Help with inheritance investment strategy please

justme111

Hi, to cut a long story short, my mother recently died. I want to make sure I am dealing with the finances as 'correctly' as possible, to make the most out of what I have inherited.

Her finances were spread across lots of different pots of money: half in a SIPP, half in other places (cash ISA, premium bonds, NHS pension etc.). 

I plan to drawdown from the SIPP and invest a large chunk of it, I want to invest right and then just let it be for 20+ years. I will open a new S&S ISA at ii, maxing this out yearly along with my cash ISA in a 15:5 ratio (S&S: cash). 

I have thrown together some sort of investment portfolio, which I am content with, but since this was done with the help of various online sources such as YouTube, I think a second opinion would be advisable. I am considering getting a one-time session with an IFA to talk my plan through, but I was recommended to turn to this thread before that for thoughts and advice.

This is my allocation: (I am trying to do something called a core-satellite approach )

S&P 500 30%
FTSE 100 20%
MSCI Emerging markets 15%
The Global Smaller Companies Trust PLC 10%
ICG Enterprise Trust 10%
European Assets Trust PLC 5%
Schroder Asian Total Return Investment Company plc 5%
Gold 5%

Some information about me - I have just turned 20, so high risk tolerance (hence the near 100% equities, although I am not certain this is the right move). I am definitely most keen on investing in small-cap companies to help them grow. 

May someone review please?

Edit: Thank you for everyone's advice, I have adjusted accordingly.

tacpot12

The Trusts in your portfolio all pay divdends, which you have to reinvest. I expect you wil pay charges to do so with ii, but you would not have to pay any charges if you invested in Accumulation Funds. Given your long-term investing horizon, I think that investing in Accumulation funds could be a better strategy than investing in Investment Trusts. (I hold European Assets Trust in my retirement portfolio and think it is a good trust for me, as I want income, but you want growth). 

As per the advice on your other thread about the SIPP, you can leave the money invested in the SIPP, and use the same funds as you would buy in a S&S ISA. This is definitely the best thing to do if your mother was younger than 75 years old when she died. If she was 75 or older when she died, all withdrawals from the SIPP will be taxable, therefore leaving the money in the SIPP is no better or worse than withdrawing it (as far as I can see). 

I do think you would benefit from some independent financial advice. 

Linton

I rather like your approach with a wide diversification across the world and in size of companies.  The unusually low allocation to US leaves room for other things.  The FTSE 100 holding seems rather large as I dont believe the membership of that index justifies this level of allocation. On the other hand the allocation to the wider European market seems unreasonably low. But those are choices you make and I would not want to talk you out of them. Best you determine your own strategy and invest accordingly.

The broad range of funds should provide a valuable learning experience.  At 20 one could argue that experience is more important than % return (within reason).

I have put your portfolio into Morningstar to get a comprehensive view on the underlying allocations but, as is often the case, Morningstar is not working at the moment.  Hopefully I will be able to post some info tomorrow and comment further on the allocations.

One important aspect you have not mentioned is the size of the pot. If it is large, say significantly more than £100K, I suggest you dont move the money out of the SIPP until you have talked to an IFA.  The long term tax consequences could be significant, though as your mother was presumably less than 75 when she died you will get immediate tax-free access to the money.  For example maximising your S&S ISA at the expense of the cash ISA could be worthwhile.

justme111

tacpot12 said:

The Trusts in your portfolio all pay divdends, which you have to reinvest. I expect you wil pay charges to do so with ii, but you would not have to pay any charges if you invested in Accumulation Funds. Given your long-term investing horizon, I think that investing in Accumulation funds could be a better strategy than investing in Investment Trusts. (I hold European Assets Trust in my retirement portfolio and think it is a good trust for me, as I want income, but you want growth). 

As per the advice on your other thread about the SIPP, you can leave the money invested in the SIPP, and use the same funds as you would buy in a S&S ISA. This is definitely the best thing to do if your mother was younger than 75 years old when she died. If she was 75 or older when she died, all withdrawals from the SIPP will be taxable, therefore leaving the money in the SIPP is no better or worse than withdrawing it (as far as I can see). 

I do think you would benefit from some independent financial advice. 

Oh my gosh thank you for explaining!! I was wondering why I had a "cash" section on my Columbia Threadneedle S&S ISA that my mum set up for me. Yes the accumulation fund is what I would want - what kind of funds would these be and where can I find them? Is there not an option with the funds in my suggested portfolio to make the earnings reinvest themselves? I mean, I thought FTSE and S&P were pretty big ones for all types of investing.  

Yes she was 51. But I thought the SIPP either had to be drawn down, or taken as a lump sum; that pensions cannot technically be inherited? I am likely to build up my own pension pot during my life.

Thank you for the IFA comment, yes I will likely go for it. 

Edit: To add to this, I have just done some google searching and most of the active funds I can find are the dividend paying income funds you speak of. I would definitely like some active investments in my portfolio. Do decent ones of this type even exist?

MX5huggy

Lots of funds just have an Accumulation version and an income version here is Vanguard’s S&P 500 fund (ETF) the Accumulation version has the code VUAG, income VUSA.
Personally I would scrap all this complexity and just get a global tracker. When you look at the FTSE 100 25% is just 4 companies. 

justme111

Linton said:

I rather like your approach with a wide diversification across the world and in size of companies.  The unusually low allocation to US leaves room for other things.  The FTSE 100 holding seems rather large as I dont believe the membership of that index justifies this level of allocation. On the other hand the allocation to the wider European market seems unreasonably low. But those are choices you make and I would not want to talk you out of them. Best you determine your own strategy and invest accordingly.

The broad range of funds should provide a valuable learning experience.  At 20 one could argue that experience is more important than % return (within reason).

I have put your portfolio into Morningstar to get a comprehensive view on the underlying allocations but, as is often the case, Morningstar is not working at the moment.  Hopefully I will be able to post some info tomorrow and comment further on the allocations.

One important aspect you have not mentioned is the size of the pot. If it is large, say significantly more than £100K, I suggest you dont move the money out of the SIPP until you have talked to an IFA.  The long term tax consequences could be significant, though as your mother was presumably less than 75 when she died you will get immediate tax-free access to the money.  For example maximising your S&S ISA at the expense of the cash ISA could be worthwhile.

Thank you for your response. I agree with you regarding the FTSE allocation, if I do continue with this portfolio then I will take this down a notch.

The size of the pension pot is not larger than £100K, but I think I will still talk to an IFA first. The SIPP company have already asked me what my wishes would be and I told them to leave the funds in the pot for now until I decide.

aroominyork

When I wanted a one-off advice session with an IFA, I eventually gave up looking because they all wanted to manage my funds - that is what gives them a continuous stream of revenue. You might have better luck.

wmb194

European Assets Trust PLC 5%

LSE:EAT is a total dud, I wouldn’t bother with this one. To be fair it recently changed its strategy to include owning some large cap companies but it’s too early to tell whether it’ll improve things. 

If you picked it because it has a big dividend you need to be aware that it’s based on its end of December NAV and so it could drop next year.

incus432

aroominyork said:

When I wanted a one-off advice session with an IFA, I eventually gave up looking because they all wanted to manage my funds - that is what gives them a continuous stream of revenue. You might have better luck.

My experience too. I wanted to use an IFA to take out an annuity but all wanted to do a full financial review and none would quote for an Execution only basis.  It's a shame but they only cater to the top end of the market now.

Correction - one did come through but too late (he'd been on holiday). I found the usually recommended sources Unbiased and VouchedFor completely useless

justme111

aroominyork said:

When I wanted a one-off advice session with an IFA, I eventually gave up looking because they all wanted to manage my funds - that is what gives them a continuous stream of revenue. You might have better luck.

Yes this is what I have experienced so far. One IFA seems happy to do it, but they said 'The financial planning meeting would cost £x, however if we implement or set up new plans it could cost more than that'.

I am unsure where exactly the line would be drawn between planning and implementation, because surely if everything is planned and ready them implementation would be a piece of cake. I will ask them.

justme111

wmb194 said:

European Assets Trust PLC 5%

LSE:EAT is a total dud, I wouldn’t bother with this one. To be fair it recently changed its strategy to include owning some large cap companies but it’s too early to tell whether it’ll improve things. 

If you picked it because it has a big dividend you need to be aware that it’s based on its end of December NAV and so it could drop next year.

Thank you for input; I went for this one to spread my investments across to Europe and specifically to put more into small & mid-cap companies. I haven't really been looking at dividends. Do you have any other recommendations?