What to buy and whether to wait? Torn in all directions :(

[Rebellingwithacause]

My head is in a spin, I inherited amounts over the last few years ago that are now enough to invest in buying either a small one bed flat in a boring (local) part of London or a 2 bed house about 100 miles away. I already have my own home.

I have felt paralysed by this money since receiving it but know I need to be very sensible with it as am close to retirement, there are no more pots of money coming and I will be on a very limited pension.

Lots of properties have been viewed over the last 18 months but I’ve been so undecided.

I now need to move quick, if at all, on a flat I have seen. Ex council but on a very nice, otherwise private, road. Fair price, low service charge, lease over 100 years, and I reckon after charges about 5% annual return if rented. I know flats are falling much faster than houses at the moment and savings interest rates have risen, so I am torn. Do I buy or wait?

Pethaps there a better place to make this money work for me? So as not to drip feed the we are talking in the region of £220k.

A twist in the tale is that I have an adult child who has been estranged from me for some time. I would love to know they were settled and would happily hand over a property for them to live in, if the opportunity arose (sadly, it may not arise) This may involve selling the investment, so although that would mean potentially losing money, I feel I need something flexible. Just giving them ‘some money’ would not help as they wouldn’t be able to get a mortgage.

Remmeber to account for tax, void periods and maintenance.

There’s quite a lot of reasons to avoid becoming a landlord, especially now interest rates have gone up and are still rising.

imho.

Thanks luciferslight that’s my understanding too but no idea how else make this cash work. 🤔

I would use your inheritance to enhance your pension income in retirement. But not with buy to let - too risky, too much hassle and no liquidity.

I’m not a financial adviser so these are just my own ideas, but I would do the following:

Maximise cash ISA investments in the best interest paying savings account you can find. Add to this each financial year - it will give you a regular income, or allow the interest to grow and compound.

Maximise your pension contributions into a personal pension, to benefit from the 20% additional tax relief.

Open a high interest non-ISA cash savings account and contribute the maximum up to your personal savings tax allowance. For most basic rate taxpayers that’s £1000 interest, so at 4% it’s about £25K in savings. If your income is below £17K you’ll have a higher allowance so could put more in.

Open a General Investment account with a low cost provider - such as Vanguard for the remainder of your inheritance. Dividends have a £1000 tax free allowance this year. Profits beyond this are taxed at 8.75% (as opposed to 20% on savings interest) for basic rate taxpayers.

Instead of investing in bonds or shares, choose a short term low cost Sterling Money market fund…For example, Vanguard Sterling Short-Term Money Market Fund buys short-term debt from governments, banks and companies with strong balance sheets and high credit ratings. This then pays a small return as interest.
This makes a money market fund a stable, low-risk investment because the short timeframes mean there’s less uncertainty and high liquidity. It sounds daunting if you haven’t invested before but it’s very easy to do.

All of these are likely to provide a regular additional income in retirement.
Once you have retired, keep an eye on annuity rates. They have been poor value in the past due to low rates but as interest rates are rising, they are starting to become a viable option for a pension pot for some, and pay out a guaranteed income for life.

Once you have a secure additional and regular source of income established I would then consider how you would like to assist your relative, with income from your capital- without impacting the capital sum itself.

I am really sorry that you are estranged from your child and it must be incredibly difficult for you, but I really hope your child doesn't turn up once they know there's a chance of them getting a home for free. 💐

Wow - thank you a lot of food for thought

It’s a very complicated situation but I think that is extremely unlikely. It’s one thing being estranged but another worrying every day about what sort of living situation they might be in.

@determinedtomakethiswork why does it matter if the child makes contact if they think they'll benefit from a free property? If it means there is some communication between OP and her child that could possibly lead to a better relationship then it's a good thing.

And if not the OP still has peace of mind knowing her DC has a roof over their head.

@seekingasimplelife could you give some ideas on what funds to invest in in ISA/GIA to receive good dividends? I'm looking to invest some money to provide an income and don't know where to start. Thank you.

@Amboseli
I’m not a financial advisor, so I can’t recommend specific funds to invest in for you. So much depends on your circumstances, age, financial goals, attitudes to risk, and willingness to research and manage your own investments.

I would, however, encourage you to do some research - this article from Moneysavingexpert is a good place to begin, and outlines some basic principles of investing and how to start:

https://www.moneysavingexpert.com/savings/investment-beginners/#needtoknow-5

Also, if you’re looking to provide a secure income, and given that interest rates are rising - don’t discount using your cash ISA allowance and personal savings tax allowance. Personally, this would be my first ‘go to’ step before taking on more risk on the stock market.

I like savingschampion which provides regular updates on best savings rates

https://savingschampion.co.uk/

@seekingasimplelife thanks for your reply.

I'd say I'm not a complete beginner investor, I have a SIPP and stocks and shares ISAs.

I just feel I've made bad decisions in the past with investments and lost money although I haven't sold anything so it's a paper loss.

I am fairly confident my investments will recover but no idea how long it will take. I'm wondering whether to keep investing in the same index ETF that's gone down, to buy cheaper units to offset the units I bought at a high price which have subsequently gone down 5%.

Or invest more in my other funds which are doing well but not enough to balance out the loss because the proportion of money in the loss making investment is a lot higher.

I won't need the money for 9 years and it turns out I have a fairly high risk tolerance as I didn't panic and sell when prices went down! I have read many people end up buying high and selling low because they can't sit and watch their investments go down which is perfectly understandable.

I know things usually recover but I've read about times when the market has taken many many years to recover which is what I'm worried about.

I feel we're in a completely different economic landscape compared to the past 15 years of low interest rates so what worked and did well in the past won't necessarily do well in the future. Eg. US stocks. And perhaps Asia might do better over the coming years.

@Amboseli Just thinking about your two posts…financial goals seem a little unclear.
You ask initially about dividends for income. The next post seems more focused on growth.
But what jumps out at me is the 9 years. I do think that’s a relatively short timeframe for investments.

You might recall recent news articles about the internal performance review of Fidelity accounts to determine which type of investors received the best returns (2003 to 2013). Auditors found that the best investors were either dead or inactive. That old adage ‘Time in the market’ is more important than ‘timing the market’ is pertinent, I think.

@seekingasimplelife My thinking probably does come across as muddled maybe because I haven't given the full picture.

The reasoning behind investing in dividend shares or funds is because I've read and seen that growth stocks have not done well since interest rates have gone up because they need investment to grow and when money was virtually free with low interest rates and QE investment was plentiful but now it's dried up and everyone has switched out of growth stocks. Unfortunately I didn't switch out myself hence sitting on a loss in a couple of funds.

Now the stocks that are doing well are those that don't necessarily need investment but are established and profitable in a higher interest rate environment and these seem to be dividend shares. I've seen this in practice with my own investments where the equity income funds are doing well but the growth funds have lost money.

I agree 9 years is a relatively short time frame for investing but my plan is to split my pension into 2 separately invested portions.

I'd be interested to know what you think.

I am going to keep contributing to my SIPP and workplace pension and invest in 100% equities until 2027. Although my problem is I don't know which funds to invest in.

Then from 2028 to 2032 my contributions will be invested more conservatively into bonds and then money market funds closer to 2032.

Then in 2032 I'll liquidate the bonds and money market and take it out of the pension up to the 25% tax free allowance and leave the equity portion to grow. I won't need that portion for a long time if ever as I have BTL property income which DH and I will live off in retirement.

DH is going to do the same with his pension.

In my head the plan makes sense but maybe there are things I haven't thought of which could scupper things!

@Amboseli . Just my own thoughts and not financial advice…
It sounds as if you’ve had confidence in devising your financial goals and strategy to suit your circumstances. The current turbulence seems to causing some doubts about your investments.
I would say there’s a difference between risk and volatility. Most investments by their nature are somewhat volatile- they will rise and fall in value in some months and years. Even bonds - usually the safest and most stable of investments - have been having a rough time of it over the last year.
However, over a longer timeframe, there seems to be some investments that show consistent growth above that offered by savings interest (if they can’t beat savings over the longer term - what is the point of risking money in it).

Warren Buffet - the most successful of investors - in a 2014 letter to his shareholders, said,
"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. I suggest Vanguard‘s. I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions, or individuals—who employ high-fee managers.".

Now, financial advisers might disagree with the 90/10 split as you approach closer to retirement. But there are some fundamental principles that might be useful in his advice:
High fees from managed funds have a big impact on growth over time.
Drip feeding into an index fund of well established companies and leaving the investment to grow over time ignoring short term fluctuations, has avoided the dangers of trying to time the market. Historically it has been viewed as a successful strategy for the individual investor, but of course no one can predict the future. There may well be other funds that are more suited to the UK investor.

@Amboseli You mention you’re unsure which funds to invest in with your SIPP -
Have you investigated if a robo-managed portfolio (that uses an automated process to create a portfolio that aligns with a client's appetite for risk) might be suitable for you?

This article on Vanguard’s LifeStrategy Funds might be interesting,

https://moneytothemasses.com/saving-for-your-future/investing/vanguard-investor-uk-review-is-it-the-best-in-the-market/amp

Wealthify (owned by Aviva) also run along the same principle. Wealthify have a questionnaire to assess your attitude to risk profile.

https://moneytothemasses.com/saving-for-your-future/investing/wealthify-review-is-it-the-right-investment-choice-for-you/amp

The appetite for risk determines the ratio of equities to bonds within the selected portfolio, and the equities are mostly a selection of index trackers, I think. This enables the providers to keep fees low-cost whilst aiming to provide a balanced, diversified portfolio.