Defensive investment of £100k

DoublePolaroid

Hello good people, I hope you are well. I would be grateful for the opinion of the gestalt on my situation and thank you in advance. 

My spouse and I are both 40 and have generous defined benefit public sector pensions. We also have £120k invested in several stocks and shares ISAs; I manage her money as well as my own (in truth we consider it one big pool). I’m a strictly passive investor and 100% of that money is in equities with the vast majority invested in global index funds (Vanguard’s Global All-Share and HSBC’s FTSE All-World Index Fund) with a couple of tilts amounting to 15% of the total to tech and the U.K. I’m entirely comfortable with the risk of a 100% equity portfolio because our intended retirement is in 20 years, we will not need to touch the money in that time and even in the event of a market catastrophe approaching the drawdown period our pensions mean we will be perfectly fine. 

The query relates to a lump sum the missus is due to come in to in the next 6 months or so, which will be circa £120-£130k after tax. We don’t have any high interest debts which need to be paid off. My intention for a small portion of the lump sum is to pay it into our ISA’s from next year onwards, but because we will be able to partially or perhaps even wholly fund each of our annual £20k allowances via our income for the foreseeable, my plan for the lions share of the sum is to squirrel it away with the intention of piling the whole lot into equities via a GIA (if ISA maxed at the time) when a bear market or crash does happen and equities offer better value. Whilst I don’t believe anybody who claims to know when the next market crash will be, it seems clear that stocks in the US in particular are expensive and nobody would be surprised if there was a correction in the next couple of years. In the meantime I am not overly bothered if I don’t get a great return on the investment; I’m mostly interested in not losing a great deal when the market corrects. 

I do entirely understand that trying to time the market is a losing strategy for any punter without an edge (I don’t have one) and I also understand that the evidence favours simply putting the money into a diversified index fund straight away and forgetting about it - which is what I would ordinarily do, all things being equal - and this post would not exist. This is where the fact that the cash is coming from the wife’s side comes into it. Whilst my attitude to risk is on the adventurous side and whilst she trusts me (at least enough to manage our money!) I know that a 30% drawdown on her cash, even if it’s not crystallised, would stress her out and one of my priorities in life is to keep household stress to a minimum. Hence I don’t plan on investing it anywhere where there’s a substantial risk of a big short term drawdown, even if that’s not strictly rational. 

I’ve boiled my options down to keeping the money in cash and trying not to think too much about a 0.5% savings rate (the advantage being it’s guaranteed crash protection) or investing in a mix of global government bonds, inflation linked U.K. gilts and maybe a small fraction in global equities (the advantage being a potentially better return than cash). Something like VLS20 seems like a reasonable option though though I’d probably be happier picking the funds myself and keeping the number down to 3-4 at most. I have discounted the option of investing in an actively managed fund which specialises in wealth preservation, partly due to the high fees and partly because I’m not convinced they can necessarily offer better crash protection than a savvy DIY investor (which I may not be, I fully accept). 

So finally to the question; in the same scenario, given the priorities listed, what would you do?

HHarry

If you have no short term plans for the money I’d get it invested*.  You know you can’t time the market and you’ll be missing out on the returns In the mean time.
If there is a crash then all your money is lumped together so you can’t really say that that £100k is now only worth £70k.

*In something juicier than VLS20

Alice_Holt

Personally, I'd probably settle for options you have discounted - majority in VLS 40 or equivalent, Personal Assets trust / Capital Gearing trust, etc. Then think about moving from these into a more aggressive fund when the time seems right. 

However, I don't trust myself to correctly predict future market trends. Perhaps we won't get a crash, but just a prolonged reduction in returns. 

If this really is long-term money then I wouldn't hold it all in cash (esp with rising inflation).  I'd perhaps use it to boost pension funds, the tax uplift may help to smooth any market bumps - and feed it in over a few years (depending on annual allowance numbers) 

Albermarle

The outlook and return from bonds/gilts is not great . Bonds for sure are not risk free and can go down as well as up . Gilts are risk free but the current return is very poor.
If you do not want to go for a high equity % or managed wealth preservation etc , personally I would keep it in cash at a fixed rate for say 3 years .( 1.5 % to 1.7% ) and maybe put some in Premium Bonds for quicker access.
Others may say different .

Linton

Albermarle said:

The outlook and return from bonds/gilts is not great . Bonds for sure are not risk free and can go down as well as up . Gilts are risk free but the current return is very poor.
If you do not want to go for a high equity % or managed wealth preservation etc , personally I would keep it in cash at a fixed rate for say 3 years .( 1.5 % to 1.7% ) and maybe put some in Premium Bonds for quicker access.
Others may say different .

Gilts are only risk free is you sell at maturity.  In between purchase and maturity gilts can vary in price, sometimes significantly. But most private investors use gilt funds, so when you sell almost all the underlying gilts wont be at their maturity date.

I agree with Alice Holt^^^.

kuratowski

I'll say different
Personally I would not rule out gilts as a component, because if there is (yet another) crisis and equity markets fall precipitously, it remains likely that a flight to quality will again occur, gilt prices rise and partially mitigate the losses from equities.  Yields on bunds show that gilt yields have the potential to fall further.

How about:
60k premium bonds (30k each)
20k gilts
20k equities

Albermarle

kuratowski said:

I'll say different
Personally I would not rule out gilts as a component, because if there is (yet another) crisis and equity markets fall precipitously, it remains likely that a flight to quality will again occur, gilt prices rise and partially mitigate the losses from equities.  Yields on bunds show that gilt yields have the potential to fall further.

How about:
60k premium bonds (30k each)
20k gilts
20k equities

I was not really saying 100% no to bonds, just not to have them as the main component of a defensive strategy , like many did in the past.
Personally I would be happy with what Alice Holt suggests , but the OP already indicated they were not interested in managed funds.
So your suggestion seems a good compromise.

Thrugelmir

A ready made portfolio would seem to be the way to go.  Here's a link to Fidelity, as an example,  which walks you through the decision making process. 

https://www.fidelity.co.uk/funds/navigator/

DoublePolaroid

Thanks for the replies so far. I'm aware that there is no entirely "correct" answer for such queries so I'm grateful for any and all thoughts since additional knowledge is never a bad thing.

Pension not an option as (in a case of one of the more egregious First World problems) I am over my tax free contributions - poor planning on my part - and the missus isn't far off.

Harry, I get you completely and I agree. There is though a psychological difference between "losing" 25% after "gaining" 25% than there is losing 25% straight off the bat. Some of us are more rational creatures than others!

Thrugelmir

DoublePolaroid said:

There is though a psychological difference between "losing" 25% after "gaining" 25% than there is losing 25% straight off the bat. Some of us are more rational creatures than others!

Only two prices that actually matter. The one you buy at and the one you ultimately sell at. Every fisherman talks about about the one that got away.