Creating a passive income from £300k while daughter establishes performing arts career?

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Our daughter (22) is in her final year of drama school and will emerge next autumn into a highly competitive, notoriously underpaid industry where the odds of success are low!

However, she's extremely fortunate to have an inheritance 'pot' of c. £300k as a result of her grandparents' deaths. It's currently held in shared property (about to be sold), S&S ISAs (mostly global index tracker funds), and fixed-rate savings accounts.

She's very sensible and level-headed about money, and we've already talked about how to make this money 'work for her' to support her so she can commit time to establish her career and only have to work part-time. She will also be able to live at home if she wants to save rent in the early phase.

Any thoughts on the best way to generate a small income from this without reducing the capital value too much?

We're already wondering whether she should start a pension, even if she doesn't earn enough to put in more than the bare minimum?

If she's living at home, surely an income from part time work will be enough to support her? She shouldn't waste her inheritance on living costs at this stage in her life.

My DS is in a similar situation.

The money is in a mix of instant access accounts - I use money saver to keep track of interest rates and which is best

www.moneysavingexpert.com/savings/savings-accounts-best-interest/

Some is locked away in three month notice accounts.

ISAs don't make a difference as he doesn't earn enough to pay tax.

Pension is going to be her long term issue as she's unlikely to have any workplace pensions in that career and all the singers I know have very little set aside for retirement.

So I'd siphon off a good chunk of it to seed into a private pension for her, at this age that will increase nicely over the long term and give her a good start for pension.
The rest then I'd invest in very reliable bonds as she will need it for a deposit, again very hard to get mortgages on performing arts salaries so having a substantial deposit for a property will be really useful for her.
I'd try not to eat into it or use for yield to fund living expenses is my view

Yes, but it's not just about living costs. When you're trying to establish yourself in an artistic profession you often rack up all sorts of costs related to putting yourself out there. You often have to work for free while incurring costs such as travel to auditions, professional memberships, additional training, costs of putting on your own shows etc.

We're really talking about generating an income for her to invest in herself and her career in the early years.

Why not invest it in property? Get a flat (or a couple, not sure where you are located so this may be an option) and rent them out. The property(ies) will hold their value and she will benefit from the rental income in the meantime.

Yes, agree about pension, although with no income she could only add £2880 per year I believe?

Certainly it seems she ought to join the Equity pension scheme as if she ever gets work with the BBC / certain theatre and film companies they pay more than the statutory into it?

She could invest them across a range of bonds and equities. In an average year (no black swan event) that could generate about 15k to 30k of returns.

Im thinking this too. She's really going to struggle to get a mortgage without a job that is consistent and long term. Depending on where in UK she is as she will need to be around a similar area to ensure the properties are maintained or if you can help her then she could buy anywhere in the UK and get a few properties under her belt

I'd check that limit for 2k as I'm not sure that's correct. I think it's a tax relief thing she doesn't benefit from as she's not paying tax. There is AFAIK no such limit on lump sum investment, just tax relief up to 60k. Maybe speak with an IFA
Equity yes she should join but bbc etc now outsource a lot of production and those companies often just use freelance folks. That's why this initial pension pot is so useful.

Part of the £300k is currently invested in property which is in the process of being sold!
Our experience is that property/ buy to let will not be a good investment in the future due to all sorts of financial and regulatory changes being brought in. Most landlords (like us) are exiting the sector.
There's also a huge amount of admin/ stress involved with being a landlord, even if you employ an agent (who'll take 10% of your income).

I lived with 4 aspiring actors whilst I was at uni. They all worked in pretty low paid roles in hospitality during the time they were auditioning (none of them were able to establish it as a long term career unfortunately). I’d be focusing on her funding living and audition costs through her earned income and then capital growth on the £300k - the pension is a good idea.

Oh yes, you might be right, thanks, I'll check!

Tricky thinking about the trade-off between investing in pension for the long term vs keeping enough for a property deposit!

I think this is the point though - trying to work out if she can avoid having to work full-time to give herself enough time and headspace to develop her career.

We know lots of aspiring and former actors, and this is always the problem - the 'day job' ends up swamping them, and let's face it, who is at their best for an audition tape after a full day's work!?

DD knows she is EXTREMELY fortunate to be in this position and just wants to use it to give herself the best possible opportunity to kickstart her career.

That's probably not enough to create a passive income she can live off. In 20 years time maybe but right now she needs to probably get a job and plough any income she makes from the windfall back into investments.

START A PENSION. As an otherwise clueless 23 year old I somehow managed to do that in addition to the mandatory workplace pensions I collected over the years. I am SO GLAD I did that.

Some form of passive income - she could write a book aimed at young people interested in going into acting from her own experience of training.

I know nothing about the stock exchange but she might take the plunge and invest what she can afford to lose.

And if she hasn't already, to join Equity.

https://www.equity.org.uk/join-us/membership-benefits/

I know an actor who has ‘made it’ and hasn’t bought a house before because he’s always in different locations. He has seen a house he likes but can not get a mortgage as his employment isn’t steady nor guaranteed.

I don’t know if the answers are going to be helpful because they are going to mix in with opinions on whether it’s a good idea to be using this for living or keeping the capital ring fenced.

You might be better asking the 300k question separate to your daughters career choice.

But whilst we are here with both. It’s a high risk career, and she’s young, so if it was me I would split it into 3 to represent your aims.

1- a safety net/ nest egg 100k - I would consider property for that. Whilst the returns are not great it’s reasonably a sure bet.
2- pot for subsidise career expenses - 100k medium risk investments S&S global tracker works for that

3 - high risk investments hoping for growth 100k - I would look at bitcoin and other blue chips (eth/ sol). You will need to learn about the 4 year cycles there and use dynamic dollar cost averaging to slowly come in and out as the fear/ greed index dictates. This might sound crazy but if you do your research doubling your money in a cycle is pretty much a sure bet (black swan not included).

Exciting for your daughter.

Yes I understand the point about the FT work but there are very long periods between auditions and those other things that you have mentioned so a flexible hours job would be a good way of funding it rather than sacrificing capital growth and future financial stability. If she is living at home and you are funding housing and living costs then a part time job would give her income, work experience and lots of time to pursue her dream, leaving the capital to grow either in investments, pension or in the future as property for her own use. If she succeeds and can make a living from it then great - if she can’t then at least the capital would have grown in that period and it will give her an ability to start in something new if acting doesn’t work out 🙂

Good luck with that

Brutally, you talk about establishing or kick starting her career as if a degree of success will follow. The odds are that it won't because it's such a vastly over subscribed industry. Almost all of the incredibly talented actors I studied with are doing something completely different these days.
I'd have thought the best investment for that money would be establishing a side hustle/ second career that can work in parallel to the performing. The actors I know who've managed to stick at it all have equally successful, and flexible, second jobs. They're working as DJs, PTs etc. They've got the flexibility of being self employed when acting jobs come in and better paid than hospitality.

If your daughter hasn’t the drive to make it whilst juggling at least part time work she probably won’t make it whilst squandering her inheritance. Very few do make it regardless. I would advise her to invest the inheritance in pension/property or whatever and live her life as if she didn’t have it. She will be grateful she did. Several of my family members are professional actors and have done very well - but they still needed an inheritance in order to buy a house in their late 40s and also need to teach/direct/write to earn enough to live on.

Personally I would consider getting two rental properties and one of them which would work for her to live in at some stage..

there are very long periods between auditions and those other things that you have mentioned

The thing is, this is where/why a lot of actors fail apparently, because they are essentially 'waiting' in the in between times and fill it (often of necessity) with low paid jobs which don't advance their artistic career.

What they are constantly being taught at drama school is that you should be filling those voids with 'making your own work' - developing stuff and putting it out there at local theatres, the Edinburgh Fringe etc in order to get experience, make contacts and hopefully get noticed. But of course it all takes time and money, you don't get paid, and the more hours you're working in your 'survival job' the less time there is for your own work.

We're not talking about DD living off her inheritance as a long term solution, rather generating some income (perhaps £10-£12k a year) to invest in herself and her career. Might be for a 3-5 year window, with the objective being to minimum maintain the £300k pot at current day value + inflation, but hopefully achieve a small level of growth (in whatever platforms - S&S, pensions, etc) while generating a sum to support her own career investment and projects.

We've been in the rental market for the last ten years and now getting out. It really won't be a good investment in the future as all sorts of legal and regulatory changes are coming.

If DD wants to set up a base and get a 2 bed/ rent a room then that could be an option, but not right now. Also we're in the south of England, so property is very expensive.

Yes, the odds are stacked against them, that's true and DD is very aware of this. I guess you've got to believe you improve your chances though, even in a tiny way, if you can devote more time to your craft.

DD does have a side hustle which already earns her some extra income, and yes, making sure she invests some time and money into that is a good shout.