Investment advice needed due to sudden disability

TheGigglingBlowfish

Due to sudden and debilitating chronic illness, I won't be able to work in the foreseeable future. I am hoping that I will recover within the next decade, but this is uncertain.

I have 200k GBP in savings, which should allow me to focus on my recovery and not having to worry about my existence from a financial standpoint. I live in a flatshare, no car, no assets, no family relying on me financially.
 
Ideally I'd like to be able to live off this money for as long as possible, or if I can recover, to then still have made the most of it.

Since there is a good chance that my money could be completely used up for living expenses within the next 7-10 years, I've figured that investing into a stock index or other long-term investments is not sensible because in the event of a crash I couldn't stay in long enough for the market to recover.

I have thus come up with the following plan to make the money go a little bit further:

- 85k into 4.75% savings account with Chase bank for the next year, taking out what I need to live off when needed.

- Another 85k into ETFs (InvestEngine or Trading 212 seems like good platforms with low/no fees):

1) 80% into Amundi Smart Overnight Return GBP Hedged CSH2, as it seems incredibly stable
2) 10% = 20k as an ISA investment either into Vanguard FTSE All-World VWRP or Xtrackers MSCI World Momentum XDEM. Right now the fact that it's tax free won't be an advantage, but if I do recover, I'll be glad I used my ISA allowance and this seems like a reasonably diversified longer term investment.Both of these seem similar. Would it be better to go for the Vanguard one due to the slightly lower TER?
3) The final 10% into Invesco Physical Gold SGLS, to diversify a bit more, but I'm not sure if this is necessary or just putting this part into the more stable Amundi CSH2 as well would achieve the same thing.
 
Note: I have no experience in investing, so please let me know if you find any major flaws in this plan or have other suggestions. Your help is much appreciated.

Links to ETFs mentioned:
Amundi Smart Overnight Return Hedged CSH2 investengine.com/etfs/amundi/csh2/
Vanguard FTSE All-World investengine.com/etfs/vanguard/vwrp/
Xtrackers MSCI World Momentum investengine.com/etfs/xtrackers/xdem/
Invesco Physical Gold investengine.com/etfs/invesco/sgls

tacpot12

If you have been working and paying national insurance, and can meet the eligibilty requirements, you should look into claiming new-style Employment and Support allowance here: New Style Employment and Support Allowance - GOV.UK

This will not be affected by your savings and investments, but it is only likely to pay you for a year, however it will be money that you won't need to withdraw from your savings and investments, so they will last longer. 

If your savings and investments ever do dip below £16,000 you may also be able to claim Universal Credit, althohgh no-one can predict whether the rules for Universal Credit will change between now and when you may be able to claim it.  Universal Credit can help with your rent. 

Back to your question about investments: 

85k into 4.75% savings account with Chase bank for the next year is a good idea. 
I'm less sure about Amundi Smart Overnight Return GBP Hedged. The issue I see is that the rate of return tracks bank interest rates, so in periods of low interest rates, you aren't getting much return.

I'm retired and rely on investment trusts and EFTs that pay dividends. I've been very pleased with the iShares UK Dividend EFT (IUKD). Average annual yield has been 5.1%, in the worst year the yield was 3.6%. 

The City of London Investment Trust (CTY) yield has averaged 4.8% and never been lower than 4.4%. This trust holds the record for the longest consecutive number of dividend increases - it has increased it's dividend yield every year for the last 58 years. (Clearly the increases are small, but it's an impressive statistic.) These yield figures are from my own dividend/yield tracker and are after fund manager (but not platform) charges. 

I appreciate that slow and steady can win races, but if you are prepared to take just a little more risk, I think the chance of your money lasting is much higher. I'm expecting my retirement pot to last until I'm in my 90s, so another 30 years.  

Vanguard FTSE All-World  is a good Global Tracker if you are looking for an Equity Growth investment.

Albermarle

The usual ( simplistic ) guidance is cash for any money you will need in the next 5 years.
Investments for money you will not need for 10 years.
For between 5 and 10 years a mixture.
Investments can be held at different risk levels . Probably due to the time scale mentioned for you, more medium risk multi asset funds may be more suitable than 100% equity funds.
So as said in the previous post, some upping of the risk level, within reason, could be a better strategy.

You do not mention any pension provision ?

cattie

Separate from the money you've saved & the advice that you may be able to get Employment & Support Allowance is that you could qualify for PIP with a long term debilitating illness. This also is paid irrispective of any savings, which would mean that some of your living costs are met via benefits.

Eyeful

1. No experience in investing, I suggest that before you invest anything watch the video below:
https://www.kroijer.com/

2. Consider a low cost Multi-Asset Fund with a share/bond split you are comfortable with.
This will provide you with a ready made portfolio set at a risk level of your choice.
Watch this video for an explanation.

https://www.youtube.com/watch?v=lGQ9KyQq8Jw

3. Remember:
(a) Use tax shelters wherever possible, Pensions, Cash ISA's, Stocks & Shares ISA's.

(b) Money needed within 5  years, should be held in a Savings Account covered by the FSCS Savings Protection up to £85k.

(b) Investing means "putting your money at risk". The money should be untouched for at least 10 years.
The longer you invest for, the higher your odds of winning the investment game.


4. Suggest you use a AI chatbot to look into:
Best Short Term Money Market Funds
Best Short Term Money Market ETFs in the UK


5. May be of interest to you:
Best Interest Rates: https://moneyfactscompare.co.uk/savings-accounts/
Multi Asset Funds:   https://monevator.com/passive-fund-of-funds-the-rivals/
Global Trackers:    https://monevator.com/best-global-tracker-funds/

Eyeful

1. You have constructed your own Multi- Asset Portfolio, with a share(20%)/cash(80%) split.
If you do not put the 10% into gold, then if you wish to maintain that ratio, then surely it should be put into the World tracker and not the Amundi smart short term ETF.

2. You only need one World Tracker ETF. Cheaper the OCF, the better.
The Vanguard has 3636 holdings, does not lend securities, has an OCF charge of 0.22%.
The X tracker has fewer holdings, does lend its securities, has an OCF charge of 0.26%, 

3. As you are thinking of making your own share/cash portfolio, I was wondering why you have not considered including some of the cuurrent best 5 year fixed savings accounts, for some interest rate stability?

4. Have you considered as part of your portfolio mix including an ETF that pay higher dividends.
Popular Examples: 
iShares UK Dividend ETF (LSE: IUKD)
Vanguard FTSE All-World High Dividend Yield UCITS ETF (LSE: VHYL)
SPDR® S&P Global Dividend Aristocrats ETF (LSE: GLDV)

masonic

I'm also sceptical about the role of CSH2 and what it would add vs your cash savings. It will be delivering less than 4% returns for the foreseeable future.

A cheaper alternative to VWRL (OCF: 0.22%) is ACWI (OCF: 0.12%).

I think it would be good to understand more about your living expenses, as it seems the risk of running out of money in 7-10 years would be low, unless your rent makes up a very high proportion of your total expenses. Any changes you can make here would likely have the most impact on your money's longevity, although you may be quite limited in what you could do to make savings.

I agree with you that loading up on equities would be inappropriate given your timescale, but holding around 20% equities has been shown to de-risk a low risk portfolio by providing some protection against inflation. Gold is also considered to do this, but only sometimes, and is looking rather overvalued at the moment, so I wouldn't gamble on it over a 10 year horizon.

Whatever you decide to do, it's important to be realistic about how much longer such changes could make your money last. Historically, cash has performed only marginally better than inflation, meaning if you need to spend £20k per year adjusted for inflation, then you'd be just about out of money after 10 years, whereas adding 10% equities (historically delivering ~inflation +5%) could give you an extra 2 months, or 20% equities could give you an extra 6 months, but with some risk of you running out of money a month or two short of 10 years.

TheGigglingBlowfish

Albermarle said:

The usual ( simplistic ) guidance is cash for any money you will need in the next 5 years.
Investments for money you will not need for 10 years.
For between 5 and 10 years a mixture.
Investments can be held at different risk levels . Probably due to the time scale mentioned for you, more medium risk multi asset funds may be more suitable than 100% equity funds.
So as said in the previous post, some upping of the risk level, within reason, could be a better strategy.

You do not mention any pension provision ?

I'm quite young unfortunately, so can't really think about my pension right now due to my current situation. I have some pension already, but the current amount wouldn't last me very long if I am not able to work and pay into it more.

TheGigglingBlowfish

Thank you all very much for your responses! I won't be able to reply to every single thought, but please know that it is much appreciated! I'll reply to some of the messages that I find the most interesting below.

TheGigglingBlowfish

Eyeful said:

1. You have constructed your own Multi- Asset Portfolio, with a share(20%)/cash(80%) split.
If you do not put the 10% into gold, then if you wish to maintain that ratio, then surely it should be put into the World tracker and not the Amundi smart short term ETF.

2. You only need one World Tracker ETF. C

Eyeful said:

1. You have constructed your own Multi- Asset Portfolio, with a share(20%)/cash(80%) split.
If you do not put the 10% into gold, then if you wish to maintain that ratio, then surely it should be put into the World tracker and not the Amundi smart short term ETF.

2. You only need one World Tracker ETF. Cheaper the OCF, the better.
The Vanguard has 3636 holdings, does not lend securities, has an OCF charge of 0.22%.
The X tracker has fewer holdings, does lend its securities, has an OCF charge of 0.26%, 

3. As you are thinking of making your own share/cash portfolio, I was wondering why you have not considered including some of the cuurrent best 5 year fixed savings accounts, for some interest rate stability?

4. Have you considered as part of your portfolio mix including an ETF that pay higher dividends.
Popular Examples: 
iShares UK Dividend ETF (LSE: IUKD)
Vanguard FTSE All-World High Dividend Yield UCITS ETF (LSE: VHYL)
SPDR® S&P Global Dividend Aristocrats ETF (LSE: GLDV)

heaper the OCF, the better.
The Vanguard has 3636 holdings, does not lend securities, has an OCF charge of 0.22%.
The X tracker has fewer holdings, does lend its securities, has an OCF charge of 0.26%, 

3. As you are thinking of making your own share/cash portfolio, I was wondering why you have not considered including some of the cuurrent best 5 year fixed savings accounts, for some interest rate stability?

4. Have you considered as part of your portfolio mix including an ETF that pay higher dividends.
Popular Examples: 
iShares UK Dividend ETF (LSE: IUKD)
Vanguard FTSE All-World High Dividend Yield UCITS ETF (LSE: VHYL)
SPDR® S&P Global Dividend Aristocrats ETF (LSE: GLDV)

I've come across higher dividend ETFs, but I'm not sure I understand their purpose.
Generally they seem to have less potential for value appreciation and to make up for this they pay dividends. If you reinvest the dividends, wouldn't it result in roughly the same outcome in the end? Is the advantage that the gain is more immediate?

The fixed savings account to protect against interest rate fluctuation is an interesting idea, thanks!

TheGigglingBlowfish

masonic said:

I'm also sceptical about the role of CSH2 and what it would add vs your cash savings. It will be delivering less than 4% returns for the foreseeable future.

A cheaper alternative to VWRL (OCF: 0.22%) is ACWI (OCF: 0.12%).

I think it would be good to understand more about your living expenses, as it seems the risk of running out of money in 7-10 years would be low, unless your rent makes up a very high proportion of your total expenses. Any changes you can make here would likely have the most impact on your money's longevity, although you may be quite limited in what you could do to make savings.

I agree with you that loading up on equities would be inappropriate given your timescale, but holding around 20% equities has been shown to de-risk a low risk portfolio by providing some protection against inflation. Gold is also considered to do this, but only sometimes, and is looking rather overvalued at the moment, so I wouldn't gamble on it over a 10 year horizon.

Whatever you decide to do, it's important to be realistic about how much longer such changes could make your money last. Historically, cash has performed only marginally better than inflation, meaning if you need to spend £20k per year adjusted for inflation, then you'd be just about out of money after 10 years, whereas adding 10% equities (historically delivering ~inflation +5%) could give you an extra 2 months, or 20% equities could give you an extra 6 months, but with some risk of you running out of money a month or two short of 10 years.

ACWI instead of VWRL seems sensible since the lower fee is the only guaranteed gain. Thanks!

My rent does make up the majority of my total expenses currently. My calculations do give me roughly 7-15 years on my current savings. If I get a bit better and could work a handful of hours a week it could make the money last significantly longer though.
I would have the option of living with my parents, though this wouldn't be my first choice as I value my independence, but it means I don't have to worry too much about my existence financially.

Given this worst-case safety net, I'm considering putting 30-40% of the non-Chase savings into a World tracker ETF. If my recovery and the market both fail, I could try to wait it out while relying on my supportive family.

You are right that a reasonable good or bad investment probably won't make more than 6-12 months difference either side, which means my major bet should be on my recovery, as even having an extra year won't make much of a difference if I cannot recover.