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How to invest £1M for income(33 Posts)
Please note this is not a stealth boast. My partner is terminally ill and because he has a good job once he passes I will receive just under £1m in life assurance from his work plus approx £120k in shares and pension contributions and circa £200k from our own life assurance. We have a £400k mortgage which will be cleared leaving me with probably about £900k to invest and a house paid off worth Circa £1M. My own income is circa £35k working part time which I will continue and I don’t plan to go full time because of what my children will be going through.
I would ideally like an income of £2k net a month from the investments allowing also for growth of the capital.
I will arrange for a fund manager to manage the money for me but I would be interested to see how a good portfolio of investments would work and might breakdown.
I appreciate that I’m unbelievably lucky that I’ll be left very comfortable but trust me, I would give anything not to be dealing with this. I have 3 children who I need to get through secondary school and uni and I plan to stay in the family home for the foreseeable future.
I'm sorry this is such a difficult time for you. Please seek professional advice on this rather than us! Yes, you'll pay for it but that brings with it some comfort.
Thanks I will get professional that’s a given, I wouldn’t dream of trying to manage it myself but it would just be interesting to see what people knew. I’m hoping I might have time before I need that professional advice.
I would look to live on salary as much as you can. When you can work it provides a normal routine but if you are not dependent on income ( or at least not dependent on it for a few years) you may be able to invest differently for higher capital gain.
One of the things to look at is your future - you talk a lot about your kids here, understandably. What are the tax benefits or issues of putting some in your pension pots keeping it together to give you a big investment pot.
I think in your shoes I'd be thinking about what I would need in retirement income, considering how much you will need to give each DC for uni and how much for a house deposit (£150k each, for example) so you have a clear idea what you think you need at key point. It will give you a better start point for some professional advice if your able to be clear about this.
OP, sorry about your partner - it must be hard. Definitely seek the advice of an IFA.
I agree with what travail said. Live on salary as much as possible. You don't have a mortgage and unless you are paying school fees, it should be do-able on £35,000 a year.
You might have to start to dip into capital when your dcs each reach university age. In the meantime, to get a good income, because interests rates are so low, you would probably be advised to invest in a portfolio of bonds, money market, blue chip shares that pay good dividends. I don't think property is a good investment in your circumstances, unless you have a lot of cheap easily rentable stock around you. It is a relatively high capital high maintenance investment with fees and taxes that could eat into your rental income. But do get proper advice on this.
Look into buying investments within a tax wrapper like an ISA (currently £20,000 a year). If you are looking to give the money to your dcs when they are 18, you can also use their JISA allowances (currently £4,260).
The fund manager will advise you based on your risk appetite and your investment horizon, which in turn depends on when you need big amounts of cash like for uni fees, property deposits.
Nothing is a guaranteed winner. If you have that at the back of your mind it helps. No one can predict the future (eg London house prices) no matter how much you pay your advisor they don’t KNOW how things will pan out. But the advisor will ask about the amount of risk you want to take, the idea being more chance of higher profits with high risk investments, but they have a higher risk of dropping suddenly.
In the end you’ll be told to spread investments over different things. So maybe property, ISA, investment fund (which often has company shares underlying it), NS&I which is guaranteed by gov but is for small amounts. And there could be restrictions in when any investment can be cashed, might you need the money in a hurry?
I bought a flat to let 10 years ago, it has dropped in value by 12,000 £ however over that time I have made 57,000 in rent, so it has lost value but made me 5,000 a year before tax (tax is another consideration). Was It a good investment for my money, who knows!
Thank you all so much. That is a good starting point. My income will increase but obviously for the foreseeable future I will prefer to stay where I am employment wise so I can concentrate on the children.
I am hoping that I won’t be dealing with this for a while but having some ideas clearer in my head is helpful. Whatever happens I am reassured that the children won’t notice much of a change in the practicalities of every day life.
Spend time talking to investment professionals until you find one who will teach you how to do things not just push ideas. Learn as much as you can yourself, so you don't get taken advantage of by anyone - Meaningful Money podcast and investment articles in the Telegraph and FT could be starting points to help you learn the basic principles of investing and the language/terminology used.
Generally you want to minimise costs whilst getting a good return whilst taking a balanced risk approach.
It does not sound like you need the income produced now, do you really need £2k a month? Accumulation funds will help spread risk and they reinvest the return automatically.
Learn as much as possible, find a financial advisor who is prepared to teach you not just manage the money for you. Only do things you understand - so go slowly at first. No playing roulette with the money putting it all in the latest crypto craze!
I spend a lot of time talking about sustainability of income (pensions) and we use lots of modellers to ensure the balance of investments can provide the required income over long periods - 35+ years.
It is important to ensure that investments have enough 'engine' i.e. Global Equities and that you don't hide from volatility (risk) in safer but less productive investments. This is all part of the IFA's job.
Look for advisers that do this ALL THE TIME. Do not use a generalist adviser that sells mortgages one day, insurance the next and then talks pensions. You want a pensions only adviser. Chartered ideally and CERTAINLY not linked to St James's Place (just do not do it, they are expensive and tied to their own products).
Good IT systems to support what they are saying (Timeline, Voyant) and not just 'finger in the air'/'blind faith' is good.
Be wary of their charges, but don't let the charges dominate what you do. Some income funds with good natural income can be more expensive, but their performance is worth every penny.
One strategy here would be too simplistic (tax planning for a start), so this will take time. However as a blunt rule of thumb we tend to use 4% as a sustainable income figure as a guide.
Good luck OP a tough time.
Speak to and meet at least 3 advisers. Ask them what and how they would do this. In short interview them, it's a big job.
Thank you all again. I’ve been warned off St James Place before so they’re definitely off the list. I’ve also been told that 4% return on investment is what I should be aiming for. As I say, I hope I don’t need to go down this route for a while but it’s good to be a bit clearer in my head how it might work and I’m eternally grateful that amongst this hideous illness and change we won’t have money problems.
Are you married? If not there may be large amounts of tax that you need to pay.
Yes we are thank goodness so no inheritance tax
The life assurance is tax free up to £1m, his work have confirmed that too
Rest of the advice is very sound ... only thing I would add is, while it's correct not to let the charges "dominate", the charges are very, very important, because they can add up to a lot. Fees of various types can easily end up eating 3 to 4 percent of your money every year. If you have a balanced portfolio, that can easily be more than half of your total returns.
For any proposed investment, you need to know all the layers of fees and how much they are charging for each of these:
-fee for personalised advice
-asset allocation wrapper fee (especially for "fund of funds")
-fund management fee
-trading costs borne by the fund
There are probably others I am missing. If each one is between 0.2% and 1.5% of your assets, then when you add them all up you can easily end up paying too much of your returns away to the various advisors, managers and intermediaries.
Thank you very much. That’s also very valuable information
So sorry this is happening to you OP hope you and your children have lots of support during this horrific time.
I second what YankeeDad has said, be very careful of the charges. We have invested similar amounts to what you will be investing and are diversified into equities, property both residential and commercial, gold, wine etc. We have both made and lost money. I think that’s important to remember: all investments have inherent risk and no financial advisor can tell you otherwise.
Thank you, we both have large and supportive families and so we are very lucky that we can concentrate on our own family and skywards to rebuild our lives with their support knowing that day to day the children’s standard of living won’t be compromised too much
I think the worst assessment of charges I've seen is there can be up to 17 layers. I can't begin to unpick them, truly mind boggling.
I should clarify. Don't pay too much for an IFA 0.5% trail is enough (whatever some might say). Funds range from 0.1 - 1.5, not many at the top end are worth it, but some are - that was really where my comment was coming from.
Wealth managers and DFM's are another layer which, if they are just buying funds are not worth it. Some good ones with direct equity holdings earn their keep.
Platforms are possibly another charge and with a big fund don't pay more than 0.15%. This will need negotiation.
Make sure whomever you use has other clients with >£1m.
Most DFM's charge a lot but can't beat inflation +2% over 10 years. Expensive window dressing
shutupsidney and yankeedad, you sound like you have a financial adviser background. Interesting to read your viewpoints.
I try and do it DIY rather than via an IFA or wealth manager or DFM. My lovely IFA at Edward Jones disappeared with the Towry buyout and I have not found another one I trust. I don't have enough assets as the OP to have a wealth manager or DFM but would avoid them anyway because of the charges. The very same reason why I would avoid St James' Place.
How much would a wealth manager or DFM typically charge?
From the perspective of a novice with no time or inclination to track their investments, I would have thought that you can get build up a portfolio that gives exposure to most equities, bonds in various markets and industries and sectors through funds (including exchange traded/ETFs), with a strong emphasis on index funds for the lowest charges. Perhaps not more exotic investments like wine or art but a good backbone.
I came across the Vanguard LifeStrategy Funds and thought they were a cheap and good value for the breadth of exposure.
The terms 'wealth manager' is often adopted by an IFA who thinks he's more than he is
well it is usually a bloke Often you tend to pay for this fairly handsomely at ~1%. I feel that you will be paying over the odds.
DFM's are also often 1% up to £1m however an IFA with a strong relationship will often get their services for less. Certainly 0.75% on the first £500k. The key here is not to pay for a fund of funds manager. You can find investment houses that do a better job, and effectively do the same thing.
I monitor the performance of the funds and managers I use on an inflation + basis. They like to create all sort of benchmarks, often using their peers performance! My response on that is 'that just makes you first amongst morons, how does that help me'. Data is essential though and this is often overlooked when people are funnelled into stuff on services such as Hargreaves L.
I like Vanguard Lifestrategy and use it a lot. I also use it as a bench mark for my DFM ' if you can't beat this, why am I paying you'. He's good, he does and I wouldn't chuck him out on a bad year as he has a long track record.
My DFM is good at getting money into the market. Large amounts going 'in' carry a level of jeopardy. I want someone good, with speed, and liquidity. They are good for CGT burdens and other tax issues. They can tailor a strategy for engaged clients. Often IFA's hide behind them IMO.
Sometimes an IFA can save you from yourself. Too much trading, not enough granular detail on legislative issues that will impact. Opportunity cost of misaligned investments. No re-balancing. No disinvestment strategy. No income strategy separate to a growth strategy.
However all said and done it's about ensuring you are getting enough global equities into your portfolio, not getting too distracted by all the other asset classes. Risk is a funny thing, it's too great a distraction in most cases, but most retail clients get too bogged down in it, driven by a focus on downside risk from the top down (FCA)
Anyway, packing up my soap box!
Shutupsidney that is interesting to read. I am not sure I understood all of it totally but good food for thought.
What do you mean by "ensuring you are getting enough global equities into your portfolio, not getting too distracted by all the other asset classes." Should global equities be the main engine of a portfolio. What are the other asset classes that should not distract. Would you include property in that?
Engine is a good word, yes indeed the bigger the engine the better. I don't mean don't diversify into other areas completely, but the pure investments, should be just that, real assets
I'm sorry this is happening, I'm sure this must be a difficult time for you. I'd look into low cost index funds such as Vanguard LifeStrategy etc. A good rule of thumb is applying the 4% safe withdrawal limit. In studies it has be demonstrated that investments in the stock market can generally be withdrawn from at a rate of 4% per year for a lifetime, with investment growth pacing inflation and the money never running out. Given that you are still working you could adopt an equity heavy portfolio now for rapid growth and use a declining glide path approaching the time when you'll want to use the investment income (just as most pension providers do).
You seem to be sensible in your approach to this money however it is worth stating that while this is an amount which can seem like a lot at first, it can go quickly if used improperly. I imagine many people would be staggered at the value of investments our family hold, however we are aware of the importance in having a large financial safety net.
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