Need an overview on £200k investment options

Jiggitty

I've been squireling away for quite a while and have amassed about £200k, I am quite risk averse so the money has mostly been sitting in ISA's until now. I have no private pension and the amount is getting to the point it seems insane to just let it barely match inflation when it could be generating some decent passive income so I wanted to hear a few options.

I don't want to rent property out so it will have to be investment based and I'm going to speak to a professional but just wanted to hear some basic options as I know nothing about this kind of stuff.

Basically, it's everything I have so I don't want to start taking big risks, what are some lower risk options and what would be the typical growth rates you could see from them?

El_Torro

You've told us pretty much nothing about yourself in your opening post so there's not a lot of sensible suggestions we can make. I will say this though:

The good news is that your £200k is in Cash ISAs. Moving this all (or some of it) to a Stocks & Shares ISA is relatively easy. That's a good start, ideally you don't want to be faffing around with paying Capital Gains Tax and other taxes on your investments.

For most people investing in a pension is even more tax efficient than investing in a Stocks & Shares ISA. Unfortunately you can't (or at least shouldn't) just shove £200k into a pension now. If you speak to an IFA (probably a good idea) they can help you start building a pension.

As for what to invest in, a global tracker (pretty risky on the risk scale) or a multi asset fund, say 60 / 40 (less risky than a global tracker but still not what many people would consider to be low risk) are probably good places to start. Probably not much point in going into further detail without knowing more about your financial objectives.

InvesterJones

The professional will be able to give you advice tailored to your circumstances, which as it's a regulated industry, we cannot.

In general (non-tailored), make sure you have an emergency buffer, then allocate the rest based on your timeframe and risk tolerance - inflation is a big risk for long term investments for example, so the longer you're looking at the more likely you are to need equities.

There is no such thing as typical growth rates, but looking backwards 100+yrs (which is no guarantee of future) global equities have returned an annualised ~5% real return (ie above inflation), and bonds 1.7% real annualised, cash-like only 0.5%.

100% equities is of course a lot of volatility though, so your timeframe and importantly, goal, are important.

As for pension/ISA etc. - that is the wrapper around your investments. Pension is a very tax efficient wrapper, if you don't need it before then.

DRS1

Are you sure you don't have a pension? Are you employed? Could you have been enrolled in a pension automatically when you started your job?

Jiggitty

https://forums.moneysavingexpert.com/discussion/comment/82012525#Comment_82012525

Thanks for that, I'm in my mid 50's, home owner with no mortgage, ideally I'd love to be able to generate £35-40k passive income at some point but appreciate that won't be straight off the bat and at low risk levels may not be feasible?

I had assumed it was too late to get anything back on a pension if I was planning retirement in the next decade but it's something to discuss at least.

Jiggitty

https://forums.moneysavingexpert.com/discussion/comment/82012530#Comment_82012530

Thanks, that's great, are things like index funds relatively low risk?

Jiggitty

https://forums.moneysavingexpert.com/discussion/comment/82012551#Comment_82012551

Unfortunately not, I was taking the money at the time to try and get a house so all I will have is state pension.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82012625#Comment_82012625

No. 100% equity is towards the risky scale of things (5 or 6 out of 7). Better than individual stocks though.

dunstonh

Basically, it's everything I have so I don't want to start taking big risks, what are some lower risk options and what would be the typical growth rates you could see from them?

You already are taking increased risk by having everything in cash for money that is meant for the long term.

You have replaced investment risk with shortfall risk and inflation risk.

I had assumed it was too late to get anything back on a pension if I was planning retirement in the next decade but it's something to discuss at least.

That's not logical. Regardless of whether you have £200,000 in a tax wrapper, you still have £200,000.

 ideally I'd love to be able to generate £35-40k passive income at some point but appreciate that won't be straight off the bat and at low risk levels may not be feasible?

That's not going to happen if you're treating the £200,000 as the only source. If you invest the money at a sensible level of investment risk, you're looking at about £7,000 pa. on its current value if taken now.

If you go too low risk, you'll be less than that.

Thanks, that's great, are things like index funds relatively low risk?

Some of them can be. Some of them aren't. To be honest, looking at potential solutions within a wrapper at this stage is completely pointless. Given your lack of experience and your preference to not go up the risk scale too much, it's unlikely you will use index funds directly. Indirectly, not a bad thing, just not directly. You lack the knowledge to do that at this stage.

Why don't you have a pension? Do you not have employment or self-employment income?

How do you intend to add to that 200,000 over the next decade?

LHW99

I had assumed it was too late to get anything back on a pension if I was
planning retirement in the next decade but it's something to discuss at
least.

Even if you retire in 5-10 years, you hopefully don't expect to pass away in that time. Average life expectancy for England is getting towards 85 years so unless you plan to use all your savings (eg for an annuity) at that point, you could be drawing an income from your savings for 30+ years.

Try looking for an annuity calculator, and you can play with the numbers to see how much income £200k would buy. Given that I believe state pension is equivalent to about a £250k pot, you are likely to need more in order to meet your income requirements.

One advantage of transferring (bit by bit) funds into a pension is that it gets immediately increased by the Government contribution - equivalent to ~6.25% immediate increase in the lump sum I think.

Albermarle

I had assumed it was too late to get anything back on a pension if I was planning retirement in the next decade but it's something to discuss at least.

You can see a pension as a tax advantaged way to invest, so if you are thinking of investing, then doing some of it via a pension makes sense. The advantage comes from tax relief on contributions, but the amount you can add, and get tax relief is limited by your earnings. So most likely if you see an IFA, they will open a pension for you and advise that you add a certain amount each tax year, whilst keeping some as cash ISA savings, and some transferred to a S& S ISA. Some of the planning will depend on your age , when you want to retire etc.

You can hold the same/similar investments in a S&S ISA as you can in a pension. All investments should be held long term regardless, for the best chance of success.

Regarding investments themselves, the more they contain shares, the more volatile, they could be but hopefully in the long term you would get more growth. For less volatility but still the hope for some reasonable growth you can have investments that are 50% shares and 50% bonds ( or any other mix of %) .

ideally I'd love to be able to generate £35-40k passive income at some point but appreciate that won't be straight off the bat and at low risk levels may not be feasible?

With a medium risk 50;50 investment, you would probably need a fund of about £800K to produce an income like that. If you include keeping up with inflation and a low risk of it ever running out, then a Million would be needed.

However do not forget that you will get the state pension at some point, so that would reduce the number and if you lowered your target income a little as well. On the other hand if you wanted to retire early, that would bump up the size of the fund needed considerably.