where to invest

Meltdown_2

The advice/opinions given by various posters 15 months ago still seem valid.
http://forums.moneysavingexpert.com/showthread.html?p=4137651#post4137651

whu

dunstonh wrote: »

That 35k limit doesnt apply to investments or life assurance. They have better limits. Although its a bit of a non issue with fund supermarkets in reality as you diversify within the fund supermarket anyway.

The things that need to be considered here are:
1 - risk attitude. Low/medium needs to be placed in context. One persons low risk is another persons high risk. Saying you are low/medium is like picking a number between 1 and 5 to indicate your risk level without actually knowing the real risks involved. If you understand the risks you will be able to make a better judgement on your risk profile. I good IFA will help you understand the risks more.
2 - how the money is invested. You will never get two portfolios the same. Investments are about opinions and there is such a wide variety of options available with a fair amount of overlap that you shouldnt expect to get the same recommendation on how its invested. As long as there is a strategy in place that matches your aims and risk profiles and the research is of good quality then that should be what you aim for.
3 - Tax wrapper. This is the ISA or investment bond (amongst others) that you mentioned first of all. The UK has over 13 different tax wrappers. Many of which can contain the same investments meaning the only difference between them is tax, charges and how the maturity is dealt with. Some tax wrappers can be too expensive and although better on tax can be higher on charges. Others can be slightly worse on tax but cheaper. So, the research should include a comparison of the tax wrappers. The investment should not be compromised by the choice of tax wrapper (or provider).
4 - Aims with your money both now and in the future. No point investing in a way that doesnt fit your aims.

Risks are not just investment. You also have inflation. Sticking it in a savings account getting say 5% is simple and many will say safe. However, with you drawing that 5% as income then you are letting both the capital and income be eroded by inflation. £100k in the bank will be worth around £70k in 10 years time as far as spending power goes. Indeed, if real inflation is considered it could be as much as half. So, often you have to take some investment risk to give yourself some potential for gain on the capital value. You may be switching one level of risk with another.

Investing also means longer term. If you want all of it accessible to spend on a moments notice then forget investing and stick with saving (although note the inflation risk mentioned above). Investments will zig zag and sometimes they may zag before they zig (just ask anyone that invested in 2007). You need time and if you dont have time then you shouldnt invest. Guaranteed options do exist but these cost more in charges (whether implicit or explicit). Some may not appear to have charges but they take things away (such as dividends) so that becomes an implicit charge.

There is so much you can type/say on this subject that you can go on and on.....

Hi Dunstonh- can you just clarify please- I thought that if you put £100k in a savings account only 35K would be protected hence my comments- when you say that it doesnt apply to investments which sort of thing do you mean?Thanks

chesky369

typical good sense from Dunstonh again.

Lokolo

whu wrote: »

Hi Dunstonh- can you just clarify please- I thought that if you put £100k in a savings account only 35K would be protected hence my comments- when you say that it doesnt apply to investments which sort of thing do you mean?Thanks

You are thinking of savings. You are protected £35k with banks.

Investments are completely different, this is where you put your money in something and hope for a better return; shares, bonds, property

chesky369 wrote: »

typical good sense from Dunstonh again.

I would hope so to being an IFA lol

whu

thanks - that is what i thought regarding savings when giving my suggestion - what I am not sure about is the reference to a bond - do you mean something like a fixed one year bond or something like a govn bond?

dunstonh

savings are £35k
investments are 100% of the first £30k and 90% of the next £20k
pensions are 100% of first £2000 and 90% of the rest with no upper limit
life assurance investmetns are are 100% of first £2000 and 90% of the rest with no upper limit

investments would typically be things like unit trusts. Life assurance would be investment bonds.

chesky369

whilst we're on the subject of 35k.......

what about small businesses? Do their bank accounts go bust after this sum?

jamesd

whu and in addition to dunstonh's limits, the limit is per fund management group and a properly diversified set of investments will involve many different groups, so it's easy to get protection for a few hundred thousand Pounds just through sensible investing.

redwyno, have a look at the charts for these funds to see some of the range of volatility (often called risk) that is available:

30% BlackRock UK Absolute Alpha
20% Cru Investment Portfolio
20% Invesco Perpetual Monthly Income Plus
20% Invesco Perpetual Income
10% Neptune Global Equity

The chart shows how the volatilities differ and why so much is in the more stable ones (colors are red, blue, yellow, green, gray in fund order).

The percentages are for lower risk than you need, your target should have more equities (the last two types) and less of the first three types. The first two are also quite new and the third is what is traditionally used for low risk - a corporate bond fund, in that case also with some equity parts. Invesco Perpetual Income is at the higher end of medium risk and is one of the most popular UK funds because of its long history of excellent performance. Neptune Global Equity is near the top of high risk (not of loss of all of the money, but of drops in value in some years that would be a loss if you were forced to take the money out then) but with higher growth potential. Single country China or Latin American funds would be higher risk still.

Here's an old Watson Wyatt sector allocation for risk level 6 out of 10:

sector/amount		
UK Fixed Interest	19	
UK Property		22	
UK Equity		25	
North American		9	
European		9	
Japanese		5	
Far East Ex Japan	3	
Emerging Market	Equity	3	
Global Specialist	5	

What you can do is select a mixture and have some at lower risk that won't move up and down in value much while others move more up and down from year to year and provide greater long term growth. That way you can sell some of the lower volatility ones if needed.

For the monthly income you can put a year's worth into a savings account and set up a standing order from it to your main bank account. Then you can top up the savings account as the investment income comes in, selling a little of those that provide capital growth each year to get incoem from them. This way you won't be as restricted in your investment choices by the need to get monthly income directly. You might consider setting up a different bank account to use just for taking income from the investments, jsut so it won't get mixed up with the spendable regular income.

If all this is confusing, that's where IFA's come in. See unbiased.co.uk to find some near you and check a few to see who you get on best with and who offers reasonably competitive charging.

redwyno

would it be more sensible to put 80000k into a fix for i year and use 20000as a years living expenses in a normal account

jamesd

redwyno, no, because a fixed interest savings account won't pay you as much money as low risk investments will pay. Maybe 40,000 in cash (or for a year, that plus whatever you have in cash ISAs at the moment).

Also because 20,000 is more than you can take each year from 180,000 without running out of money eventually. About 6% of the total invested, say 11,000 a year, is the long term prudent limit. You can increase that if the capital amount grows. But if you're after 20,000 only for a year until you get the state pension, that's OK, the damage won't be worth worrying about for just one year. No problem to take 20,000 just for one year.

Instead of savings accounts, take a look at at least the first four investments that I mentioned. While it's not adequate for your situation and you should seek assistance from an IFA, those four alone would be a significantly better idea than using only the savings account. The savings account is a good place to put the income you intend to take, so you don't need to worry about it and fiddle with the investments each month.

Do not use the funds I mentioned or the proportions for many years. They are not suitable for long term retirement income because they don't provide enough growth potential. You need more stocks and shares percentage long term. The mixture is intended for a year of much uncertainty, to protect the capital value of the investments while still getting some growth.

Get help from an IFA. You need someone who is comfortable with how to invest in mixtures of investments to protect your money while still giving you a nice income. Then ask us to review what the IFA suggests and we'll let you know if they are any areas you need to question.

What I set up for my pension investing for last year's money, which I put into the pension in late March and April, was putting most of the money in that BlackRock fund. Then I started to gradually move it into the more volatile ones in twelve chunks over the year. That gradual move into the investments that go up and down more will protect me and get me good prices if shares drop during the year. It's a good year to be buying (because prices are lower than they have been) but not a good year to put a large lump sum into the investments that go up and down a lot. So gradually is the best of both worlds. In your case you might want to do this over two years to provide even more protection, at the cost of lower growth if the markets go up a lot.