Best Option for Cash Lump Sum

wjr4

DoneWorking said:

Thanks all

My big concern is that if I go with an IFA using ESG investments I may end up paying up to 2% costs with a return which is not high enough to cover inflation

This option has the possible risk of loss of funds

I understand that leaving my fund in cash savings and bonds will only generate a return that is less than inflation

This would give a guaranteed drop of about 2% plus each year depending on inflation rate

Equating to a stock market crash after ten years

Really difficuilt to decide which way to go

Investment with risk and potential loss or gain

Savings/Bonds with certain loss 

You should not be paying charges of 2% pa. 

Thrugelmir

Have you considered a provider such as Nutmeg for example. They offer Socially Responsible investment options. ESG isn't going to be cost free. There's a price to be paid for screening investments in order to ascertain whether they are worthy of inclusion in a portfolio. 

No guarantee that ESG investing will provide optimum returns in the short term either. 

Albermarle

DoneWorking said:

Thanks all

My big concern is that if I go with an IFA using ESG investments I may end up paying up to 2% costs with a return which is not high enough to cover inflation

This option has the possible risk of loss of funds

I understand that leaving my fund in cash savings and bonds will only generate a return that is less than inflation

This would give a guaranteed drop of about 2% plus each year depending on inflation rate

Equating to a stock market crash after ten years

Really difficuilt to decide which way to go

Investment with risk and potential loss or gain

Savings/Bonds with certain loss 

Probably 2% with an IFA , would only be that much if you really insisted in more specialised funds that avoided all but the most ethical investments , as these tend to be expensive.
For a normal ESG /IFA portfolio you would not pay that much .

If you DIY with a whole of market platform , then costs should reduced to 0.5% to 1.5 % , depending again on how specialised the ESG fund was .

GeoffTF

DoneWorking said:

Thanks all

My big concern is that if I go with an IFA using ESG investments I may end up paying up to 2% costs with a return which is not high enough to cover inflation

This option has the possible risk of loss of funds

I understand that leaving my fund in cash savings and bonds will only generate a return that is less than inflation

This would give a guaranteed drop of about 2% plus each year depending on inflation rate

Equating to a stock market crash after ten years

Really difficuilt to decide which way to go

Investment with risk and potential loss or gain

Savings/Bonds with certain loss 

As I have said, you can put say half your money in savings accounts. You can get just over 2% p.a. for a five year term. You can invest the remainder in a global tracker fund.

Here are Vanguard's estimates for the next ten years, based on their economic model:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/misstep-by-policymakers-key-risk-to-markets-2022

"In sterling terms, we think UK shares over the next ten years are likely to return between 4.6% and 6.6% on an annualised basis. For unhedged, non-UK shares the projected range is between 2.8% and 4.8%."

"We see UK bonds offering returns of between 0.8% and 1.8% on average over the next ten years, while international (non-UK) bonds will offer returns of between 0.7% and 1.7%, which is slightly up on our expectations from last year."

Say, 4% p.a. for a global tracker, and 1% for bonds. With a fifty fifty split between savings accounts paying 2% p.a and a global tracker paying 4% p.a that works out to a return of about 3% p.a. With a fifty fifty split between bonds paying 1% and a global tracker paying 4%, that works out to a return of about 2.5%. Both options will be struggling to beat inflation. If you use an IFA, you are not going to be left with much of that return.

Nobody knows the future. Vanguard's estimates will almost certainly be wrong, but they should give you some idea of the sort of returns that you can reasonably hope for here.

dunstonh

My big concern is that if I go with an IFA using ESG investments I may end up paying up to 2% costs with a return which is not high enough to cover inflation

That concern is unrealistic.  you should not be near 2%.  However, even if you were, then real terms growth is still likely.     Specialist ethical restricted portfolios could head towards 2% but not ESG.  But they are going to be more expensive (than a conventional portfolio) whether you have an IFA or not.

Scrudgy

Perhaps analyse why ESG is so important to you. The ESG funds offered to me in my work pension fund look almost the same as my global equity fund, the top ten investments are almost exactly the same, Microsoft, Amazon etc. as long as they score more than 50 out of 100 on the ESG scale they make it into the fund.

I am sure if I looked deeper I would find there are no tobacco, alcohol, firearms, hydrocarbon, etc companies in there that you may find distasteful, but when I compare the globally equity ESG fund and the regular global equity fund, the latter outperforms the ESG fund by about 1% over the last three months (the ESG fund is only that old).

DoneWorking

Update

So looks like best option is to find an IFA with total fees pa including all costs less than 1.6%

Consider not going fully ESG

Keep 30 to 40 % of my funds in cash savings

Go with a smallish  IFA company who does not market themselves as a Wealth Manager

Ensure fee for initial plan is less or no more  than 1%

Do I need to move fast on this 
Or would it be ok to wait until the spring

Malthusian

DoneWorking said:

Do I need to move fast on this 
Or would it be ok to wait until the spring

There is certainly no "need" to move fast, you just miss out on potential growth for a few months (and a few months is a coin flip, so missing out on a market fall is almost as likely as missing out on growth).

Bear in mind that the start of spring is IFAs' busiest period due to tax year end.

If you wait until after tax-year end you could miss out on using this year's ISA allowance (although you could move some money into a cash ISA as a holding measure).

What will have changed in spring?

Albermarle

DoneWorking said:

Update

So looks like best option is to find an IFA with total fees pa including all costs less than 1.6%
Could be less if specialist funds avoided .
Some IFA's delegate the investment strategy to a DFM ( Discretionary fund manager ) , who also have a fee . Even if the IFA reduces their own fees ( not always the case ) in total it will be likely more expensive. 

Consider not going fully ESG

Keep 30 to 40 % of my funds in cash savings. 
This would be debatable/matter of opinion . Normally it would seem on the high side but the unattractiveness of bonds currently makes holding more cash more popular. 

Go with a smallish  IFA company who does not market themselves as a Wealth Manager

Ensure fee for initial plan is less or no more  than 1%, with a cap of say £5000??

Do I need to move fast on this 
Or would it be ok to wait until the spring

I think you have the general idea but some comments in bold above .

DoneWorking

Thanks for all comments everyone