Confused about my options and level of risk

[viccat]

I'm soon going to have about £225k to invest (have stopped being a landlord and due to complete on the sale of the property shortly).

I've had an initial meeting with an IFA but I'm still confused.

It's important to me to not lose the capital although I won't need access to the majority of it for at least 5 years, potentially not until retirement (unless something unexpected happens). I know the current high inflation means there's a real terms loss anyway. But I'm partly tempted to just divide £85k each into a few 5% savings accounts to know at least I'm gaining a little each month and my capital is safe... Maybe a little in Premium Bonds for the chance of bigger wins.

For better returns though, how do I know what level of risk is OK to take? The financial landscape feels so volatile right now and despite having this money, day to day I actually don't feel I have money.

I'm otherwise on a low-ish income and single so don't currently have anything left over month to month other than a small emergency pot of money. Really felt the cost of living rise in the past year. Will be completely debt free after the property sells and I pay off the BTL mortgage and about £10k other debt I currently have. I own my home although it needs some work doing it to as well (necessary not cosmetic). I'm 40 and would imagine doing some part time work well into early 70s at least due to the sector I work in and tiny pension pot.

Did the IFA not assess your risk profile in your meeting? We use a questionnaire that is designed to try to measure what is essentially an emotional thing, plus we look at your capacity for loss to assess what you can or cannot afford to lose.

From what you've described it sounds like you may be risk averse (not willing or able to stand any losses to your capital), in which case cash-based savings/investment products are the answer.

To chase higher returns involves taking a gamble. What level of returns above the 5% or so you know you can get from low-risk cash are you looking for? How would you feel if you lost, say, 20% in the pursuit of those higher returns? Would you have the stomach to stick it out for the longer term in the hopes of those losses being reversed?

Is the 225k after you have paid the debts, and done the work on your house? Because those , plus a cash fund of 6 months expenses, are the first things to do.

Honestly, with that level of money and timelines, I would seriously consider putting some of it into a stocks and shares ISA. 20k this tax year, 20k next tax year, and that is less than a quarter of it. If you put it into a fund that e.g. tracks the FTSE 100, you are likely to be able to withdraw when it is in profit, as you will have cash to use if the stock market is low at that point.

You seem very risk adverse, yet you had done a BTL which is fairly risky - tenants may not pay, may destroy the property, the property value may go down. You were able to accept the risk with BTL.

Could you risk a little of it, say £20k? By having some money in the stock market it helps to see how it works. Yes it may go down initially but looking over 5 to 10 years it should go up. Looking longer term, based on historic figures, the stock market goes up. The past performance does not mean the future performance will be the same, but businesses will still produce things and people will buy them, so businesses should grow over the long term.

Inflation is the problem. Interest on cash does not beat inflation, so in real terms the money goes down. Investments may not beat inflation some years, may lose a lot some years, but may gain a lot some years. It is taking a risk, but it is like your BTL... you took a risk and it may have been good, or not.

To help understand how the stock market works and risk involved, could you read some books, watch videos, listen to podcasts? That may hell you to talk to your IFA about your concerns and understand what they are telling you .

The Meaningful Money Handbook has about 1/3rd of the book about investing and investment risk.

The Simple Path To Wealth is about investing globally in an index fund so you spread the risk of companies failing and the growth around the globe, so you get the returns of the market. You back all horses in the race, not just one and hope it wins.

You mention a tiny pension pot, could you put more in that? Are you happy with how your pension invests and the risk it takes?

In terms of day to day money, you would have a 6 month emergency fund, maybe even higher if in an insecure job. That money loses to inflation but gives you the security of being able to pay the bills.

Podcast about risk, which also has links to other podcasts about risk.

meaningfulmoney.tv/2018/05/16/risk-first-principles-5/

That also has a link to a video about Risk Flex. That is more for when in retirement but you could do it whilst building wealth. Money that will not be used for several decades could be invested at a higher risk level than money which you would use sooner.

I would look at using the money to pay debts off first, then necessary spending on the house, then checking state pension payments are up to date.

i have had premium bond for many years and although fun, have never got even 5% from them. I would probably look at low risk Isas if investing, either growth or income as you need. Check out Willis Owen and suggested funds you can invest in directly and learn about risk and sustainability ratings. Bank savings have good rates if you can fix for longer. Keep in mind rolling over the income and the max. protected total.

the principle of spreading your risk means you don't have to just pick one investment to improve your return. So you could feasibly put £50k maximum holdings into Premium Bonds, which gives you easy access, called liquidity, for an emergency.

you then have a meaningful amount to invest into an ISA portfolio which is a wide range of stocks and shares (in many well known companies) with a variety of risk profiles. This can be done through an investment company who would manage your portfolio and maximise your investment based on world markets, economics etc. you pay an annual management fee but it's worth it for the gains you get and they should arrange an annual meeting to discuss your investment. This would need to be a medium to long term commitment as the stock market will undoubtedly fluctuate month on month, year on year but over the long term the trend is upwards. Your IFA can advise you on this option.

Did the IFA explain about firstly topping up your pension? There's 20% back immediately, plus some growth over time.

Make sure state pension payments are complete and you can’t pay for an extra years. Contact NI for this.

I would also invest a little in the stock market. Should balance out the inflation linked losses you’ll see from the premium bonds, at the very least.

You'd want to maximise your ISA allowance of £20,000 per year over several years if you went with the stocks and shares portfolio, and provided you stay within your Capital Gains allowance you could withdraw some money in the future without having to pay CGT. It's all about being tax efficient within the rules when you have that amount of money but that's what your IFA can assist you with.

@CatsOnTheChair Yes, it's after the mortgage and debts have been paid off and some money set aside for the immediate work on my house/a tiny treat fund for me after what's been an incredibly stressful 6 months with a nightmare buyer selling this property... I'm just waiting for my accountant to finish the CGT calculation so I know what I'm left with after that.

@nannynick I got into BTL because I used to live in the flat and had to move due to some changes in my life - at the time it made sense to keep it to rent out. It's in a great location in a big city so wasn't particularly risky in terms of value or not finding tenants (although I sold for £25k less than the valuation I had when I last remortgaged, but that was of course hypothetical). I actually sold because BTL was starting to feel riskier now as I couldn't have been able to afford sudden expenses on another property as well as my home (both needing a new boiler within a few months, for example). There's a lot more complicated history to all this including losing a parent when I was 20 and an inheritance...

To those who asked, the IFA said we'd look at risk profiles in our next meeting. I spoke to him at a time I was just about to put the property on the market and was feeling wobbly about making such a big decision in a falling market. He mostly took me through the modelling for the two different scenarios and what they would look like for the rest of my life (selling the property and investing the money, or keeping the property as a BTL).

I will look into pension options, too. Just a bit cautious about locking away so much money at this point because I'm very aware there will be large bills to pay at some point in the next decades (something like a new roof for example would be a lot to pay on one income - then again, maybe I won't be single and living alone forever either).

Would be willing to take a higher risk with a smaller amount and perhaps reassess in a few years. I think I'm just feeling wobbly currently due to some other issues in my life so there's a part of me just wanting to tuck it away somewhere safe and relax for a while.

As an added complication, a lot of my other income comes from self-employment. This time last year there was a lot more work but thanks to the general shitshow of the cost of living crisis, there's now a lot less demand so I'm earning less. Have good earning potential if the general economic situation improves, though. I also have money set aside for further training already to improve my career in the long term. And have just applied for a job as an interim help!

Sipp.
Self invested personal pension.
Pop as much as you can in, use fund that holds a lot of companies across a lot of sectors.
Eg vanguard sp 500 us, you will own a little of apple, amazon and so on. I would get at least 30 grand in ASAP

Open stock and share isa... 20 grand per year limit i would get 80 in there then leave it.
Max out pb.
Have you some in high cash savings easy access as emergency / car and some in normalise cash.

Give yourself a treat budget for next ten years eg how much extra per year would makes your lode easier.

The idea is tp wrap yourself in different pots of money and you dont trust the isa stocks that's your capital to re grow. Hythe time you retired you shoud be able too draw a small ok come from it

When you look at risk it means different things.

Eg I hold 100 equity eg stoks and share vanguard life.

That's called high risk.

I don't see it as high risk as such though because it's got vast investment in lots of different companies in different sector.

To me High risk is something that is fund manager run investing in only a few companies. With high fees.

Using a pension plan with your own money - you can withdraw at anytime - plan held with companies will have rules about how and when you can take the money out.

as this is your own cash, don’t dismiss it - some have an app where you can transfer between companies with high med low risk and watch your funds grow.

Using a pension plan with your own money - you can withdraw at anytime - plan held with companies will have rules about how and when you can take the money out.

Money put into a new pension now cannot be withdrawn until age 57 at the earliest.

Sounds like next appt with IFA will clear up a lot for you.
Do you own the property you live in now?
Assuming you own outright now,

If you never saw IFA again, my gut feeling would be something like divide it into thirds.

£75k, 1/3, into a moderate risk but multi-shares investment fund, plan to leave it there at least 5 years.

£75k into pensions &/or gilts or similar (zero-low risk and mixed yield effectively) plan to lock away for a long time, these are only pots you couldn't access easily). MNers love Premium Bonds but we got nothing from them, so not a fan myself, but would be part of this third, as a 'low risk' option.

£75k into fixed interest, easier access accounts, cash basically, maybe a mix of instant access, 1yr, 2 yr & 5 yr fixed interest.

Assuming your house doesn't burn down with no insurance & your income continues at minimal levels & the roof doesn't completely collapse, how much do you think you might need to spend in next 5 years? How much do you think you need to have easily accessible?

MNers love Premium Bonds but we got nothing from them, so not a fan myself, but would be part of this third, as a 'low risk' option.

just to add, MN is made up of individuals, a few of which are on MN PB thread chatting about winnings incl months when we don't win anything, inc holdings (which is very relevant) if people choose to disclose that. That makes it a balanced informed view, not "MN love Premium Bonds".

at the moment, due to the interest rate increase the Government has increased the number of prize opportunities across all prize amounts so it is keeping up with the economic times.

an illustration, and the reason I have suggested PBs as a useful option, I have won almost £900 on full holdings in the past 6 months (5 bond numbers coming up one month), which doesn't include £5,000 I won in the past year. You do need to be on full holdings to have a high likelihood of consistent winnings month on month. @viccat is in a position to choose PB as the low risk option with £50k available, and would likely get a similar return to mine, but no guarantee.

Talk to your IFA about what you have done in the past, how you now feel the BTL was getting more risky and thus sold it. Have them teach you about how money can be invested such that you are happy with the risk taken. You want reward, that comes by taking risk. No risk, no reward.

You are self-employed, so you want a big cash buffer. You want to know that you have money you can spend when you need it. So if you have a poor month of income, you can dip in to your cash reserve.

I agree with the previous suggestions about putting a reasonable percentage of the money into a stocks & shares ISA. Up to £20,000 per tax year (minus any amount you might have added to a cash ISA in the same tax year).

I'd then invest in a mix of funds and/or some low risk dividend-paying shares. Over the medium/long term, this should be a safer option than just leaving everything in cash. The downside of keeping everything in cash is that it gradually depreciates as interest rates are quite a bit lower than inflation.

I'd look into opening an ISA on the Trading 212 app. It's UK based and regulated. Big advantage for me is that there is no platform charge and no fees for buying/selling shares & funds. These charges can really add up with some of the alternatives. Very well reviewed too.

If you are interested, you could use my referral link to get a free share worth between £8 and £100 (more likely the lower end, I got a €10 share in Orange. Could be lucky though). I wouldn't recommend it if I genuinely didn't think it was a good option though. Link or use code 16bjA3Ceso