 🤷‍♂️ . It's a valid concern, some people might call it overly cautious but it's your money.

Very sagelike responses. Many thanks! I will factor them in to my plans.