DiamondEcho wrote:Situation: A house-sale will after deduction of mortgage+fees release a net sum in the higher 6-figures. That sum will be used to fund a future house purchase. It's unclear when, at least 6 months hence or maybe as long as 18mos.
The Bank Base Rate is 5%, RPI is 11.3%. The conundrum is:
- You already own a share portfolio, but hesitate to put 'family home' funds at material market risk.
- Even if you can do a cash depo at BBR, you're going net backwards at say -6% AND that's pre-tax.
- The FSCS limit of protection is (IIRC) about £120k per account/entity. That could mean dividing the whole sum into protected accounts would require opening multiple accounts = hassle-factor.
DAK what people in these kind of shoes tend to do?
Thx.
Not really appropriate in your case, but maybe of general interest ....
Near 0% rate days were great, you could hold hard cash. At higher rates and some opt to shift bond/note/bill risk over to the stock side, perhaps hold 15% stock, 85% hard cash for instance. You obviously do have stock downside risks with that, but diluted down (-30% collapse and proportioned to 15% weighting = 4.5% hit). A inclination for those that go down that path is for the hard "cash" to be in currencies that are opined to likely relatively strengthen/fall less, or diversifying across multiple currencies in equal measure (Pounds, dollars, gold) and/or finding places with full protections such as Gilts that have no default risk compared to a bank where only £85K is protected (UK can always increase taxes or print money rather than ever defaulting on it debt/Gilts).
If a bad year does occur when something like 15/15/70 stock/gold/cash does endure a negative year, then waiting another year usually resolves that, tend to be followed by a good outcome year.
US data
PVEven as a longer term asset allocation that can work out OK, better than inflation bonds - where 3.33% 30 year SWR might spend it all, see just the return of your inflation adjusted money via 30 yearly instalments (SWR = start by drawing 3.33% of the portfolio value in the first year, where that £££ amount is increased by inflation as the amount drawn in subsequent years). And instead see the same return of your money via yearly instalments, but also ending with a decent residual amount still available at the end of 30 years. 40% to 120% type lower/upper 10th percentiles (real), 75% middle-ground (50th percentile)
PV Monte CarloIncreasing to 20/20/60 stock/gold/cash sees higher shorter term volatility, potential deeper bad year dips (but still tend to be relatively minor), but becomes more of a have cake and eat it
PV MC. Return of your inflation adjusted money via 30 yearly instalments, average case still ending with your inflation adjusted start date portfolio value still available. 50% lower 10th percentile, 200% upper 10th percentile.