The Lemon Fool

Hi all

Hopefully, this is the right board for this sort of post and I'd be grateful for any ideas of how to efficiently invest a lump sum. I've tried searching Lemonfool as I'm sure there will be posts on this but unfortunately couldn't find any - appreciate if anyone knows of any links to relevant posts


I'm coming into an inheritance of around £200k later this year and I'm looking at my options.

Some points:
-I intend to retire in 2024 when I will have an NHS final salary pension (and about another £115k lump sum to invest) and want this £200k to provide an additional income to supplement my current income and then pension.
- I don't want to invest in a SIPP as I'm concerned about annual allowances as i don't have a lot of wiggle room.
- I'm a higher rate taxpayer.
- I do owe about £90k on my mortgage and currently paying this off at about £20k per annum.
- I've been investing for many years in low-cost index funds and ITs within Stocks & shares ISAs
- I don't want to invest in property - I really want low maintenance

If seeking an income from the day I received the inheritance, of say 3-4%, but with the opportunity for capital growth, how would you approach this or have approached this in the past?

Thank you in advance

Alan

For low maintenance, investing in the London market I think an investment trust would be the way to go. There have been plenty of suggestions on the IT Board but something like Law Debenture would be my choice. Fed into an ISA over the next few years of course.

Dod

Of course for some diversification , I should have said, spread the lump sum over another three ITs so as to have a portfolio of 4 ITs of £50,000 each and just take the dividends. You and your wife can each have £20,000 into a S & S ISA each year. That is a s about low maintanance as you can get.

Dod

For a regular income, SMIF

ReallyVeryFoolish wrote:Good suggestion from Dod101, though Law Debenture isn't looking anything like the bargain it recently was. It's a great trust but I would look to add a bit of income from a REIT property portfolio and some international exposure as well as UK. For UK I would look at adding some Mechants or maybe City of London. For international income/growth I would look at JP Morgan Global Growth and Income. There is a huge choice out there but you have a starter for 10 there. HTH.

RVF

I third the idea of a small number of investment Trusts for income.
I have HFEL for Asia/Pacific and MCT for North America in my Income portfolio. Good Income but they are not going to shoot out the lights capital growth wise. If you wanted to add some growth perhaps one slot for a more growth orientated trust (SMT?) or an all world ETF (VWRL?) .

This post gives a lot of up to date info on high yield investment trusts and is well worth a look:
viewtopic.php?f=31&t=28136

daveh wrote:I have HFEL for Asia/Pacific and MCT for North America in my Income portfolio. Good Income but they are not going to shoot out the lights capital growth wise. If you wanted to add some growth perhaps one slot for a more growth orientated trust (SMT?) or an all world ETF (VWRL?) .

This is exactly what I do, rather than try to find a single product that provides both growth and income. I simply split the requirments and pick investments that are good for ether to achieve a "growth and income" portfolio.

FWIW I have HFEL and SMT, though a few others as well.

Yes, I would suggest a half dozen IT's from the UK and Global sectors, something like this:

*Global Growth: Monks (MNKS)
Global Growth & Income: JP Morgan Global Growth & Income (JGGI)
UK: Murray Income Trust (MUT)
*USA Growth: Baillie Gifford US Growth trust (USA)
Canada/US Income: Middlefield Canadian Inc (MCT)
US Income: Blackrock North American Income (BRNA)
Asia Pacific: Schroder Oriental Growth & Income (SOI)
Europe: European Assets trust (EAT)

* Growth only trusts to enhance portfolio growth, but could be omitted.

Excellent responses all, thank you very much. I do like the idea of a diversified basket of ITs for growth and income; particularly for the funds within an ISA. I'm also wondering about the intervening years when the majority of money will be outside of ISAs but I still want to achieve growth/income. Would you employ the same strategy and spend a bit more time on your annual tax return with various different ITs outside of an ISA OR, would you go for something simpler like a world tracker with one or two years in cash/bonds/other to feed income and ISA each year?

Thanks again

Alan

Alan7878 wrote:Excellent responses all, thank you very much. I do like the idea of a diversified basket of ITs for growth and income; particularly for the funds within an ISA. I'm also wondering about the intervening years when the majority of money will be outside of ISAs but I still want to achieve growth/income. Would you employ the same strategy and spend a bit more time on your annual tax return with various different ITs outside of an ISA OR, would you go for something simpler like a world tracker with one or two years in cash/bonds/other to feed income and ISA each year?

Thanks again

Alan

Personally if you choose an investment strategy I would go with that irrespective of the tax hassle otherwise you are being influenced too much by tax which these days for dividends is not much anyway. You may need to watch CGT when transferring funds into an ISA but that can be managed.

Dod

Alan7878 wrote:Would you employ the same strategy and spend a bit more time on your annual tax return with various different ITs outside of an ISA OR, would you go for something simpler like a world tracker with one or two years in cash/bonds/other to feed income and ISA each year?

It's difficult to say what you should do. What I would do in what I believe to be your situation is avoid income, which would be taxed. I would aim for growth, where I have unused CGT allowance each year. I could restructure my ISA for income only, avoiding tax.

Over time I would funnel the capital into the ISA, rebalancing.

You might also look to paying off that mortgage quicker, penalties allowing.

There are a lot of IT fans on these boards
Is there any evidence that ITs outperform the market over the long term?
I mean academic studies rather than personal / anecdotal evidence - as there is a considerable body of research to suggest that managed funds in general underperform over time (something like 70% fail to beat 'the market')

Alan7878 wrote: Would you employ the same strategy and spend a bit more time on your annual tax return with various different ITs outside of an ISA

You will probably have to spend more time with your tax return regardless of where you invest if outside an iSA or SIPP. Don't forget that you can have up to £ 2,000 free of tax in dividends and £ 500 / £ 1000 in interest.

As far as Boards are concerned there's also
High Yield Shares and Strategies
viewforum.php?f=31

The "HYP" board is not really to be recommended as they will bite your head off if anything other than a very narrow range of UK FTSE 100 and 250 shares are mentioned. On paper at least it exists to discuss your issue, namely how to invest a lump sum for income.
viewforum.php?f=15

AleisterCrowley wrote:There are a lot of IT fans on these boards
Is there any evidence that ITs outperform the market over the long term?
I mean academic studies rather than personal / anecdotal evidence - as there is a considerable body of research to suggest that managed funds in general underperform over time (something like 70% fail to beat 'the market')

So what would you suggest? Passives? Well that would be the alternative and would certainly be largely hands off. I think investors (like me) like ITs because we can pick and choose our theme, country, industry, whether investing for income or growth or a mixture. Gives a feeling of being in charge I guess.

Dod

Dod101 wrote:Personally if you choose an investment strategy I would go with that irrespective of the tax hassle otherwise you are being influenced too much by tax which these days for dividends is not much anyway. ...

The OP states I'm a higher rate taxpayer and it'll take some time to shelter the £200k (with or without the assumed spouse you mentioned earlier). It is likely that a good whack, if derived from dividends, would be taxed at 32.5% which may not be much but is approaching one third of the amount above the misnamed dividend allowance.

Tax tails and all that acknowledged of course.

Dod101 wrote:

AleisterCrowley wrote:There are a lot of IT fans on these boards
Is there any evidence that ITs outperform the market over the long term?
I mean academic studies rather than personal / anecdotal evidence - as there is a considerable body of research to suggest that managed funds in general underperform over time (something like 70% fail to beat 'the market')

So what would you suggest? Passives? Well that would be the alternative and would certainly be largely hands off. I think investors (like me) like ITs because we can pick and choose our theme, country, industry, whether investing for income or growth or a mixture. Gives a feeling of being in charge I guess.

Dod

A purely passive approach seems to be recommended by some 'big names' based on plenty of academic studies. I can understand the need to feel one is in control and can tweak allocations based on personal views about market direction - but does this approach work for most people, most of the time?
I suspect if people invest in a basket of diversified global ITs they are probably ending up with something approaching a 'closet tracker' anyway, and may be better off regularly investing in VWRL or similar, and concentrating more on asset allocation/tax planning/going down the pub etc

AleisterCrowley wrote:There are a lot of IT fans on these boards
Is there any evidence that ITs outperform the market over the long term?
I mean academic studies rather than personal / anecdotal evidence - as there is a considerable body of research to suggest that managed funds in general underperform over time (something like 70% fail to beat 'the market')

Dod has already given many good reasons, however there are many more.

For example there are IT's and funds that pay far higher income than the market rate. Their total return tends to not be so good, but that's expected.
There are others that are significantly less volatile than the market.
Some who simply try to beat inflation and not loose money.
There are yet others that pay their dividends monthly.
Others who avoid sinful companies.

Given the options, why assume that the only reason to buy an active fund is to attempt to outperform the market.

Beating the market is certainly not the reason for some of my investments.

Alan7878 wrote:Some points:
-I intend to retire in 2024 when I will have an NHS final salary pension (and about another £115k lump sum to invest) and want this £200k to provide an additional income to supplement my current income and then pension.

It's not clear why you want income, and I would ask myself exactly why I wanted income, particularly now.

Whilst working, and time resource constrained, I would be thinking about what additional income I would want now, other than for a few "treats". I would be looking at how future income could be created, to supplement that pension (which presumably is lower than your current salary income) at a time in my life when I would have the time to enjoy it.

Now it might only be 3 years away, and hopefully for a long time thereafter, but to me that says "growth" strategy not "income strategy", with potential tapering from the former to latter over time.

Hi

Out of interest, which IT's fall under the 'Some who simply try to beat inflation and not loose money' category. I am looking to move some money from bonds.
cheers

skewwy wrote:Hi

Out of interest, which IT's fall under the 'Some who simply try to beat inflation and not loose money' category. I am looking to move some money from bonds.
cheers

Here is a link to an article about such "capital preservation funds".
https://www.youinvest.co.uk/articles/in ... rket-falls

Is there an argument against using some of it to pay off the mortgage then putting the £20k annual payments into an ISA or savings?