The Lemon Fool

My wife is about to inherit about £20k. She would like to invest it for the long term, but not see it "Swallowed" into our existing pool of investments. She would like a single collective investment that she can immediately associate with the inheritance. The investment will be made in her iWeb ISA with any income reinvested, probably annually at first due to the £5 dealing fee. There are no plans to cash in the investment or allocate it for some specific future use, so just a one off buy and indefinite hold.

I did something similar with an inheritance I unexpectedly received 27 years ago. I put the inheritance into Templeton Emerging Markets. TEM has done very well, albeit in a chaotic manner and if it was my choice I would do the same again with something like Blackrock Frontiers IT, or perhaps a global microcap fund. My wife will make up her own mind though and if I push something too hard that performs badly for a few years I will not hear the end of it, so I will offer some suggestions, perhaps with some of my own waffle about likely outcomes and risk, but I will ensure the investment is not my decision.

Suggestions?

hiriskpaul wrote:My wife is about to inherit about £20k.

She would like a single collective investment that she can immediately associate with the inheritance.

Suggestions?

Lady M may soon be in a similar situation. We've briefly discussed Fixed Income - a gilt or reliable corporate bond held to maturity - might be the appropriate implementation. That dovetails with the feeling of "preserving capital" associated with the inheritance, and can provide an income stream that can be spent as needed or wished.

Edit: For indefinite long term hold you could also look at holding a cumulative preference share. I currently hold AV.A (Aviva) and RE.B (REA Holdings) and also posted a table here to explore the maths a little further: viewtopic.php?f=31&t=556

India – investment trusts and/or ETFs.

India is a somewhat dysfunctional and quite chaotic country which means that there is a lot of scope for national and state governments to dramatically improve the economy by cutting back on bureaucracy. I believe that India will overtake China to become the second biggest economy in the world by the 2040s.

There is a lot of low-hanging fruit in India – the current national government has made a good start by replacing a lot of internal taxes with a single Goods and Services Tax. Another good sign is that the recent problems caused by the withdrawal of high denomination notes do not seem to have caused much economic damage – Indians are quite resilient.

India has a major advantage over China. It is a democracy so property rights are a lot stronger whilst most educated Indians speak good English (the international language) from a very early age. India also has a highly entrepreneurial culture.

And cricket is India’s national sport, so much so that it’s more like a religion. I find that watching the Indian Premier League, and particularly looking into the background, sponsors, etc. has demonstrated to me that India is an economic powerhouse waiting to happen.

The JP Morgan Indian Investment Trust is my largest investment trust holding, mostly because it has been an excellent performer in the last five years. I plan to hold it for a long time (decades).

SalvorHardin wrote:
Another good sign is that the recent problems caused by the withdrawal of high denomination notes do not seem to have caused much economic damage – Indians are quite resilient.

I did read recently in Forbes magazine that one of the main reasons for withdrawal of high denomination notes is the desire for India to eventually move to a cashless society with an aim to eradicate corruption and the black market trade. Apparently the Indian population have an ID card and the idea is that all details (including cash now it seems) will be stored on this. Street vendors / rickshaw drivers etc. have started using card readers but still a long way to go I'm sure.

Cheers, OLTB.

The problem with individual country investments is that they may be up for a few years then down for just as many. So my suggestion for a 'buy and keep forever' fund is a global one. And I would go for Scottish Mortgage IT - this is global but tilted very much to tech, biotech, and other exciting developments. It has an excellent record over the long term.
Regards
ermintrade

hiriskpaul wrote:My wife is about to inherit about £20k. ...
Suggestions?

Buy the market. SWDA ( iShares Core MSCI World UCITS ETF ). 20 bps in charges, and it will re-invest the dividends automatically, since it is an accumulator.

I'd split the money equally between four or five investment trusts. This is because there are so many factors that could affect performance over the long timeframe you have in mind that diversification is sensible. Also I'd favour ITs that pay low dividends rather than high, because in general terms the underlying companies are likely to suffer less tax drag if they're reinvesting a high proportion of their free cash rather than paying it out.

With the above in mind I agree with the recommendation for Scottish Mortgage and would add something like Henderson Smaller Companies, F&C Global Smaller Companies and Pantheon International. This gives you large global growth stocks, small and medium-sized UK growth companies, global medium-sized firms (the F&C IT's name is misleading) and global private equity. If you wanted a fifth holding, consider Strategic Equity Capital (UK small caps, managed like private equity, i.e. interventionist relationships with company managements).

I would buy a large global growth investment trust e.g. Witan, Foreign and Colonial, or Alliance. These are highly diversified, deliver a rising dividend, and have low management charges and low borrowings.

A trust with more concentrated holdings e.g. in a particular technology or country sector, will be more volatile and not necessarily offer higher returns. Alternatively, a world equity index tracker would do just as well.

(places tongue firmly in cheek)

Your initial post recognises that you are already in a trap, and this one is an ‘indefinite hold’, i.e. no escape other than death.

The kind of lively investment such as a global microcap fund will have good years (her skill at the choice) and bad years (your fault for the suggestion however boxed around). In fact it could have some very bad years so welcome to the doghouse.
Note that this is a very neat trap, as making no suggestion isn’t an escape – if she chooses badly it will be your fault for not advising, given your extensive knowledge and interest.

Recognising that a man’s role in a relationship is to take the blame, your only hope is to find another man to lay it off on – Warren Buffett says his wife should use a tracker, and who’s to argue with him?

So a single global ETF it is. Won’t do better or worse that the whole world of industry, finance, war and famine, and no one living man needs to take the rap for all that.

Thanks for all the replies and suggestions.

@moorfield, a long dated gilt is an interesting idea, but my wife is looking for something higher up the risk scale. OTOH a single long dated corporate or undated pref carries too much single event risk! In any case she already has a significant part of her portfolio invested in undated prefs, including GACA.

@SalvorHardin, A very interesting suggestion. Of the BRICs, India would probably be my pick over the long term as well and JPM would be a good manager to invest with because of their global presence. My wife already has investments in India via global EM ETFs, but that works out only about 9% of the EM ETFs, so this would not significantly overweight India with respect to the rest of the portfolio. I note that JPMorgan Indian is on a healthy 10.6% discount to NAV, which is very helpful. Definitely one for the list.

@ermintrade I agree with your point about single country risk, but this is just one investment within a much larger portfolio. It is also not money my wife really expected to receive and as such she thinks about it slightly differently to money earned, irrational though that is, and is prepared to see it follow a very bumpy path. A global tech, biotech, etc. fund is an interesting suggestion. My reservation would be that over the last 10 or so years both IT and biotech have performed exceptionally well and valuations now look very stretched compared to the rest of the market. I note that Scottish Mortgage itself is on a 3.1% premium to NAV - always a worrying sign. Very low management fees are a plus.

@genou SWDA is a good suggestion, but my wife has most of her global equity exposure already invested in ETFs/trackers which approximate to the global market, so this does not really bring anything new. She does not have SWDA though, so it ticks the identifiable box and as you say, the fact that it is an accumulating ETF is beneficial. On the list.

@Longtermyieldman, I agree that splitting the investment would be sensible and I might persuade my wife to accept 2 funds, but certainly not 4 or 5. She really wants a single identifiable investment. I agree with your point about low dividend paying underlying companies, especially as the investment is likely to be international and dividends will suffer from various taxes. Of the funds you mention, Henderson Smaller Companies is one she already holds (bought about 3 months ago), so is out. F&C Global Smaller Companies is one I used to hold in my SIPP, but sold it a few years ago as I considered I was overweight small caps and Hargreaves Lansdown threatened to apply additional charges on ITs (they backed down after I sold!). Possibly a good option, but my wife dislikes F&C. Pantheon International and Strategic Equity Capital sound interesting - I will take a look.

@LooseCannon101, my wife used to hold F&C (a PEP in the 90s) and Alliance Trust (principally for the discount at Alliance Trust Savings!), but both performed relatively poorly during the period she held them, so I think it unlikely she would entertain the idea of investing in them again. She has personal reasons for disliking F&C as well due to the experience a friend of hers had whilst working there. Witan I don't know anything about, but unless it brings something different to the table, such as a value, growth, a small cap tilt etc. I think it likely my wife would prefer genou's suggestion of a global ETF.

@Rooky, yes I fully expect to be blamed for poor performance regardless and something like JPMorgan Indian will undoubtedly go through periods of dire drawdowns (just as my investment in Templeton Emerging Markets has). On the plus side, she rarely looks at her portfolio, so there is a chance poor performance will not be noticed!

Scottish Mortgage for fun

Vanguard LifeStrategy 80% Equity Fund A Acc (GBP) for leave and forget.

http://www.morningstar.co.uk/uk/funds/s ... F00000MLUQ

hiriskpaul wrote:She would like a single collective investment that she can immediately associate with the inheritance.

Thought about Syncona?

It has a worthy objective and a slice of biotech spice in the mix.

At some point I may be in a position similar to your wife's: inheriting a decent but not life-changing sum that's unlikely to be needed for any planned or envisioned living expenses.

I could deploy it per my chosen asset allocation but may well build a (figurative) monument with it instead. Perhaps planting some native woodland, undertaking a landscaping project, or construct some other pleasing outdoor feature or garden that might feasibly last a lifetime or so, delivering some lasting pleasure and acting as a reminder of the person who'd died.

The dividends from a project like this can be excellent.

Yet another one in a not dissimilar position, happily not due to an inheritance but the amount is about the same.

I'm currently paralysed by indecision, but the main contenders are "Vanguard Global Balanced" (the new, actively managed one), the Fidelity fund with a similar mandate, or Vanguard LifeStrategy 60/80, because we all know passive makes sense!

Oh, and I already hold Syncona in my SIPP, I've held almost since launch - I think I hung around for a while waiting for a discount, which was nothing to write home about in the end. I was a little miffed when the mandate changed along with the name, but decided to hold rather than take the money and run on the grounds that the aforementioned "biotech spice" might not turn out to be entirely awful.

saechunu wrote:At some point I may be in a position similar to your wife's: inheriting a decent but not life-changing sum that's unlikely to be needed for any planned or envisioned living expenses.

I could deploy it per my chosen asset allocation but may well build a (figurative) monument with it instead. Perhaps planting some native woodland, undertaking a landscaping project, or construct some other pleasing outdoor feature or garden that might feasibly last a lifetime or so, delivering some lasting pleasure and acting as a reminder of the person who'd died.

The dividends from a project like this can be excellent.

Something that has been going through my wife's mind is "What would xxxx want me to do with this money?". The person who left the money was very religious and gave a great deal to charity during her life, even though she was not a high earner. It would not surprise me if this money was given away at various times. With that possibility in mind, perhaps a more prudent investment vehicle than some of those I have been thinking about might be more appropriate.

Retiringat51 wrote:

hiriskpaul wrote:She would like a single collective investment that she can immediately associate with the inheritance.

Thought about Syncona?

It has a worthy objective and a slice of biotech spice in the mix.

Never heard of Syncona before! At first sight it might be appropriate. I will do some reading.

S&P 500
FTSE 100
ASX200

Developed 1st world countries. Avoid emerging markets.

etc

hiriskpaul wrote:Something that has been going through my wife's mind is "What would xxxx want me to do with this money?". The person who left the money was very religious and gave a great deal to charity during her life, even though she was not a high earner. It would not surprise me if this money was given away at various times. With that possibility in mind, perhaps a more prudent investment vehicle than some of those I have been thinking about might be more appropriate.

Well then, how about:

https://whichinvestmenttrust.com/bacit- ... of-course/

hiriskpaul wrote:With that possibility in mind, perhaps a more prudent investment vehicle than some of those I have been thinking about might be more appropriate.

Back to gilts / fixed income then eh? Or gold bars!

Kantwebefriends wrote:Well then, how about:

https://whichinvestmenttrust.com/bacit- ... of-course/

BACIT is Syncona, already discussed above.