Looking for advice

Twerly

LHW99 said:

A Financial Advisor has told us to basically use my £780K to last until 74

If you have a Financial Advisor (Independent I hope) what has he said about your questions? You are presumably paying him / her for advice?

You should also bear in mind that although there are many helpful and knowledgable people here, they will be offering opinions, and then it is up to you to consider and DYOR. Advice is not allowed.

LHW99 said:LH

Yes has some free, did not take the paid as was quoted up to 3% of pot, which was ridiculous. I have another recommended advisor. I do not mind paying a couple of £K for good advise as this will repay over the coming years.

Twerly

LHW99 said:

One question, you say:

at 74 my wife will receive full SP and a DB Pension . A Financial Advisor has told us to basically use my £780K to last until 74 at which time we will have a combined pension that is guaranteed sufficient to meet the comfortable retirement.

Do you mean 74? That seems late to recieve SP and a DB.

Also, while I can appreciate the points jamesd makes, considering particularly:

VCTs are classed as high risk but for me they haven't delivered that. Perhaps because I've been concentrating on those doing mid to late stage funding, previously mostly asset backed. My own choices and experience suggests doing better from them than what I wrote.

As said above, VCT's need a good deal of "looking beneath the bonnet", in order to understand exactly what they invest in, how they expect to derive their returns etc.

If you have reached age 60, and need / want to use an (I)FA, VCT's could be a step too far.

Hi, no when I am 74 , my wife will be 67 and eligible for SP and her DB pension.  If I delay the GAR which then guarantees 8.3% joint life with 3% increate p/a we have 4 x pensions with close to inflation cover. Hence I am looking to use most of the DC pension between now and when I am 74, any left can boost our pot, also have equity release as last resort, looking at down-sizing over the next 15 years. 

Marcon

jamesd said:

VCTs are classed as high risk but for me they haven't delivered that. Perhaps because I've been concentrating on those doing mid to late stage funding, previously mostly asset backed. My own choices and experience suggests doing better from them than what I wrote. Just the tax relief and five years of 5% dividends on the purchase price gets out 55% of the capital.

The plan isn't particularly categoric. It just explains how VCTs can be used to deliver the tax saving objective, while using a moderately small amount of the money involved.

It's also worth remembering that VCTs have a risk of loss but the tax is a certainty of loss.

Delighted you've been so good at picking successful VCTs, but you are a sample of one - and clearly a well informed sample.

It would be irresponsible to lead less sophisticated savers to believe that VCTs are always going to be 'that safe' - and unlike tax, the loss could be 100%, given that VCTs are generally invested in high risk, newly established companies. Few of the novices asking for advice on this forum are likely to be able to stomach that sort of total loss, especially if they have been under the illusion that VCTs always deliver these marvellous returns. They don't.

Secret2ndAccount

Here’s a view from someone who knows nothing about VCT’s. 5 years ago, interest rate was 0% and inflation was 2%. If I had 1 million in the bank I was looking at it gradually being eroded by inflation. So I invest that money in 10 startup ventures. 9 fail to come up with a winning product and go out of business. 1 is a success and returns my 1 million and more. I get a positive return on my investment.

Today I can put my 1 million in the bank and get 6%, with inflation at 5%. I have much less incentive to take that money out and buy startups. Meanwhile, those same companies, seeking funds to move from a prototype into production, have to justify returns of 6% (rather than 0%) in order for anyone to give them funding. I think we will see a lot of pruning. Companies that were worth keeping on the umbilical cord at 0% cost, will be shut down unless they can show a pathway to >6% returns. My uneducated view is that it’s not a great time to be holding VCT’s. You always expect a lot of the constituents of your fund to go to zero, but that proportion could be outsized right now.

Arguably, once that pruning has taken place, the quality of the portfolio goes up, and interest rates start to creep down, it could be a good time to get in.

jamesd

Marcon said:

Delighted you've been so good at picking successful VCTs, but you are a sample of one - and clearly a well informed sample.

It would be irresponsible to lead less sophisticated savers to believe that VCTs are always going to be 'that safe' - and unlike tax, the loss could be 100%, given that VCTs are generally invested in high risk, newly established companies. Few of the novices asking for advice on this forum are likely to be able to stomach that sort of total loss, especially if they have been under the illusion that VCTs always deliver these marvellous returns. They don't.

It is possible for a VCT to mess things up so badly that they lose the tax benefits, in theory. I'm not aware of that ever having happened.

Unless they do that the HMRC 30% caps the maximum loss at 70%.

A VCT that isn't just starting up will be invested in anything from 20 to 100+ companies, just like investment trusts. As newish companies they are more likely to fail than long established ones. That's why VCTs are diversified and why investors should also diversify across many VCTs. It's not likely that so many companies will all fail and produce a 70% loss before any dividends can be paid. More likely, but still unlikely, that the VCT becomes insolvent after lots of failures and administration costs consume the rest.

I post here but what I've done with VCTs isn't remotely novel or needing unique knowledge. Asset backed were the standard lower risk option when I started and mid to late stage funding, after a firm has proved it's business model works, next. Anyone familiar with VCTs is likely to make suggestions of that sort and if an IFA is doing so I expect them to also be assessing where in the VCT risk-reward range is the best fit for their customer.

jamesd

Secret2ndAccount said:

Here’s a view from someone who knows nothing about VCT’s. 5 years ago, interest rate was 0% and inflation was 2%. If I had 1 million in the bank I was looking at it gradually being eroded by inflation. So I invest that money in 10 startup ventures. 9 fail to come up with a winning product and go out of business. 1 is a success and returns my 1 million and more. I get a positive return on my investment.

I suggest VCTs instead of something so risky, though there is the alternative option of EIS (another earlier stage company tax advantaged option) or even SEIS (earlier still, not usually a collective investment) if you want to choose such extremely high risk startup companies.

Even a very early stage type of VCT is unlikely to see more than 20% failures in say five years. Less than that for later stage companies. If you like lots of diversification in one VCT the biggest, Octopus Titan, manages over £1 billion of investor money across 140 mostly earlyish stage tech-related companies companies.

Secret2ndAccount said:

Today I can put my 1 million in the bank and get 6%, with inflation at 5%. I have much less incentive to take that money out and buy startups. Meanwhile, those same companies, seeking funds to move from a prototype into production, have to justify returns of 6% (rather than 0%) in order for anyone to give them funding. I think we will see a lot of pruning. Companies that were worth keeping on the umbilical cord at 0% cost, will be shut down unless they can show a pathway to >6% returns. My uneducated view is that it’s not a great time to be holding VCT’s. You always expect a lot of the constituents of your fund to go to zero, but that proportion could be outsized right now.

Arguably, once that pruning has taken place, the quality of the portfolio goes up, and interest rates start to creep down, it could be a good time to get in.

VCTs usually invest in later stage companies than that and you can pick from those that do. Growth, not dividends, is what VCT managers look for since asset-backed were banned by a rule change. The sale of the successes funds the VCT dividends.

A VCT doesn't start with a selection of business and never add more, so except in a new VCT that pruning doesn't really happen. It's more about the VCT managers picking good concepts, good management and their target place in the startup to just want money to expand a successful business range.

It's actually a pretty good time to be investing in VCTs at the moment because small business valuations are down. Though a bit late in the year, with some of the more attractive offers already having been filled.

You might find this information on VCT performance useful: https://www.wealthclub.co.uk/articles/vct-reviews/vcts-performance-over-the-years/

Albermarle

Twerly said:

LHW99 said:

A Financial Advisor has told us to basically use my £780K to last until 74

If you have a Financial Advisor (Independent I hope) what has he said about your questions? You are presumably paying him / her for advice?

You should also bear in mind that although there are many helpful and knowledgable people here, they will be offering opinions, and then it is up to you to consider and DYOR. Advice is not allowed.

LHW99 said:LH

Yes has some free, did not take the paid as was quoted up to 3% of pot, which was ridiculous. I have another recommended advisor. I do not mind paying a couple of £K for good advise as this will repay over the coming years.

3% of the pot as an initial charge is quite standard, but many IFA's will cap the charge for customers with larger pots, so reducing the % by half even. Many will be keen to offer an ongoing service for 0.5% pa, but you do not have to go along with that if you do not want.
On the other hand expecting professional advice in your situation for £2K is not realistic.
The advisor has to look at your whole financial situation and you as a person, before being able to offer advice on strategies/taxes/investments etc. They are legally responsible for any advice given so they will not just give personal advice off the cuff.

Twerly

Albermarle said:

Twerly said:

LHW99 said:

A Financial Advisor has told us to basically use my £780K to last until 74

If you have a Financial Advisor (Independent I hope) what has he said about your questions? You are presumably paying him / her for advice?

You should also bear in mind that although there are many helpful and knowledgable people here, they will be offering opinions, and then it is up to you to consider and DYOR. Advice is not allowed.

LHW99 said:LH

Yes has some free, did not take the paid as was quoted up to 3% of pot, which was ridiculous. I have another recommended advisor. I do not mind paying a couple of £K for good advise as this will repay over the coming years.

3% of the pot as an initial charge is quite standard, but many IFA's will cap the charge for customers with larger pots, so reducing the % by half even. Many will be keen to offer an ongoing service for 0.5% pa, but you do not have to go along with that if you do not want.
On the other hand expecting professional advice in your situation for £2K is not realistic.
The advisor has to look at your whole financial situation and you as a person, before being able to offer advice on strategies/taxes/investments etc. They are legally responsible for any advice given so they will not just give personal advice off the cuff.

The cost was going to be in the region of £25K , so I did not think this was good value. I am happy to pay an hourly or daily rate. The 3% was on top of the 0.5% - 1% annual charge from the fund. I see this god value when your Pot s small, but not with larger pots. I am sure there are plenty of IFA who charge significantly less.  

wjr4

Twerly said:

Albermarle said:

Twerly said:

LHW99 said:

A Financial Advisor has told us to basically use my £780K to last until 74

If you have a Financial Advisor (Independent I hope) what has he said about your questions? You are presumably paying him / her for advice?

You should also bear in mind that although there are many helpful and knowledgable people here, they will be offering opinions, and then it is up to you to consider and DYOR. Advice is not allowed.

LHW99 said:LH

Yes has some free, did not take the paid as was quoted up to 3% of pot, which was ridiculous. I have another recommended advisor. I do not mind paying a couple of £K for good advise as this will repay over the coming years.

3% of the pot as an initial charge is quite standard, but many IFA's will cap the charge for customers with larger pots, so reducing the % by half even. Many will be keen to offer an ongoing service for 0.5% pa, but you do not have to go along with that if you do not want.
On the other hand expecting professional advice in your situation for £2K is not realistic.
The advisor has to look at your whole financial situation and you as a person, before being able to offer advice on strategies/taxes/investments etc. They are legally responsible for any advice given so they will not just give personal advice off the cuff.

The cost was going to be in the region of £25K , so I did not think this was good value. I am happy to pay an hourly or daily rate. The 3% was on top of the 0.5% - 1% annual charge from the fund. I see this god value when your Pot s small, but not with larger pots. I am sure there are plenty of IFA who charge significantly less.  

That doesn’t sound like an IFAs charge, more like FA

dunstonh

wjr4 said:

Twerly said:

Albermarle said:

Twerly said:

LHW99 said:

A Financial Advisor has told us to basically use my £780K to last until 74

If you have a Financial Advisor (Independent I hope) what has he said about your questions? You are presumably paying him / her for advice?

You should also bear in mind that although there are many helpful and knowledgable people here, they will be offering opinions, and then it is up to you to consider and DYOR. Advice is not allowed.

LHW99 said:LH

Yes has some free, did not take the paid as was quoted up to 3% of pot, which was ridiculous. I have another recommended advisor. I do not mind paying a couple of £K for good advise as this will repay over the coming years.

3% of the pot as an initial charge is quite standard, but many IFA's will cap the charge for customers with larger pots, so reducing the % by half even. Many will be keen to offer an ongoing service for 0.5% pa, but you do not have to go along with that if you do not want.
On the other hand expecting professional advice in your situation for £2K is not realistic.
The advisor has to look at your whole financial situation and you as a person, before being able to offer advice on strategies/taxes/investments etc. They are legally responsible for any advice given so they will not just give personal advice off the cuff.

The cost was going to be in the region of £25K , so I did not think this was good value. I am happy to pay an hourly or daily rate. The 3% was on top of the 0.5% - 1% annual charge from the fund. I see this god value when your Pot s small, but not with larger pots. I am sure there are plenty of IFA who charge significantly less.  

That doesn’t sound like an IFAs charge, more like FA

There are some greedy IFAs that charge like FAs but I would largely agree with you.  IFAs increasingly have more advanced charging models where the charge is tiered and/or has a cap and collar.    Both of which can avoid obscene initial charges.      FAs tend to be flat percentages on the whole amount.