How would you invest £1M, starting from scratch?

JakeHyde

Hi guys,

Okay so... I have a ‘Friend’.

He’s 45.

Unmarried,

No dependants,

No house (Renting).

Although he’s a creative freelancer, in this current climate he has virtually no current meaningful source of employment, so we might as well assume he’s unemployed.

Out of the blue he wins £1M.

He has no intention of blowing it on parties or frivolous luxuries, but instead wants to make the money work for him - to grow and generate a healthy yearly income.

He has been assigned a financial advisor/potential fund manager, to help him make his money grow.  But from what I’ve been reading, a lot of people (inc. Warren Buffett) say sticking your money into an Index fund like the SNP 500 hands down beats any kind of professional fund manager, manually picking stocks and shares.

A fund manager usually charges 1%, while the Vanguard SNP 500 is something like 0.07%, but I think there is a platform charge on top of that.

Obviously my ‘Friend’ would like to own his own house, car, and a few other necessities. Maybe eventually buy his parents a new home closer to him.

But after that, what could he do to make this money grow? With as little effort as possible? Haha 😉

I was thinking: 

£50k Personal Money/Ventures 

£150-200k Own House

£200-250k Index Fund?

£50k National Savings Bonds

£400-500 Rental properties, maybe?

(But only if they wouldn’t become his full time job, and they could operate passively.)

£1k Crypto wild card 😜

I know nothing about index funds, is there a way to put the lions share into it, and somehow draw a yearly income from it without affecting any of the unit shares?

As someone who doesn’t come from money, but who greatly respects it and appreciates the freedom it can provide, I’d be grateful for any and all your advice. Thanks for taking the time to respond. 🙏😇

I would LOVE to see Martin Lewis do a segment on his show: “What to do with a Million Pounds” haha! But there’s no way I would broadcast such a question over Twitter, for all to see. Feel free to tag him! 😉

maxsteam

You should delete "ventures". Yup. If you buy into a selection of funds, you can simply click "sell £1k" each month and the cash will appear. I agree that someone without investing knowledge is better using some large, mainstream funds than using an IFA. Some IFAs use this forum so expect disagreement on this. A personal fund manager won't necessarily invest in individual company shares. They might simply choose some large, mainstream funds, taking a fee and a level of control when they do this.

I, personally, would not go so heavily into rental properties as this does not work for everyone. Trying one property and assessing the results after a year would be more sensible IMHO.

Another fun question is how to start with £100, age 20, and turn it into £1m, age 40. It's not so difficult. You would just need to trade something and make 58% profits per year and reinvest the capital. Someone who actively trades collectibles or some other tangible items should not find it difficult to buy £100 of stock and turn it into £158 in 12 months. The difficult part, maybe, is not touching the capital.

AlanP_2

If the OP is posing a genuine, as opposed to hypothetical, question then I would suggest that the lucky winner:

1) selects their own Independent Financial Adviser rather than one assigned by a 3rd party

2) takes their time to think long and hard about what they want the money to "do for them"

3) do as much research and background reading as they can to understand investing better, what the various tax wrappers offer etc. Essential if they want to DIY and still useful when an IFA is used.

4) work out how much passive income they need and what lump sums they want / need to spend e.g. houses


What to invest in is the final piece of the jigsaw not the first piece.

jimjames

An IFA won't advise on house purchase. Good luck if you can buy a house for £150k, round here starting price is £250k and for one you'd want to live in as a millionaire much more. I'd probably spend a lot of it on a house to live in to avoid renting.

Investing is then something to look at once house sorted.

Grumpy_chap

It's not what to do with the money, but what the desired outcome is from the money.

Obviously, own house is a no-brainer.  Plus the money to make that house his home, as he wants it, not as the previous owner wanted it.  Furnishings etc.

Probably set an amount to be spent "frivolously" - holidays, sports car, etc.

Max out premium bonds.

Does the individual have pension plan sufficiently funded for retirement?

Once these are funded, what level of income is desired each year?
Will the individual continue working?  (Once work levels resume - having received this capital means any benefits will stop.)

This gives the objectives to be achieved, though from the initial £1m, there is likely less than half remaining.

Probably sensible to take some professional advice (IFA) as to how the investment fund can be best utilised to achieve the objectives.  Take time to select your own IFA that meets your needs and you can have a rapport with rather than whatever IFA is "given" to you.  With a substantial investment asset base, IFA's should be keen to secure your business and you should get favourable charges.

As a novice LL, I certainly would not put half (or more) of the remaining fund into BTL property.  I also would not entirely rule that out as a part of a balanced investment portfolio, though property funds may be a more appropriate way to link to that gain without the concerns of being a LL.

JakeHyde said:

Hi guys,

Okay so... I have a ‘Friend’.

He’s 45.

Unmarried,

No dependants,

No house (Renting).

Although he’s a creative freelancer, in this current climate he has virtually no current meaningful source of employment, so we might as well assume he’s unemployed.

Out of the blue he wins £1M.

He has no intention of blowing it on parties or frivolous luxuries, but instead wants to make the money work for him - to grow and generate a healthy yearly income.

He has been assigned a financial advisor/potential fund manager, to help him make his money grow.  But from what I’ve been reading, a lot of people (inc. Warren Buffett) say sticking your money into an Index fund like the SNP 500 hands down beats any kind of professional fund manager, manually picking stocks and shares.

A fund manager usually charges 1%, while the Vanguard SNP 500 is something like 0.07%, but I think there is a platform charge on top of that.

Obviously my ‘Friend’ would like to own his own house, car, and a few other necessities. Maybe eventually buy his parents a new home closer to him.

But after that, what could he do to make this money grow? With as little effort as possible? Haha 😉

I was thinking: 

£50k Personal Money/Ventures 

£150-200k Own House

£200-250k Index Fund?

£50k National Savings Bonds

£400-500 Rental properties, maybe?

(But only if they wouldn’t become his full time job, and they could operate passively.)

£1k Crypto wild card 😜

I know nothing about index funds, is there a way to put the lions share into it, and somehow draw a yearly income from it without affecting any of the unit shares?

As someone who doesn’t come from money, but who greatly respects it and appreciates the freedom it can provide, I’d be grateful for any and all your advice. Thanks for taking the time to respond. 🙏😇

I would LOVE to see Martin Lewis do a segment on his show: “What to do with a Million Pounds” haha! But there’s no way I would broadcast such a question over Twitter, for all to see. Feel free to tag him! 😉

lozzy1965

Yes, not sure where houses are that cheap, but I would buy a house rather than rent, as renting is a constant drain on ones finance. 
I wouldn't buy property to let.  It can be a full time job, especially multiple properties, and a lot of research up front to do it properly too (it's not a case of buy property, rent out, put feet up).
Index fund is the easiest/cheapest way to gain a regular income.
Premium bonds are where my emergency fund sit.

Albermarle

£200-250k Index Fund

How would 'your friend' feel if £250K became £150K in a market drop?

Otherwise as others have said , probably best to forget about BTL , if you want a hands off investment, and spend more on a home to live in. 

Alexland

A million isn't much if you're looking to retire at 45 and still need to purchase a property. Say £250k into a property and then £750k into drawdown at 2% pa rising with inflation (trying to preserve the capital spending power) would start around 15k pa which would give a basic lifestyle. Maybe a bit more could be pulled forward and spread before SP age and some extra NI years could be purchased but I'd rather work a bit longer than take such a cut to my living standard.

Albermarle

Alexland said:

A million isn't much if you're looking to retire at 45 and still need to purchase a property. Say £250k into a property and then £750k into drawdown at 2% pa rising with inflation (trying to preserve the capital spending power) would start around 15k pa which would give a basic lifestyle. Maybe a bit more could be pulled forward and spread before SP age and some extra NI years could be purchased but I'd rather work a bit longer than take such a cut to my living standard.

Then you look for a £250K house and see one nicer at £350K . Then you have to renovate/refurbish/furnish it .
Then a new car - £50K spending money etc . Suddenly you 'only' have £500K . It's a lot of money but as you say not enough to sustain a non earner for decades.

Chickereeeee

jimjames said:

An IFA won't advise on house purchase. Good luck if you can buy a house for £150k, round here starting price is £250k and for one you'd want to live in as a millionaire much more. I'd probably spend a lot of it on a house to live in to avoid renting.

Investing is then something to look at once house sorted.

Around here, if you want a house and not a flat, then that's your/his £1m gone (unless using a mortgage).

maxsteam

jimjames said:

 Good luck if you can buy a house for £150k, round here starting price is £250k and for one you'd want to live in as a millionaire much more.

I think that OP has a better idea which area he wants to live in than anyone else. Many people are tied to the south-east by employment and/or family. With money and no commitments, OP (or friend or anyone with £1m) can choose where to live, whether to work, etc.. Round here starting price is around £50k. £150k would get something really nice (a 6 bedroom, 3 bathroom town house in the city centre or a 3 bed terraced house in a decent area with a new kitchen and a garden, for example).

A main residence is a good investment. It doesn't generate income but it's something that you can enjoy every day.