£450k investment

OldScientist

ALr66 said:

Based on  @Albermarle advice here is some further context.

Age 52 
How much income do you want and for how long? As much as possible for as long as possible.
Pension provision? No pension at all.
Mortgage? No mortgage. 
Experience as a landlord? No experience as a landlord.
Risk tolerance (for investing in Stocks and shares)? As lower risk as possible.
Thoughts about paying for financial advice (£450K is a lot of money)

Do you anticipate income from the £450k to provide you with income in addition to your state pension for the rest of your life (a period possibly as long as 50 years at your current age)? In other words, this is a substitute pension. Do you need the income to start immediately?

Anyway, there are quite a few ways you could mix-and-match in addition to the BTL or cash options - here's a few examples all of which ignore tax and any state pension you may have.

1) Stocks and shares portfolio. Over 48 years (i.e., taking you to 100), historically a portfolio with 50% equities and 50% cash would have provided an inflation linked income of about £11k per year on £450k (see https://www.2020financial.co.uk/pension-drawdown-calculator/ ).

2) An inflation linked gilt ladder would currently provide about £13k per year over 48 years (see https://lategenxer.streamlit.app/Gilt_Ladder ). A nominal gilt ladder would provide a nominal income of about £24k, but the buying power of this would be reduced by inflation over the years.

3) In the absence of a pension, a purchased life annuity would provide a guaranteed income (either nominal or inflation linked) for the rest of your life.

There are advantages and disadvantages to each of these alternatives (and also to putting it in BTL and/or cash accounts).

Albermarle

ALr66 said:

Based on  @Albermarle advice here is some further context.

Age 52 
How much income do you want and for how long? As much as possible for as long as possible.
Pension provision? No pension at all.
Mortgage? No mortgage. 
Experience as a landlord? No experience as a landlord.
Risk tolerance (for investing in Stocks and shares)? As lower risk as possible.
Thoughts about paying for financial advice (£450K is a lot of money)

Regarding risk in this context, there are different ways of looking at it and many different levels.


When we talk about risk linked to more mainstream investing in stocks and shares, using diversified funds etc, we really mean volatility, which means going up and down in the short and medium term. However over the long term, you are pretty sure to see some decent growth ( or income in your case). 

Albermarle

vacheron said:

£450k in a 5% cash savings account will give you £1,875 per month before tax with virtually zero effort.

Not sure how much more a £450K BTL would give you in your area, but after all of the deductions and BTL risks, plus the awful tax treatment for non-business BTL income, is it worth the extra hassle for the extra you might make? We recently did some back of napkin calculations and categorically decided it wasn't!

With current interest rates on savings, this could be a good short term home for the money.
However long term, some movement into investments would most likely be beneficial.

dunstonh

£450k in a 5% cash savings account will give you £1,875 per month before tax with virtually zero effort.

However, cash savings for income provision is higher risk if you draw the whole of the interest each month.   It will suffer shortfall risk and inflation risk which can lead to the capital being cannibilised and creating a spiral of ever decreasing interest resulting in ever increasing withdrawals until ultimately the capital runs out.      An income scenario needs to be balanced in terms of how much income, for how long.

There are no risk free options when it comes to income provision.    It is all about creating a balance and having some understanding of the risks.

jimjames

ALr66 said:

Pension provision? No pension at all.
Experience as a landlord? No experience as a landlord.
Risk tolerance (for investing in Stocks and shares)? As lower risk as possible.

I think you need to review your assessment of risk. It's a common misconception but saying you want lower level of risk as possible doesn't stack up with having a single BTL property and no landlord experience and not having any pension provision. Risk isn't on/off, there are different levels and different types. Having a fixed income from interest on savings might seem secure now but after 30 years when inflation has taken it's toll that £1000 a month might only be worth the equivalent of £300 today.

ALr66

jimjames said:

ALr66 said:

Pension provision? No pension at all.
Experience as a landlord? No experience as a landlord.
Risk tolerance (for investing in Stocks and shares)? As lower risk as possible.

I think you need to review your assessment of risk. It's a common misconception but saying you want lower level of risk as possible doesn't stack up with having a single BTL property and no landlord experience and not having any pension provision. Risk isn't on/off, there are different levels and different types. Having a fixed income from interest on savings might seem secure now but after 30 years when inflation has taken it's toll that £1000 a month might only be worth the equivalent of £300 today.

Isn't this where purchasing a BTL might make more sense as it will stay in line with inflation?

dinosaur66

i am typical white van man sole trader

i have never done stocks and shares investing  

never had a work pension or private pension

went the typical route of my era -bricks and mortar route for my pension

worked out very well but that was then and this is now.

trouble is now since 2016 every single tax policy to do with being a landlord has been anti landlord

your first years profit in renting will be totally swalowed by stamp duty you will pay and yet you will still have to pay tax on money received

splitting the money and buying multiples and getting say 4 with 100k deposits on buy to let 

 you would earn lot more with the money in a 2 year fixed bond after all deductions taken off

owning propertys outright as a landlord is still profitiable and  you get rent plus capital gain especially in a nice area where propertys have always risen steadily .

for an expeirienced landlord i would buy  10 flats in a town like ayr in scotland  with your 450k so no stamp duty to pay buy them all outright /get a local gas fitter/plumber /handyman to maintain them and bring in £45 to 48k  a year gross.

all flats are freehold in scotland

vacheron

dunstonh said:

£450k in a 5% cash savings account will give you £1,875 per month before tax with virtually zero effort.

However, cash savings for income provision is higher risk if you draw the whole of the interest each month.   It will suffer shortfall risk and inflation risk which can lead to the capital being cannibilised and creating a spiral of ever decreasing interest resulting in ever increasing withdrawals until ultimately the capital runs out.      An income scenario needs to be balanced in terms of how much income, for how long.

There are no risk free options when it comes to income provision.    It is all about creating a balance and having some understanding of the risks.

Agreed. I considered elaborating on the inflation risk part, but thought i'd keep it more concice until we knew the OP's thoughts, and also because similar risks exist if the capital were invested in a BTL property as both house prices and rents could experience zero growth (or even fall) during the OP's ownership.

I also acknowledge that interest rates are quite buoyant at present.   

Bostonerimus1

Forget the "Buy to let", it's risky and without previous experience there are pitfalls and it could be a lot of work.

Do a budget to see how much income you need.
Make sure you have at least 6 months spending in saving account for emergencies.
Pay off any high interest debt, that's anything with an interest rate higher than you can get in a long term saving bond.
Look at buying an annuity with some of the money.
Put money into a pension, buy inexpensive index tracker funds.
Put more into your ISA buy inexpensive index tracker funds.
When pension  and ISAs are fully funded, put more into your general investment account, buy inexpensive index tracker funds.

Albermarle

For info the same thread is running on the House Buying and Renting forum.
Similar comments though.
£450k investment — MoneySavingExpert Forum