What to do with inheritance of around £115,000?(4 Posts)
I will be inheriting around this much later this year from a relative. I will probably put some of it into a stocks & shares ISA, some into cash ISA, and some into a savings account.
I already have a s & s ISA, which is managed by an IFA. My question is should I add to that one each year or should I manage a new one myself? I am paying the IFA 0.5% p.a. for this, plus 1% to manage a pension that I am not paying into any more because I have a pension with my current employer. This means that I am paying the IFA very nearly £1000 per year! I am not sure I want to carry on paying at that rate but have very little time to manage my own affairs as I work nearly full-time. Also I am by no means thick but find financial stuff mind-boggling! Both the ISA and pension are doing well - 53% growth in ISA over the last 4 years and 18% growth for the pension in the same time (I have chosen a lower risk level for this). I would look after a cash ISA myself.
Regarding the inheritance, we have made the crazy and scary decision to send DD, 11, to a private school, based mainly on this money coming. We will need 40K for the 5 years at that school, plus money for university, the house could certainly do with having 50K spent on it. I will be sharing these costs with DP, who doesn't work, but has about 58K in savings. He is 58 and has been made redundant and I'm not sure he will work again. He spends a lot of time looking after his mum. We have no mortgage or debts though. And he will inherit his mum's house, sooner rather than later as she has a life limiting illness. In fact, she transferred ownership of the house to him about 10 years ago. DD is our only. Just trying to give you a full picture. I am nearly 52 so starting to feel retirement looming and think it is not a good time to take too many financial risks.
Any advice on how to manage this money would be appreciated!
Your ISA and pension are doing well, so the fees charged are OK whilst they do well. However, in a low return environment like today two things stick out.
1) There is no such thing as a free lunch
When interest rates are low and inflation is high, getting 10%+ per annum in your ISA/Pension most likely means a high degree of risk is being taken with the investment allocation. You need to find a way of researching that for yourself - your IFA is not going to help you determine that as they will smell trouble.
This is by far more important than point 2 (below) as you don't want to see your capital go down the drain. Fees can only hurt you by 1 per year. Poor investment to risk matching can loose you 50% of it (rare but possible).
2) Annual fees
£1,000 per annum for making a couple of investment decisions is quite a lot of money. The real expertise of an IFA is the initial decisions on risk profile, capacity for loss, navigating pension rules and tax/inheritance planning. Those skills are only really needed once, when you invest the money - not every year thereafter. IFAs love to pretend they are experts at investing money, but they are not. If your portfolio has done well, it's almost certainly luck rather than judgement on the IFAs part.
Investment professionals that have that expertise spend there careers managing funds, not advising people on their pensions. They are not IFAs. They're success and pay is dependent on the performance of the funds. All the funds you are invested in charge annual management fees to pay for investment expertise. You are already paying that (even though it doesn't show up easily). You are paying your IFA on top of that for doing the same thing.
I think in the new RDR world (new Retail Distribution Directive regulation), IFAs have to justify what the client is getting for £1000 every year - your IFA will struggle to do that.
As far as the inheritance goes, that is a personal choice. If you have paid off your debts/mortgage then it's a case of deciding on investing in your old age and your children (education/deposit for a flat etc). Only you can decide that. For my part, I put my kids first and would spend on the education and worry about my old age later (the house can pay for that).
I agree that that's a very good return but probably implies some quite high risk investments. Not a problem in itself but I would make sure that you don't replicate those stocks/shares/funds when you come to invest your inheritance. So if you decide to manage it yourself, for instance, you should make sure you get a detailed breakdown of exactly where your current investments are so you can make sure your portfolio overall is well balanced. Sorry if that's really obvious!
I manage my own investments (both ISA and non-ISA) with a Hargreaves Lansdown account. It is very straightforward to open and manage and they will do the leg work of transferring accounts to them as well. I have been pleased so far, but I know there are several providers who offer similar things. I used to be with Halifax but have had a nightmare trying to reclaim my money from them - they have obstructed me in every possible way - so would warn against them.
We are also going to be inheriting a couple of lump sums in the next few months, adding up to a similar amount to you. It is hard to find any decent low-risk returns at the moment, though some regular deposit savings accounts are OK (if you can be bothered with the faff of setting up the regular deposit). I am also considering some peer-to-peer lending (which is higher risk obviously) as well as adding to my existing portfolio. I enjoy managing my investments and don't mind some risk, whereas DH is very risk averse and hates having to think about it at all, so between us we balance out.
We are also considering the possibility of school fees and/or a house move in the next few years (but our baby is only six months old at the moment so no urgency on either!). We also might have another child, if I am ever drunk/stupid/forgetful enough to think I could face another pregnancy!
Thanks so much for your replies - they are very helpful. Have been meaning to get back onto this thread. I did choose a fairly high level of risk for the S&S ISA as it isn't a great sum involved. I wouldn't invest the inheritance money at such a high risk. What I don't understand is if I go to an ISA plan manager, such as Hargreaves, L&G, etc,, how do I know what level of risk I am investing in? Do I have to chose the funds or do they do that for you?
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