How would you invest it?

[Leizal]

If you were due to receive a decent amount of money soon, say around 1M, how would you invest it? Property is not an option as the person who receives this lump sum is renting and unsure where they will settle (currently in the area where they are renting for work purposes). I did suggest opening several good savings accounts, some easy-access, notice, or fixed-term savings accounts, and that they'd only be protected up to 85k if anything went wrong.

Do any of you have any recommendations, funds or suggestions?

Thank you.

Maximum Premium Bonds to start.

Premium bonds and ISA. They should look at tax free interest options to keep life simple.

They should get an independent financial advisor for that amount of money. Everything depends on their age, whether they have children, where they want to live etc.

aren't they reckoned to be a poor return?
Or do you think the tax-free status more than compensates for this?

The 85K is each unconnected bank. so lots of options there. Do as much as you can in ISAs.

I don't like these advisors that take a percentage, try to figure it out yourself. I'm a bit risky in what I do but would not recommend.

Max out ISA and Premium Bonds and then split as much as you can tolerate across fixed term savings accounts. If you can’t be bothered with that, NS&I accounts have unlimited protection (not just up to £85,000) as they’re backed by HM Treasury but their interest rates aren’t good.

Premium bonds rate of return is terrible on the whole.

First you need to figure out your risk threshold and then put together a plan from there. Also, will you need access to the money soon? Or can you pop it all away and not touch it? Do you want to do anything life changing at the moment or just carry on as normal.

Personally I would stick 750k in stocks and find a good broker, this is long term.

I would spend some money on some art work that I love that would hold its value. A good art broker can help you.

I would also buy a second vintage vehicle. They hold their value if you know which ones to buy (obviously I love certain cars)

It all really depends what the money if for.

putting the money into a saver that gives you 3.8% return means your money is loosing value when inflation is so high.

Personally I would stick 750k in stocks and find a good broker, this is long term.

I agree with the stocks part, but don't need a broker. They're just another mouth to feed. Low cost index tracking funds do much better in the long run than a broker will. Pick a Vanguard Life Strategy fund with a mix of stocks and bonds that fits with your risk tolerance.

https://www.vanguardinvestor.co.uk/what-we-offer/all-products

This explains why passive investing (index tracking) outperforms stock picking in the long run.

https://www.nerdwallet.com/article/investing/active-vs-passive-investing

You’re right. Vanguard is great.

I've been with Vanguard in the US for decades. They created the first index fund. They are owned by their investors and managed for their benefit. The customer service is also excellent. You cannot go wrong with Vanguard.

My parents have been investing with Vanguard for about 30 years and are very pleased with it.

The annual ISA limit is only £20k, it’s going to take a long time to maximise allowances at that level. They probably should seek to maximise the allowance out of the capital at the beginning of each tax year anyway.

As others have said, it all depends what they’re planning to do with the money. If buying a property is on the cards soon then it makes sense to have it in easy access cash accounts spread over multiple institutions. But doing that for a long time will erode the value via inflation. Then investing starts to make sense.

The returns on £1m invested will be significant and I’m fairly certain a self assessment will need to be completed for interest/dividends etc received from the non-ISAed elements. It could also put the recipient into higher tax bands, especially if they’re already earning through employment.

Lots to think about here. A decent tax advisor might be helpful for a big sum like this.

how long is the investment time horizon? is there a plan to buy a house in a few years or never?

get an IFA from unbiased.co.uk A good IFA will charge a fixed fee per year and does not earn commission on sales or trades.

3 months salary in cash account
100K in high interest cash accounts locked up for 3-5 years
800K in vanguard or similar investment account - look for low annual fees
max out ISA allowance every year in an investment ISA

watch out for capital gains tax on the investment account

Consider a SIPP or other pension, depending on the house buying plans.

It's important for them to use an IFA to establish priorities and risk tolerance.

First thing I'd want to address is a SIPP - fantastic tax advantages and anything towards a pension usually makes sense.

PB's are generally crap for everyone except HRT/additional tax payers.

Important to maximise tax-efficiency so leveraging ISA allowances every year.

Don't forget that money can be paid into children's and grandkids SIPPS and accounts.

And lastly, don't forget some for charity.

I’m in a similar situation with a large lump sum, which will be used for property. I’m lookin at savings platforms like Raisin and Flagstone and placing funds in a mix of accounts paying good rates of interest. I’ll need the cash within 12 mths so stocks isn’t on my agenda.

The immediate concern is for the protection of the funds, not for rate of return. Split the funds between Premium Bonds and banks registered separately under FSCS. This person has a lot of work to do.

Once the funds are protected then they can invest for the long term at their leisure.

Depending on the source of the funds, they may be fully protected (above the £85K limit) for a year.

In theory. In practice I wouldn't want any one bank to be holding all my eggs at this point in time.

the goal is just to park the money short term, while preserving safety of capital and instant access, NS&I direct saver or income bonds is 100pct government guaranteed and will accept that amount.

for a higher rate UK taxpayer who might need the money for something else fairly soon, a low coupon short-dated gilt purchased at a good discount to par offers tax benefits and a higher yield to maturity, especially net of tax.

if the money is to be kept invested for at least 5-7 years, stocks and other high-return but also riskier assets become an interesting option. Advice from an IFA and/or some financial education would probably be warranted before making any commitments.

I would recommend they go and see a good IFA, if not two different ones, who will be able to recommend a suite of investments to suite their needs.

I agree with this 100%, particularly given the statement that they will not be redeploying the money to buy a property to live in. Unless the money needs to be kept available for short-term use, investing it is the only way to potentially prevent it from being totally devalued over time by inflation.

The interpersonal "fit" is almost as important as the technical skills, so seeing more than one is definitely a good idea.

In each case, I would suggest to ask for a detailed breakdown of all fees that will be paid. This should include
-the IFAs own charges
-the investment platform fee or custody fee
-the fund management fees embedded within the suggested investment products

If they are reluctant to provide this, then run for the hills! Same thing if they tell you "do not worry, the fund pays the fees", because that means you pay but they are trying to hide it. If the total adds up to more than about 1.5% of assets under management, and preferably closer to 1%, it is too much.