650K inheritance -long term investment -stable growth

[mids2019]

Hi

I have an approximately £650K inheritance and was wanting tips on how to manage it. Probably the majority is going into equity.

I suppose one question is the level of risk of investment given it is reasonably long term and we don't need the money immediately.

Another question is how many people would set up trust funds for children out of this size of inheritance and is it worth it for this kind of amount?

Do you not have a financial adviser?

My tip would be to get an independent financial adviser involved to assist - for that chunky amount of inheritance, you need a short medium and long term plan based on your risk appetite. That needs professional help.

lol @Scottishgirl85 for £650K you'd hope so wouldn't you.

I do have one actually but it is interesting to find out how other people view inheritance. I suppose it's more of a decision about the length of investment time in reality and how safe we want the investments to be.

£650k is a pretty chunky amount of money, and enough to secure a comfortable life going forward, if you get things right.

I don't know your circumstances: age, marital status, children, debts, mortgage, pension arrangements, etc. all of which are crucial in devising a suitable plan. So probably some professional help would be useful.

But...

What sort of help ? There are broadly two kinds, which people muddle up:

Accountant versus Financial Advisor

I suggest that an Accountant's advice (paid by the hour) is invaluable, as they will be able to steer you into tax-efficient and economically-sensible strategies, such as paying off debts (and maybe mortgage), maxing out and organising pensions (with beneficial tax breaks), investing tax-effectively (ISAs), providing for kids (Junior ISAs, pensions), explaining why trusts are expensive and complex overkill.

Financial Advisors are a different and dubious breed. I don't have the word count here to go into everything that's wrong with FAs, so I suggest you look up "St. James Place" to read about all the shenanigans that FAs get up to; the root problem is that their interests are certainly not your interests.

After 40 years of personal investing I can say this:

1. a twenty-something commission-hungry flat-sharer wearing an M&S suit cannot beat the market, no matter what they tell you. When FAs try to sell to me, I like to torment them by asking for a photograph of their presumably big, luxurious house, as would befit a master investor

2. it's almost impossible even for professional Wall Street types to beat the markets, so the best approach for all normal small investors is to buy a low cost global index tracking ETF, and let it run unmolested. Consider, for instance, Vanguard All-World UCITS ETF (VWRL). Look up "John Bogle" for extensive justification and history of godfather of this philosophy.

3. Consider the implications of the often-confused concepts of "risk" and "volatility", and how they interact with time. Equities are surely volatile in the short term (say up to 5 years), but equity returns smooth out over the long term (10 years+). Conversely the "risk" of your investments dwindling due to inflation if held in cash or bonds approaches 100% if held for the long term.

4. In investing there are two factors that you can control: tax and fees, and two that you can only do your best to manage: risk and returns.

What life stage are you and your kids? I would be wanting to clear debts, mortgage and be able to fund the kids starting out e.g. uni, have savings for future big expenditure like replacement cars, roof, boiler etc. and be clearly on track with a pension and generally being able to afford old age. Only after that would I be helping the kids.

I would also not actually help out the kids beyond normal small amounts until they established themselves in their work and had experience of supporting themselves financially.

A trust isn't worth it for small amounts.

Very good advice from @urbanspaceman2023

Definitely need to know some basic info though before specific advice

Age
Salary
Marital status
Kids
Mortgage
Debts
Savings
Outgoings
Ideal retirement age
Lifestyle aims etc...

How old are your kids and how many do you have.

Are you and your partner/husband happy and likely to stay together?
We had similar cash spare for our kids but just put it in their isas/savings when they were old enough and transferred more money to them when they wanted to buy houses. We didn't see any benefit for a trust. The are costly to set up.

Shit hot advice IMHO

Good advice from the previous poster. If your time horizon is more than 5 years and you don’t need to access the money then a global equity tracker is the way forward. Most studies suggest that 80% equities / 20% bonds provides most of the upside of equities but also protects (to a degree) against the worst downside of a big market crash.

IFA fees are ruinous to your returns, as are the last form fees of some of the big names. Using ETFs rather than funds usually helps keep fees to a minimum.

Thanks

I inherited this sort of sum a few years ago. It took a couple of years to work through the plan - but managed to do it all without paying tax on interest (highest rate taxpayer). Paid off 20% of massive mortgage (the limit without fees), topped up isas / jisa’s for family, Made voluntary pension contributions, financial adviser put the balance in a general investment account and then we did all of the above again in year 2. Then prepaid 5 years of school fees for each child - not to avoid vat (!) but there was a sliding discount for each year getting up to 12% for year 5. Finally put the balance in premium bonds to pay for house maintenance and a couple of years worth of holidays. I would It that rather four members of family were still alive, however.

the ISAs and pension funds have been managed by the same financial adviser for 15 years and they have always outperformed various indices. A very mixed global portfolio carefully adjusted to our age and risk appetite - but we defer to the IFA’s advice completely as the track record speaks for itself.

Have a listen to meaningful money podcast, they have got loads on there about investing. You might still decide to use an advisor (I probably would with that pot) but you will start with a good understanding. There's also a website and an academy with lots of info

urbanspaceman2023 That’s excellent advice.

We’ve had a few years of very good bonuses, inheritances etc. and have never felt the need for an IFA.

We quite often get contacted now by ‘wealth managers’ asking to spend our money for us in anything from hotels to fine wine investments. None so far have convinced us to move from medium rush tracker funds spread between the US with a bit less in Europe and Asia. We can choose the sectors (or choose not to invest in guns and fags) and have done very well.

In terms of trusts for the children. I think the main benefit is making the money "not yours" if you divorce or die, and that a trust can be set up so the children don't receive it automatically aged 18.

Trusts can be complex, vulnerable to future legislative change, and have various fees associated. Alternatively you can invest the money yourself and gift it to your children at a suitable time.

If you are planning to invest the money for the long time then a high equity allocation in diversified stocks is a sensible choice for long term growth, for example funds tracking the ftse all world index as recommended in the very good post above.

However this will be volatile. If you haven't invested sums like this before do ensure that you are prepared for this! It's easy to say "oh I know it's volatile , I'll calmly hold my investment if it falls 10/20/30% and wait for it to rise" - but harder in practice!

You don't automatically need a financial adviser for this sum. Actually the best reason to consider one would be for behavioural reasons. If you don't have the stomach to invest the money appropriately and might panic and sell if your investment falls.

If you do consult an adviser I would look for a chartered financial planner who can work out how your pot will grow over time in different investments, rather than an adviser who may just sell you products. And ideally have it in investments where you could later manage them yourself if you decide you don't need the adviser anymore.