Investing £380,000?

[sat1983]

I'm 33 and am lucky enough to be inheriting a decent sum.

£200,000 will be invested in buying a house.

£180,000---- ??? Buying another house and renting it out on Airbnb???

[JulianPH]

sat1983 said:

I'm 33 and am lucky enough to be inheriting a decent sum.

£200,000 will be invested in buying a house.

£180,000---- ??? Buying another house and renting it out on Airbnb???

Congratulations on the sum and commiserations upon your loss.

That would be sticking it all in the same asset class - never a brilliant idea as if house prices fall all of your inheritance will fall with them. Also, the second property would be subject to tax.

Buy your home mortgage free at 33, that would be a massive achievement in itself!

Invest the rest for retirement and you will give yourself a further massive head start in life.

With an average of 7% annual compound returns over 27 years you will hit 60 with £1m. Your additional investments for retirement over the years only have to cover inflation on the principle capital - not the capital value itself.

Given you will have no mortgage payments you will be able to afford this easily whilst still having a growing disposable income for treats.

You must keep investment charge low though. This is not difficult in the slightest and you can get some great feedback on this here.

Use your ISA and pension/SIPP allowance to the max every year too, so none of the growth on this money is taxable. This sum, at your age, can set you up for life.

Your thought process is already in the right direction!

[Hoofy]

JulianPH said:

Invest the rest for retirement

What does this mean exactly? Does he just put it all in a bond or something?

[anonymous-user]

Hoofy said:

JulianPH said:

Invest the rest for retirement

What does this mean exactly? Does he just put it all in a bond or something?

I assume he means put it away for the long term. Stocks and shares effectively.

[JulianPH]

Hoofy said:

JulianPH said:

Invest the rest for retirement

What does this mean exactly? Does he just put it all in a bond or something?

Not in the slightest! It just means don't spend it on (for example) brand new toys that will plummet in value, but invest it in assets that should increase in value.

The OP is 33, so has the time to smooth out investment risk/volatility and should be considering high risk strategies now (reducing them as he gets older).

So a global equity portfolio with some emerging market exposure (balanced by a small fixed interest exposure) would be a good start. Vanguard offer this at a low price. Also, moving £20k a year, every year, into an ISA removes and CGT or income tax from these funds (during growth and withdrawal).

Equally, moving the maximum every year into a pension/SIPP gains the OP an immediate 25% bonus (basic rate relief at source) and even more if/when he becomes a higher rate taxpayers. One quarter of this is available to be withdrawn tax free too (under current pension rules).

The OP could decide to make further bricks and mortar investments in commercial property using a SIPP and all capital growth and rental income would be tax free (within the SIPP).

This is what investment planning is about. There are many ways to do it (as you know) but the basic rules are think long term, don't look and fiddle all the time, and let markets work for you over the long term.

Cheers

[Hoofy]

JulianPH said:

Hoofy said:

JulianPH said:

Invest the rest for retirement

What does this mean exactly? Does he just put it all in a bond or something?

Not in the slightest! It just means don't spend it on (for example) brand new toys that will plummet in value, but invest it in assets that should increase in value.

The OP is 33, so has the time to smooth out investment risk/volatility and should be considering high risk strategies now (reducing them as he gets older).

So a global equity portfolio with some emerging market exposure (balanced by a small fixed interest exposure) would be a good start. Vanguard offer this at a low price. Also, moving £20k a year, every year, into an ISA removes and CGT or income tax from these funds (during growth and withdrawal).

Equally, moving the maximum every year into a pension/SIPP gains the OP an immediate 25% bonus (basic rate relief at source) and even more if/when he becomes a higher rate taxpayers. One quarter of this is available to be withdrawn tax free too (under current pension rules).

The OP could decide to make further bricks and mortar investments in commercial property using a SIPP and all capital growth and rental income would be tax free (within the SIPP).

This is what investment planning is about. There are many ways to do it (as you know) but the basic rules are think long term, don't look and fiddle all the time, and let markets work for you over the long term.

Cheers

Ah, just the way you worded it made me think I was missing out something.

[mikeiow]

+1 on the commiserations for your loss.
JulianPH gives wise words.

My only addition would be to remember to have some fun with some of it....when I eventually go and pass on some remaining money to my family, I would like to think they would 'waste' a small chunk of it on things they would never normally consider - a trip of a lifetime holiday, maybe a vehicle, etc!

It is important to be wise with such a sum, & you sound like you have good ideas already, but at least some (5% ?) of it should be slipped into a 'have some fun fund" !

On the property front: I know JulianPH cautions against another property as keeping it in the same asset class, & I tend to agree, but equally, you are still young, and if that second property were a bargain cost (you are in a strong position to buy with cash!), then over a long term, property doesn't usually disappoint.
Many commentators feel that equities are very high right now, & that the market "in general" is probably overdue a correction, so buying in with £180K to something and then taking a near-term 10-20% hit could also be painful.
Obviously none of us have crystal balls, and it is just as possible that the current bull run could continue for several more years...but these things are a bit cyclical!

If I were you, I would sort out the main house for yourself, keep the remaining cash on hand: you may find you need a few thousand for repairs/maintenance etc, so sort that out before deciding what to do with the rest. Max out Premium Bonds with some of it whilst you figure this out, who knows what could happen!

[JulianPH]

mikeiow said:

+1 on the commiserations for your loss.
JulianPH gives wise words.

My only addition would be to remember to have some fun with some of it....when I eventually go and pass on some remaining money to my family, I would like to think they would 'waste' a small chunk of it on things they would never normally consider - a trip of a lifetime holiday, maybe a vehicle, etc!

It is important to be wise with such a sum, & you sound like you have good ideas already, but at least some (5% ?) of it should be slipped into a 'have some fun fund" !

On the property front: I know JulianPH cautions against another property as keeping it in the same asset class, & I tend to agree, but equally, you are still young, and if that second property were a bargain cost (you are in a strong position to buy with cash!), then over a long term, property doesn't usually disappoint.
Many commentators feel that equities are very high right now, & that the market "in general" is probably overdue a correction, so buying in with £180K to something and then taking a near-term 10-20% hit could also be painful.
Obviously none of us have crystal balls, and it is just as possible that the current bull run could continue for several more years...but these things are a bit cyclical!

If I were you, I would sort out the main house for yourself, keep the remaining cash on hand: you may find you need a few thousand for repairs/maintenance etc, so sort that out before deciding what to do with the rest. Max out Premium Bonds with some of it whilst you figure this out, who knows what could happen!

Hi Mike, thanks for the kind words. I was going to mention this but was stuck at the life changing possibilities the money could provide today if used wisely.

Of course the OP should feel take part of it to enjoy today - and a good call on Premium Bonds whilst he decides upon his next steps. Life is for living, after all. My position was simply that investing all of it now (in a mortgage free home and a massive kick start for retirement) would free up so much disposable capital every year (that would otherwise be used in mortgage repayments and pension savings) as to allow him to do this every year.

Cheers

[sat1983]

Many thanks for the kind words and advice people, especially you Julian.

I do have a very rough plan-

Buying my own house is a definite- makes sense for sure.

There is a possibility of buying a decent car.... Part of me thinks it's an utter waste of cash but it would genuinely be the only 'treat'. 335d for a bit of fun and the family.

The rest invested through this:

https://www.sjp.co.uk/?_ga=2.135926449.1073510265.... Medium/low risk investment portfolio. But £4,500 to 'join the club' so to speak- but I gather you always have an 'entry' fee for those people to manage your portfolio?

[ellroy]

sat1983 said:

Many thanks for the kind words and advice people, especially you Julian.

I do have a very rough plan-

Buying my own house is a definite- makes sense for sure.

There is a possibility of buying a decent car.... Part of me thinks it's an utter waste of cash but it would genuinely be the only 'treat'. 335d for a bit of fun and the family.

The rest invested through this:

https://www.sjp.co.uk/?_ga=2.135926449.1073510265.... Medium/low risk investment portfolio. But £4,500 to 'join the club' so to speak- but I gather you always have an 'entry' fee for those people to manage your portfolio?

May I suggest seeking Independant Advice rather than restricted, albeit restricted with very good marketing?

Their fees are not particularly cheap either, or easily explained if you dig a litttle.....

[red_slr]

If you are married you can put £40k in an ISA now and then another £40k in April 19.

[red_slr]

or have a partner / s,o etc.

[trowelhead]

ellroy said:

sat1983 said:

Many thanks for the kind words and advice people, especially you Julian.

I do have a very rough plan-

Buying my own house is a definite- makes sense for sure.

There is a possibility of buying a decent car.... Part of me thinks it's an utter waste of cash but it would genuinely be the only 'treat'. 335d for a bit of fun and the family.

The rest invested through this:

https://www.sjp.co.uk/?_ga=2.135926449.1073510265.... Medium/low risk investment portfolio. But £4,500 to 'join the club' so to speak- but I gather you always have an 'entry' fee for those people to manage your portfolio?

May I suggest seeking Independant Advice rather than restricted, albeit restricted with very good marketing?

Their fees are not particularly cheap either, or easily explained if you dig a litttle.....

+1 - SJP fees are very steep. Over time this has significant drag on your future wealth.

Please do not do anything in the next month or two. Take your time there is no rush whatsoever.

Spend £50 on a few books on the subject.

This is a great start:
https://www.amazon.co.uk/How-Own-World-Thinking-In...

Buying a house is a great idea. Keep some cash aside as an emergency fund. Buy a decent car (this is PH afterall). Go on holiday. Max your ISA in low cost funds for the next few years. It's not a bad position to keep £180k in cash and drip it slowly into the market over time.

You'll have be in an AMAZING position in a few years. Just don't rush or be hard sold into anything!

[JulianPH]

sat1983 said:

Many thanks for the kind words and advice people, especially you Julian.

I do have a very rough plan-

Buying my own house is a definite- makes sense for sure.

There is a possibility of buying a decent car.... Part of me thinks it's an utter waste of cash but it would genuinely be the only 'treat'. 335d for a bit of fun and the family.

The rest invested through this:

https://www.sjp.co.uk/?_ga=2.135926449.1073510265.... Medium/low risk investment portfolio. But £4,500 to 'join the club' so to speak- but I gather you always have an 'entry' fee for those people to manage your portfolio?

No problem!

SJP often get knocked by other advisers, but in my experience are actually no more expensive than most others. They are incredibly well run and fiercely protective of their brand, so if anything does go wrong they are quick to compensate internally rather then let it go to an official FOS complaint.

The question really is, do you need to pay for financial advice at all? There is no right or wrong answer here by the way, it is down to how comfortable you are doing things on your own.

Either way you need to ensure you utilise your ISA and pension allowances each year to shield your returns from tax as efficiently as possible.

Putting it into an ISA means there is no growth (CGT) or income tax on your investments and anything you take out as income (or a lump sum) is also completely free of tax.

Putting into a pension gives you the added bonus as a 25% increase straight away (through basic rate tax relief - your pension/SIPP provider do this for you automatically, so there is nothing you need to do to get this). The money then grows tax free just as with an ISA, but at retirement you are only allowed to take a quarter of it tax free, the rest is taxed as income tax.

They are both, therefore, excellent tax 'wrappers'. You can hold the same funds in each if you like (remember performance is down to the funds within, not the pension/SIPP/ISA 'wrapper' that shields them from tax.

Also, it is worth checking the rules of your workplace pension. If your employer offer to match your contribution (to a maximum set level) the any money you put into this is effectively doubled on day one. This would be my starting point for any pension element. Your contribution would come out of your salary with no tax taken (gross) and you could replace the net value of this lost revenue by drawing a smaller net amount (equal to the income lost) from your lump sum.

Using round figures it works like this:

• You pay £1,000 of gross salary into your workplace pension
• Your employer adds another £1,000
• The net cost to you would be c. £680 (£1,000 minus 20% basic rate of tax and 12% employee National Insurance payments)
• You take this £680 out of your lump sum so your earning remain the same
• This £680 from you inheritance is now worth £2,000 in your pension on day one, before it is even invested.
• That represents nearly 300% capital growth (294.12% to be more specific) risk free overnight growth on your money prior to it being invested

A final thought, I would look at taking a higher level of risk/reward given your age. At the least a medium (balanced approach). Then ignore the short term ups and downs. If those ups and downs are going to be a big concern for you though carry on as you are!

Cheers

[bitchstewie]

My personal take on it as someone in a reasonably fortunate situation would be to spend a lot of time doing your own homework.

It's a cliche but time spent researching now is worth potentially tens if not hundreds of thousands of pounds in later life.

There are lots of good free resources out there that can help point you in the right direction and steer you away from the wrong direction.

Broadly speaking I think the hard part is determining risk level i.e. most people would probably agree that equities are the best place for long term returns, but if you need guaranteed access to 75% of your capital within 5 years you need to be a lot more cautious than just writing Terry Smith a cheque

My only regret is not having paid as much attention to the matter earlier - don't waste the opportunity

[audidoody]

Think carefully about investing in a second property. Either you'll pay a agent to manage it, which will be very expensive. Or you'll have to manage it yourself which will be a total ball-ache. I've been on holiday on the other side of the world when a tenant has phoned in the middle of the night to complain the boiler has stopped working. Not fun. Apart from which there are heavy transaction costs when buying and selling (stamp duty, legal fees, estate agent fees, CGT etc).

I got into BTL years ago when the sums worked. Last thing I'd do today.

You want 'fire and forget' investments.

[Burnham]

JulianPH said:

Also, it is worth checking the rules of your workplace pension. If your employer offer to match your contribution (to a maximum set level) the any money you put into this is effectively doubled on day one. This would be my starting point for any pension element. Your contribution would come out of your salary with no tax taken (gross) and you could replace the net value of this lost revenue by drawing a smaller net amount (equal to the income lost) from your lump sum.

Using round figures it works like this:

• You pay £1,000 of gross salary into your workplace pension
• Your employer adds another £1,000
• The net cost to you would be c. £680 (£1,000 minus 20% basic rate of tax and 12% employee National Insurance payments)
• You take this £680 out of your lump sum so your earning remain the same
• This £680 from you inheritance is now worth £2,000 in your pension on day one, before it is even invested.
• That represents nearly 300% capital growth (294.12% to be more specific) risk free overnight growth on your money prior to it being invested

I like this.

[fido]

Move to London. You could get a nice 1 bedroom flat for that. And then be able to commute to a London-paying job.

[JulianPH]

fido said:

Move to London. You could get a nice 1 bedroom flat for that. And then be able to commute to a London-paying job.

Yeah, with the appropriate London cost of living, rife and uncontrollable violent crime, daily stabbings, ridiculously high murder rates, rampant gang warfare, constant terrorist threats and terrible air pollution!

Each to their own and all that, but I'll stick with village life!