Would appreciate some pointers

Albermarle

El_Torro said:

I think your position is pretty clear cut, you should seek the advice of an IFA. This will be money very well spent.

Considering that you will soon be in possession of well over £1 million in cash, with little to no previous experience of investing, an IFA can certainly help.

They won’t just advise which investments to use, they will also advise on how to be tax efficient.

Approx what I also  said in the other thread. The OP is more interested in the tax advice than the investments advice , although in practice that could change in time I guess. 

Albermarle

We are both extremely risk averse, and are not looking for enormous gains. We'd like to beat inflation, obviously, but if we could derive something like £50K pa (extremely rough number) for life before running out of cash, that would probably do us fine. 

In this area 'extremely risk averse' people keep their funds in cash , and therefore lose out to inflation over time . In a simple risk level assessment between 1 and 7 ( 1 being very low/no risk and 7 being high risk ) to have a reasonably good chance of beating inflation you need to be at least have a medium risk portfolio , with a risk rating of 4 ( although it is not an exact science ) During the last decade of very robust equity and bond returns , you might have got away with a risk level 2 ( although you would have missed out on a lot of gains ) but that seems unlikely going forward.

A risk level 4 type portfolio could fall up to 25% in a bad market slump . In fact it is almost guaranteed it will do that at some point .  No gain without pain as they say .

Even when markets are down less than this some new investors are already panicking 

New investor Panicking Already seeking reassurance - Page 2 — MoneySavingExpert Forum

Regarding the projected income . A rule of thumb / a guideline only , is that a properly invested ( normally medium risk ) fund of One Million Pounds could provide an income of £35K pa for a say a 60 year old and there would only be a 5% chance of the pot running out before you die at a ripe old age . If you took £50K pa , then it probably would still not run out but the chances of it doing so would increase.  If you had a couple of Million between you and you were not so bothered about leaving any for the kids , then you could have >£100K pa ??

To be honest not sure why you are even thinking about starting another business or getting into the hassle of rental properties. Just enjoy !

Zadumbreion

Albermarle said:

Regarding the projected income . A rule of thumb / a guideline only , is that a properly invested ( normally medium risk ) fund of One Million Pounds could provide an income of £35K pa for a say a 60 year old and there would only be a 5% chance of the pot running out before you die at a ripe old age . If you took £50K pa , then it probably would still not run out but the chances of it doing so would increase.  If you had a couple of Million between you and you were not so bothered about leaving any for the kids , then you could have >£100K pa ??

To be honest not sure why you are even thinking about starting another business or getting into the hassle of rental properties. Just enjoy !

Would that rule of thumb apply to a portfolio designed for income, or a bog standard medium risk growth portfolio?

I was talking about another business and / or rentals primarily for financial reasons - we don't feel like we have achieved financial security yet (because who knows how the investments will perform). Secondly we have to do something, we're not at retirement age yet and even if we were we'd want to stay active...

Rentals only got a mention because (a) there must surely be a pretty steady / predictable demand for people to live somewhere (b) my friend seems to be doing well out of it and could help me do it sensibly and (c) I like the thought of a tangible asset which we could see and touch. If other options were as good or better I would happily not go anywhere near rentals.

Zadumbreion

The only other thing not included so far is the possibility of needing to fund those eye watering old age health care costs when, but I suppose worst case we'd use the house for that and the children would have to do without!!

Albermarle

Would that rule of thumb apply to a portfolio designed for income, or a bog standard medium risk growth portfolio?

I think most of the historical statistics it is based upon are on a standard 60:40 type portfolio. 

we don't feel like we have achieved financial security yet (because who knows how the investments will perform)

We get a lot of new posters on the forum asking do I have enough to retire early ? Very rarely do they have as much as you, so you are probably worrying unnecessarily. 

The only other thing not included so far is the possibility of needing to fund those eye watering old age health care costs when, but I suppose worst case we'd use the house for that and the children would have to do without!!

We also get new posters making similar comments to this . The answer is usually on the lines of 

1) The majority of older people never see the inside of a care home , although some ( much cheaper) care at home is often needed .

2) For the ones that do go into a home , the average stay is about 18 months ( for obvious reasons ) 

The likelihood of you both having very extended stays in a care home , to the extent that all your very large resources are spent and you have to sell the house , must be very small .

numbersrule

Zadumbreion said:

The only other thing not included so far is the possibility of needing to fund those eye watering old age health care costs when, but I suppose worst case we'd use the house for that and the children would have to do without!!

I agree with Albemarle regarding care costs.  Didn't HMGOV recently announce that total care costs will be capped at £86,000 starting in 2023? That £86,000 excludes 'hotel' costs ( ie residential and food as opposed to nursing type costs )  but those excluded costs would probably be covered by your 'pension income'.  The way I see it, care costs should not be a concern for your level of resources.

numbersrule

Zadumbreion said:

numbersrule said:

Zadumbreion said:

 we might prefer to do something completely different, possibly in a context where we're actually doing some good for others.

We ............are not looking for enormous gains. We'd like to beat inflation, obviously, but if we could derive something like £50K pa (extremely rough number) for life before running out of cash, that would probably do us fine.......

Any pointers or opinions would be greatly appreciated - as I said I'm happy to spend the time earning the knowledge but - especially given the short timescales - I want to make sure I don't spend ages looking at the wrong options.

Do you think you might wish to focus on ethical investing?

Haven't really thought about it. My gut instinct would be that right now I am more concerned about protecting this retirement fund whatever it takes, but giving back through our time and skills in the future.

When you select your IFA his first task would normally be to assess your risk tolerance / risk level.  That will help him decide the asset allocation for your portfolio ( ie what proportion is in equities and what proportion in fixed interest or bonds for example ).  
Although you are a business owner it sounds like you do indeed have a low tolerance for risk which may suggest that you are nearer to 40:60 as opposed to 60:40.
Show your IFA this thread as it has started your thoughts formulation.
Be aware that IFAs tend to overestimate Clients' risk tolerance, so you should assume that you may need to remind him of this fact if this becomes obvious based on the risk number from 1 to 7 he assigns to you.

Zadumbreion

numbersrule said:

Zadumbreion said:

The only other thing not included so far is the possibility of needing to fund those eye watering old age health care costs when, but I suppose worst case we'd use the house for that and the children would have to do without!!

I agree with Albemarle regarding care costs.  Didn't HMGOV recently announce that total care costs will be capped at £86,000 starting in 2023? That £86,000 excludes 'hotel' costs ( ie residential and food as opposed to nursing type costs )  but those excluded costs would probably be covered by your 'pension income'.  The way I see it, care costs should not be a concern for your level of resources.

Thanks.

My viewpoint might be skewed by the fact that we've just put my father in law into an £85K pa home. Of course we don't know how long he'll be there for.

Zadumbreion

Would a typical IFA know about - for example - when deferred earnout is considered ascertainable and when it isn't? I thought it was pretty clear cut but an ex-client of ours had a performance related earnout which apparently was taxed up front as ascertainable. I have spoken to our accountants but the partner I'm dealing with doesn't fill me with confidence at all.

dunstonh

I take your point - but you could argue that the risks associated with competent people doing what they know and managing a business sensibly are extremely low! We know how to start and run a business, we are very competent in our chosen fields and have demonstrated the ability to put in the necessary hours and stay standing - where is the risk, especially if you've been through the cycle at least once already?

Many competent business owners have done on to become bankrupt.

Perhaps the problem is your inability to assess risks in areas you are not knowledgeable in.

We could indeed take the current assets in the business and pay them into a pension (at least 2 x 3 x £40K worth)
BUT I suspect the buyers would not be that excited about us doing so, especially since the acquisition is being funded by a bank. 

It is very common for business purchasers to take into account tax efficiency of the sellers and reflect that in the price.

Be aware that IFAs tend to overestimate Clients' risk tolerance, so you should assume that you may need to remind him of this fact if this becomes obvious based on the risk number from 1 to 7 he assigns to you.

1 - there is no evidence to back up that statement.   Indeed, the more common statement, and what is very often seen on this site, is that IFAs are more likely to use lower volatility portfolios than DIY investors.
2 - The OP needs to be careful of reading things on the internet and then trying to educate an IFA based on that.  
3 - Every firm uses its own risk scale which could be any range of numbers.  The one that barely anyone uses is the KIID 1-7 scale because it is notoriously unreliable.

Would a typical IFA know about - for example - when deferred earnout is considered ascertainable and when it isn't? I thought it was pretty clear cut but an ex-client of ours had a performance related earnout which apparently was taxed up front as ascertainable. I have spoken to our accountants but the partner I'm dealing with doesn't fill me with confidence at all.

An IFA is not an accountant and an accountant is not an IFA.   So, things that would be handled by an accountant would not fall within the remit of an IFA (or vice versa).   They usually work together but business exit would mostly be down to the accountant.