Collective Investment vs Property as investment
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More or less.
However, risk 3 is never going to satisfy you enough. You are taking on some risk, albeit low but its the reward is always going to be low. It will be an eternal disappointment in good periods and bad.
You should aim to get a notch or two up that risk scale.
So, given we currently have a portfolio with a low risk of 3, would a medium risk of 5 or 6 be what we should aim for?0 -
A medium risk low cost diversified mixed asset fund would have around 60% equity and 40% bonds and should produce good returns over the long term. I certainly hope so as I have recently invested in that type of fund.
Re: low cost, the initial one-off charge to the IFA for our Collective Investment account was 2% of the amount invested. Ongoing monthly service charges are just over 1% p.a.
The portfolio is "...a mix of actively managed and passive funds in different weightings to control the overall cost of the portfolio". Currently, equity (mostly international) is at 38%, fixed interest (mostly UK Bonds) 32%, cash 27% and property 3%. That mix probably differs from yours in that the risk level is at 3 out of 10.
Would that fit your definition of low-cost, or have you opted for something stripped down like a 100% passive tracker?0 -
That is an important point as 20 years ago is only a few years after the last major property price crash. So, 20 years was starting not at a peak but a bit a few years off the bottom.If you bought another BTL on the basis house prices always rose you’d be doing the classic of chasing after past performance, the time to buy it was when it last crashed in the late noughties, not now after 10 or so years worth of rises when it’s now stagnating.So, given we currently have a portfolio with a low risk of 3, would a medium risk of 5 or 6 be what we should aim for?
I wouldnt want to suggest movement until I was satisfied you understood the risks and you were prepared. Both you and your wife. For example, if you prepared for a 15% loss and then that 15% loss comes along in say 2 years time, I would want you to be saying "I knew it would come, we were told about it. Now we wait". I would also want you to understand that in monetary terms. 15% of £300k is £45,000. Could you handle a short term loss of that nature?
Also worth noting that the last property crash lost more than that. (i.e. if you had properties worth £300k you would have lost more than that in value).
It is very easy for us to say you are too low risk and you should be higher up. How far is a test of your tolerance and until you go through that test, you will never really know. One thing to note is that it gets easier each time. Most crashes also tend to be short term. Autumn 2015 saw a stockmarket crash. Most people missed it as the loss and recovery happened between their 6 monthly statements.
With all those caveats in mind, I wouldnt jump from 3 to 6. Easy steps are better. Not great big leaps.Ongoing monthly service charges are just over 1% p.a.
That is high for £300k. 1% is more typically associated with smaller values. Once you get towards £200k-£250k would you ideally be looking for the old traditional 0.5%.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
How is a second BTL diversifying? The housing market next few years is likely to be unstable.0
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I agree that does look like the best strategy and less risky. It seems strange to me that you own a BTL outright yet you are renting yourselves.
Yes, it is a bit strange! We sold our old 1 bed flat and started renting because (a) it was getting a bit annoyingly small and lacked storage, garden etc. and (b) my o/h changed jobs and needed to be nearer the train station, but most importantly (c) we weren't sure of the area we wanted to live long-term, and thought it best to try some areas first before committing to buying a property.
We bought a BTL in town, so the money from the flat sale was (fairly safely, we thought) invested. We're still renting 3 years later. Not the most efficient way of doing things, but the rent from BTL has covered our own rent about 60-70% (after maintenance, lettings agency fees etc).0 -
All I would add is if you are into investing you have to consider it long term, ensure you follow the 'rules' regarding the things you should ensure are under control before you invest (debt, emergency fund, pension etc.) really understand risk in all it's aspects, know your goals etc.
I would put own house purchase (again if a long term asset) well before investment but that is open to debate.
You seem convinced the BTL was a good idea for income and possibly long term gain(without fully considering the risks of potential tax implications) and I would ask, just to point out, have you taken all the costs into consideration that are real and unavoidable such as landlord checks, ensuring you meet regulations (fire alarms etc.), landlord insurance and the likely need to invest periodically through maintenance and refund/decorate when Tennant's change. You may have done so and if so you can then compare with other investments where little work by you or your wife is involved!
Thanks Ainsley1. Re: income from the BTL, I did a lot of work recently calculating all the historical maintenance, insurance, admin and tax costs - so we could be realistic about the actual income we might safely draw from the monthly rent. Although it was only around 65% of the rent paid by tenants, we have been comfortable drawing this as an income for a year and a half - and it covers part of our own rent.
Conversely, after drawing the same income in £ from the Collective Investment account for the same amount of time, we could see that the remaining balance wasn't growing at a rate that was keeping up with inflation (around 3%). Perhaps we became nervous of this because we can constantly see the balance of the Collective Investment, whereas the BTL value is a bit more uncertain (and therefore not immediately visible). Also, the BTL is a physical asset, so mentally it feels less volatile as an investment - however irrational that is ;-)0 -
I would put own house purchase (again if a long term asset) well before investment but that is open to debate.
Realise that it's open to debate, but (in your opinion) would you tend to say that's the case regardless of the current unstable/stagnant housing market - or otherwise would you say there's a "right time to buy", even if it's the purchase of your own home?0 -
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