Inheritance.

[blueb10]

Hello all, just after some pointers as i know that my question will have many answers and combinations of replies.
I have inherited a sizeable sum recently. My initial plan is to use some of the sum to purchase a house and then invest the remainder (approx £400k) to hopefully obtain an income. I am not wanting to invest in anything with risk, although i know everything has some risk. My initial thoughts would be to put everything in the bank, in the higher paying interest rate bonds etc and then , if possible have this pay me 5% per annum as a monthly income. I would look to reduce this when i reach state pension age (presently 62).
I would be grateful for any advice on what my options would /could be? Do i put everything in one bank or do i need to spread it about? If i did the latter, would i then not be able to have the option of a monthly income?
To some it is probably not that large a sum but, it certainly is to me and i really dont want to risk losing money and i am somewhat dubious of engaging an IFA.

Any help or advice would be much appreciated.

[Panamax]

Unfortunately sitting in cash = losing money, simply because the darned stuff will be shrinking with inflation.

The big question is whether you can do better elsewhere at a sensible level of risk.

You may have noticed there's not many IFAs around at the moment saying how well their clients have been doing despite the downturn. Most will just tell you to keep buying on a regular basis - after all, things are cheaper now than they were last year.

[bitchstewie]

blueb10 said:

I am not wanting to invest in anything with risk, although i know everything has some risk.

There are no investments that are truly risk free so I'd spend some time thinking about your appetite for risk.

You can get 4.5% on cash in the bank right now (and this is likely to increase) and you don't need to be all-in or all-out with your money so you could easily decide to (example figures) have £100K on hand as cash and £200K tucked away in a fixed term fixed rate and £100K invested.

Basically there are tons of options but if you want to start with £400K and be sure of never losing a penny of it (this ignores inflation) then you don't want investment products you want savings products where you'll make less but your money is safe.

[av185]

As this is PH clearly the best and sage advice would be to 'invest' in an expensive car.

What price driving perfection?

And if you buy the right car you could always turn a profit ££ too as we approach the twilight years of interesting ice cars.

A win win in fact. :

[dmahu]

Panamax said:

Unfortunately sitting in cash = losing money, simply because the darned stuff will be shrinking with inflation.

The big question is whether you can do better elsewhere at a sensible level of risk.

You may have noticed there's not many IFAs around at the moment saying how well their clients have been doing despite the downturn. Most will just tell you to keep buying on a regular basis - after all, things are cheaper now than they were last year.

5% returns aren’t to be sniffed at. It’s better than the FTSE 100 dividend yield with no risk.

5% also allows me to me meet my financial goals (built around a 4% safe wirthdrawl rate) so why take the risk?

Edited by dmahu on Saturday 15th October 15:11

[JamieBeeston]

If you're 62 now, and have worked during your life, then by far the best simple option would be to max out your private pension contributions (this can be back dated some way iirc) and benefit from some lovely tax advantages.

Definitely speak to a Professional about this.

[blueb10]

av185 said:

As this is PH clearly the best and sage advice would be to 'invest' in an expensive car.

What price driving perfection?

And if you buy the right car you could always turn a profit ££ too as we approach the twilight years of interesting ice cars.

A win win in fact. :

Already got the nice car, thanks.

[blueb10]

dmahu said:

5% returns aren’t to be sniffed at. It’s better than the FTSE 100 dividend yield with no risk.

5% also allows me to me meet my financial goals (built around a 4% safe wirthdrawl rate) so why take the risk?

Edited by dmahu on Saturday 15th October 15:11

Would i be be better off putting it all in one bank or should i spread it about?
I think the banks guarantee £85000 in the event of something going wrong. Is that for each account or is it the maximum?
Will have to go and see the bank but, just wanted some tips from here first.

[randlemarcus]

blueb10 said:

Would i be be better off putting it all in one bank or should i spread it about?
I think the banks guarantee £85000 in the event of something going wrong. Is that for each account or is it the maximum?
Will have to go and see the bank but, just wanted some tips from here first.

The limits are per banking group, so you might need to do a little digging to make sure Bank A and Bank B don't share a parent.

[Derek Chevalier]

dmahu said:

5% also allows me to me meet my financial goals (built around a 4% safe wirthdrawl rate) so why take the risk?

I think I could be misunderstanding what you are saying, but the 5% in your example is nominal(?) whereas you'd need a real growth rate (nomimal minus inflation) as the input to your SWR calcs (which assumes annual inflation increases)?

[dmahu]

Derek Chevalier said:

dmahu said:

5% also allows me to me meet my financial goals (built around a 4% safe wirthdrawl rate) so why take the risk?

I think I could be misunderstanding what you are saying, but the 5% in your example is nominal(?) whereas you'd need a real growth rate (nomimal minus inflation) as the input to your SWR calcs (which assumes annual inflation increases)?

I plan for around 5% returns in the stock market. I know people say 7%+ but I think that involves a bit of hindsight bias such as investing 100% in the US post 2008.

If I could get 5% in a savings account for the rest of my life I would probably sign off on that considering it’s risk free.

Of course having these numbers plus some uplift for inflation would be lovely, but where to get that?

I am mentally thinking that property will give me the inflation protection. I also hope I’ll be insulated from the worse of it as I’ll have a paid off home, car etc.

Interested in your thoughts on this as it’s potentially a 40 year retirement though with a reasonable starting sum.

Slightly diverting the OPs thread but hopefully it’s relevant to him too!

Edited by dmahu on Saturday 15th October 19:53

[Derek Chevalier]

dmahu said:

Derek Chevalier said:

dmahu said:

5% also allows me to me meet my financial goals (built around a 4% safe wirthdrawl rate) so why take the risk?

I think I could be misunderstanding what you are saying, but the 5% in your example is nominal(?) whereas you'd need a real growth rate (nomimal minus inflation) as the input to your SWR calcs (which assumes annual inflation increases)?

I plan for around 5% returns in the stock market. I know people say 7%+ but I think that involves a bit of hindsight bias such as investing 100% in the US post 2008.

If I could get 5% in a savings account for the rest of my life I would probably sign off on that considering it’s risk free.

Of course having these numbers plus some uplift for inflation would be lovely, but where to get that?

I am mentally thinking that property will give me the inflation protection. I also hope I’ll be insulated from the worse of it as I’ll have a paid off home, car etc.

Interested in your thoughts on this as it’s potentially a 40 year retirement though with a reasonable starting sum.

Slightly diverting the OPs thread but hopefully it’s relevant to him too!

Edited by dmahu on Saturday 15th October 19:53

Equities have historically returned approx 5% over inflation over the long term

https://finalytiq.co.uk/lessons-118-years-capital-...

But of course, averages cover a wide range of outcomes, and none of us knows what we are going to get over our multiple-decade retirement.

I think a 4% withdrawal rate over 40 years may be punchy assuming you are sticking to the "rules" - inflation-adjusted withdrawals every year. Flexibility in spending if we hit a sticky patch will of course give you a greater chance of success.

Diversification is key - if you attempt to withdraw 4% from a 100% US total market holding (with UK inflation) in a 70s-style scenario, it doesn't look too clever.

You can imagine the modern-day equivalent where someone recently retired holding funds heavy in US large-cap tech firms on lumpy valuations and long-dated UK gilts (probably an unlikely scenario ) - a 4% withdrawal rate when you are 20%+ down (way more than a diversified portfolio) might prove challenging.


This is a good article

https://monevator.com/what-is-a-sustainable-withdr...

-0.5% SWR for 40 years or more.

https://monevator.com/how-to-improve-your-sustaina...

"They cite evidence in favour of diversifying your retirement portfolio with:

Risk factors like small cap and value
The global portfolio including emerging markets
REITs"

How many people hold small cap value and EM?

Edited by Derek Chevalier on Sunday 16th October 18:26

Edited by Derek Chevalier on Sunday 16th October 18:26

[MercedesClassic]

JamieBeeston said:

If you're 62 now, and have worked during your life, then by far the best simple option would be to max out your private pension contributions (this can be back dated some way iirc) and benefit from some lovely tax advantages.

Definitely speak to a Professional about this.

I pulled this out as I thought it was good advice but not elaborated upon. My basic understanding of this is you can max your current tax year plus the 3 previous, maybe it's 2. I think the max for HMRC tax relief in a year is 40k so max £120-160k of which HMRC contributes 20 or 40% depending on your tax band.

This is invested by the pension company and with the FTSE being a bit lower you're getting more for your money.

Still gives you plenty left over but it's essentially a leg up by HMRC.