Remove ads

Introducing the LemonFools Personal Finance Calculators

Investing lump sum

Investment discussion for beginners. Why you should invest your money, get help getting started
cartsman2
Posts: 19
Joined: March 18th, 2018, 1:54 pm
Been thanked: 1 time

Investing lump sum

#125807

Postby cartsman2 » March 18th, 2018, 4:30 pm

Hi

First post on Lemonfool, I was active on the old Motley Fool board quite a few years back but have been an extremely passive investor the last decade or so (for reasons which I'm about to explain) and now need to start getting involved again.

My potted investing history is that I was pretty sensible when I first started work in the late 90s. Managed to get on the property ladder early, avoided any debt other than mortgage, put what money I could afford into an ISA. Mostly ETFs, dabbled in some individual stocks with amounts I could afford to take risks with, won some, lost some. 8 years ago I managed to quit my job, start a business with 2 ex-colleagues, become a dad, and buy a doer-upper of a family house within the space of 6 weeks. Since then I've not really had the time nor money to be much of an active investor. Time has gone into building the business and being a dad. Took as little money out of the business as we could while it was getting started, and what money I did take out has largely gone on improving the house.

And now we've sold the business and I find myself with the (nice) problem of what to do with the proceeds having not really been involved in the market for close to a decade (I still have the ISA and it's done OK). It's a nice sum of money (about 7x my gross annual salary), but not into "driving a Ferrari and never having to worry about money again" territory. I literally don't need to spend a penny of it right now. Our only debt is our mortgage, which is locked in at a good rate and very affordable (about 75% equity in the house). I could pay it off when the current rate expires next year, but quite like the discipline of the monthly payments while interest rates are low. Love our house and not interested in moving up the ladder. We're happy with our lifestyle and can cover it comfortably out of our salaries, or just from my wife's salary with a few sacrifices. I'm 42, not ready to stop work and certainly can't afford to, but my work is pretty stressful at times and so this money is my chance of building the kind of financial security that means I have the option of retiring earlier, or more likely of taking a pay cut to do something less stressful. May also give us the chance to help the kids with university and/or buying their own property when the time comes (at least 10 years away!).

And my problem is that I feel like a rabbit in the headlights! When I was squirrelling away relatively small amounts of money on a regular basis I was happy to take risks and learn as I went along. I'm a bit daunted by having what is for me such a large lump sum to invest, I'm in an incredibly lucky position but there's also a lot of pressure to get it right as this sort of money isn't coming to come along again - I know myself well enough to know I'm not a serial entreprenneur. Stock markets seem high to me at the moment and I'm worried about buying at the top of the cycle - I know many people say don't worry about trying to time the market, but while that advice is sound when you're investing monthly as it averages out over time, it doesn't seem so good when you're investing all in one go. Property also doesn't seem like great value right now, and extra stamp duty and scrapping of tax relief on second homes make being a landlord less attractive. To be completely honest, I don't really know much about other classes of investments like bonds. I'm going to be reading up on here over the next few weeks.

I've met a number of financial advisers but not really been impressed with any of them. If I do end up using one I want to educate myself a bit first and have independent information sources and not just what I'm told by somebody who is going to be taking a fee or commission from me. The money is already taxed so no point using it to top up my pension, though I will be putting into my pension as much as I'm allowed from my salary over the next few years as I've been negligent on that front. So the money is just sat in cash at a pitiful interest rate right now. Any thoughts on how best to invest it? We shouldn't need to touch it for at least 15 years, but after that would want to be able to generate a nice income from it into retirement. I'll be aiming to transfer the maximum allowed into an ISA each year of course. If I stick it into an array of funds now then what are some good low fee funds with a long term horizon? There's a part of me that thinks everything is overpriced right now, there are likely to be one or more crisis events over the next couple of years that trigger a crash and that I should be keeping some or most of it in cash and looking out for buying opportunities. But even if I'm right, whether I'm in any way active enough or smart enough to spot those buying opportunities is another matter!

Anyway, sorry for the long and slightly rambling post. I've got a lot of reading up to do, this was a good way of me getting my thoughts out in writing and hopefully somebody has some useful ideas or is at least able to help me shortcut my education process by pointing me towards some helpful threads or articles. Thank you in advance!

tjh290633
Lemon Quarter
Posts: 2259
Joined: November 4th, 2016, 11:20 am
Has thanked: 132 times
Been thanked: 654 times

Re: Investing lump sum

#125819

Postby tjh290633 » March 18th, 2018, 6:11 pm

My choice would be to go for a selection of Investment Trusts. There are the big global ones, like Foreign & Colonial, FRCL, Witan WTAN, and so on. Have a look at what they are invested in, as you get quite a wide geographical spread with relatively little UK exposure and some private equity holdings. For UK Income City of London CTY is a good bet, and you could also look at smaller companies. Maybe add to those with something aimed at developing countries or specific areas. There are plenty to choose from, but the main thing is to avoid having too much overlap between the ones that you do choose.

TJH

Alaric
Lemon Quarter
Posts: 2025
Joined: November 5th, 2016, 9:05 am
Has thanked: 4 times
Been thanked: 378 times

Re: Investing lump sum

#125828

Postby Alaric » March 18th, 2018, 6:54 pm

cartsman2 wrote:(I still have the ISA and it's done OK).



If you are happy with what you have in the ISA, you could just buy more of it. You would be familiar with what you hold and how it has performed.

GeoffF100
Lemon Quarter
Posts: 1037
Joined: November 14th, 2016, 7:33 pm
Has thanked: 29 times
Been thanked: 136 times

Re: Investing lump sum

#125829

Postby GeoffF100 » March 18th, 2018, 6:55 pm

Here is a very simple and sensible approach, without the high costs of Investment Trusts:

http://monevator.com/this-former-hedge- ... ck-videos/

If you are worried about buying at the top of the market, you can start with a high bond allocation and gradually reduce it, but that will not look too clever if you are wrong and the market does go up. If you invest in equities, you risk losing money. That is the risk you take for the likelihood that you will achieve higher returns over time. There is no avoiding that. It is very important that you understand the risks, and are happy to take them.

cartsman2
Posts: 19
Joined: March 18th, 2018, 1:54 pm
Been thanked: 1 time

Re: Investing lump sum

#126274

Postby cartsman2 » March 20th, 2018, 9:12 am

Alaric wrote:
cartsman2 wrote:(I still have the ISA and it's done OK).



If you are happy with what you have in the ISA, you could just buy more of it. You would be familiar with what you hold and how it has performed.


My concern is that it's all in equities or equity trackers. That was fine when I was investing regularly as it's averaged out. I'm not sure about going all in with a lump sum at current market levels though.

JohnB
2 Lemon pips
Posts: 221
Joined: January 15th, 2017, 9:20 am
Has thanked: 4 times
Been thanked: 45 times

Re: Investing lump sum

#126280

Postby JohnB » March 20th, 2018, 9:29 am

When investing a large sum, I decided to do it in 3 lumps, a month apart. You can still miss-time the market, but obsess less about buying on the day before a correction.

I'd not use a financial advisor. You seem able to research solutions, and if you know enough to know if an advisor is good, you know enough to do it yourself.

Remember you can carry forward pension allowances from the past 3 years, so that's 3 extra lots of 40k you can slap in a SIPP (its a bit more complicated as there was a year with 2 allowances, sigh) over the next few years if you earn enough That tax relief should ease the sting of a market fall. Not sure what you mean by "The money is already taxed so no point using it to top up my pension"
Last edited by JohnB on March 20th, 2018, 9:41 am, edited 1 time in total.

tramrider
Lemon Pip
Posts: 65
Joined: November 4th, 2016, 5:09 pm
Has thanked: 48 times
Been thanked: 10 times

Re: Investing lump sum

#126283

Postby tramrider » March 20th, 2018, 9:35 am

cartsman2 wrote:... There's a part of me that thinks everything is overpriced right now, there are likely to be one or more crisis events over the next couple of years that trigger a crash and that I should be keeping some or most of it in cash and looking out for buying opportunities. But even if I'm right, whether I'm in any way active enough or smart enough to spot those buying opportunities is another matter!


If you are scared of a big crash, perhaps you should feed this money into shares slowly and regularly over several years. The rest of your money will be relatively safe in a cash savings account, getting 1% interest against 3% inflation, so only losing 2% value per year. But also you are losing the opportunity cost of perhaps 8% average growth in shares. You need to find your own balance between the cost and the risk for your peace of mind.

Then feed the money into either a mixture of ITs as recommended by TJH and the Investment Trust board here, or some ETF global or regional trackers, so your share risk is well spread.

Tramrider

cartsman2
Posts: 19
Joined: March 18th, 2018, 1:54 pm
Been thanked: 1 time

Re: Investing lump sum

#126290

Postby cartsman2 » March 20th, 2018, 9:53 am

Thanks tjh and Geoff. That's some useful context and education for me. I need to do some more thinking about my risk appetite. Think I'm realising that I'm a lot more risk averse now. It's a big amount of money to me, I worked hard to get it, and it puts me in a good enough financial position that I'm OK with missing out on some market growth in the next couple of years while I find my feet as an investor again as long as I'm beating inflation.

Urbandreamer
Lemon Slice
Posts: 415
Joined: December 7th, 2016, 9:09 pm
Has thanked: 19 times
Been thanked: 75 times

Re: Investing lump sum

#126314

Postby Urbandreamer » March 20th, 2018, 10:40 am

The markets do look expensive don't they.

I'm so concerned that I now have 7.5% in cash earning next to nothing, which is obviously the problem. There really doesn't seem that many good alternatives.

Anyway perhaps you should try a google search on the "cockroach portfolio". You will find lots of stuff. The key point is that while it never does great, historically it's not done badly.

Here is just one such article.
https://spectruminvestors.wordpress.com ... -part-vii/

I don't invest that way myself, but as a stratergy it might suit you.

cartsman2
Posts: 19
Joined: March 18th, 2018, 1:54 pm
Been thanked: 1 time

Re: Investing lump sum

#126318

Postby cartsman2 » March 20th, 2018, 10:47 am

JohnB wrote:Not sure what you mean by "The money is already taxed so no point using it to top up my pension"


The acquisition money came with entrepreneurs tax relief so was taxed at only 10%. Up until the acquisition we were paying ourselves only a very small salary to maintain NI contributions and take advantage of the tax allowance, anything we took out over and above that was in dividends. So over the last 3 years I haven't really paid any income tax, hence I don't think I can get any tax relief on backdated SIPP contributions. Does that sound right? If so my goal was to do max pension contributions over the next couple of years to catch up a bit.

JohnB
2 Lemon pips
Posts: 221
Joined: January 15th, 2017, 9:20 am
Has thanked: 4 times
Been thanked: 45 times

Re: Investing lump sum

#126331

Postby JohnB » March 20th, 2018, 11:05 am

I'm no expert, but it doesn't seem that basic rate tax relief actually relies on actually paying tax. If you earn £45k in one year you can put it all in a pension, using £5k carry-over, and get tax relief on the lot even though with the personal allowance you've only paid tax on £33k of it, and there was no obligation to pay tax in the year before to get the carry-over. You might need to have been in a pension scheme for those years though.

Certainly worth asking HMRC.

GeoffF100
Lemon Quarter
Posts: 1037
Joined: November 14th, 2016, 7:33 pm
Has thanked: 29 times
Been thanked: 136 times

Re: Investing lump sum

#126332

Postby GeoffF100 » March 20th, 2018, 11:09 am

tramrider wrote:If you are scared of a big crash, perhaps you should feed this money into shares slowly and regularly over several years. The rest of your money will be relatively safe in a cash savings account, getting 1% interest against 3% inflation, so only losing 2% value per year. But also you are losing the opportunity cost of perhaps 8% average growth in shares. You need to find your own balance between the cost and the risk for your peace of mind.

You can get 2% from bonds. 8% from equities is very optimistic. With bond yields of 2% and an equity risk premium of 4%, you would expect a long term growth of 6%, but we could be heading into a bear market.

Alaric
Lemon Quarter
Posts: 2025
Joined: November 5th, 2016, 9:05 am
Has thanked: 4 times
Been thanked: 378 times

Re: Investing lump sum

#126341

Postby Alaric » March 20th, 2018, 11:32 am

JohnB wrote: If you earn £45k in one year you can put it all in a pension, using £5k carry-over, and get tax relief on the lot even though with the personal allowance you've only paid tax on £33k of it


I thought his point was that only a minimal amount had been paid as salary with the rest as dividends. A downside of such an approach is that it restricts the amount that can be put into a pension scheme.

JohnB
2 Lemon pips
Posts: 221
Joined: January 15th, 2017, 9:20 am
Has thanked: 4 times
Been thanked: 45 times

Re: Investing lump sum

#126445

Postby JohnB » March 20th, 2018, 3:04 pm

But the past taxation history doesn't constrain the carry over. If I was a contractor paying myself minimum wage and taking dividends from my company for a few years, then at the time I'd have limited pension allowance. But if I then got a new job at £60 p/a, I could put in £60k p/a into my pension for a few years until the 3 years carried over allowances ran out.

Cookie
Posts: 38
Joined: January 27th, 2018, 10:19 pm
Has thanked: 19 times
Been thanked: 1 time

Re: Investing lump sum

#126590

Postby Cookie » March 20th, 2018, 11:18 pm

Not that it helps now, but if it was a ltd, the company could have made the pension contributions, unrelated to your level of salary

runnygum
Posts: 39
Joined: November 4th, 2016, 9:35 pm
Has thanked: 8 times
Been thanked: 14 times

Re: Investing lump sum

#132110

Postby runnygum » April 14th, 2018, 9:29 am

Its not huge, but you can ALWAYS pay £2880 into a pension and get it topped up to £3600 pounds even if you have paid zero tax. This is an allowance by HMRC for those who are unemployed. Work part time etc. But its there to be used.

https://www.gov.uk/tax-on-your-private- ... tax-relief

swill453
Lemon Quarter
Posts: 1671
Joined: November 4th, 2016, 6:11 pm
Has thanked: 87 times
Been thanked: 368 times

Re: Investing lump sum

#132112

Postby swill453 » April 14th, 2018, 9:43 am

runnygum wrote:Its not huge, but you can ALWAYS pay £2880 into a pension and get it topped up to £3600 pounds even if you have paid zero tax. This is an allowance by HMRC for those who are unemployed. Work part time etc. But its there to be used.

That's probably worth doing, but bear in mind that if your pension is taxed on the way out (and most will be), then the net benefit is only £180 per year (the tax saved on 25% of £3600).

Scott.

GoSeigen
Lemon Slice
Posts: 919
Joined: November 8th, 2016, 11:14 pm
Has thanked: 198 times
Been thanked: 199 times

Re: Investing lump sum

#132391

Postby GoSeigen » April 15th, 2018, 9:42 pm

runnygum wrote:Its not huge, but you can ALWAYS pay £2880 into a pension and get it topped up to £3600 pounds even if you have paid zero tax. This is an allowance by HMRC for those who are unemployed. Work part time etc. But its there to be used.

https://www.gov.uk/tax-on-your-private- ... tax-relief


runnygum, ashamed to say I have never looked into this. Would this apply to payments into a SIPP too? If so can both adults and children have SIPPs?

Is income inside of ISA's relevent to the £2880 allowance?

Sorry for the dumb questions.


GS

kempiejon
Lemon Slice
Posts: 745
Joined: November 5th, 2016, 10:30 am
Has thanked: 4 times
Been thanked: 122 times

Re: Investing lump sum

#132400

Postby kempiejon » April 15th, 2018, 10:29 pm

runnygum wrote:Its not huge, but you can ALWAYS pay £2880 into a pension and get it topped up to £3600 pounds even if you have paid zero tax. This is an allowance by HMRC for those who are unemployed. Work part time etc. But its there to be used.

https://www.gov.uk/tax-on-your-private- ... tax-relief

Quick addition, you can only add until age 75.

BobbyD
Lemon Quarter
Posts: 2213
Joined: January 22nd, 2017, 2:29 pm
Has thanked: 49 times
Been thanked: 97 times

Re: Investing lump sum

#132577

Postby BobbyD » April 16th, 2018, 3:49 pm

cartsman2 wrote:
And now we've sold the business and I find myself with the (nice) problem of what to do with the proceeds having not really been involved in the market for close to a decade (I still have the ISA and it's done OK). It's a nice sum of money... Our only debt is our mortgage, which is locked in at a good rate and very affordable (about 75% equity in the house). I could pay it off when the current rate expires next year, but quite like the discipline of the monthly payments while interest rates are low...

And my problem is that I feel like a rabbit in the headlights! When I was squirrelling away relatively small amounts of money on a regular basis I was happy to take risks and learn as I went along. I'm a bit daunted by having what is for me such a large lump sum to invest...



You could recreate the situation in which you were less daunted by paying off the mortgage and investing your monthly mortgage payment instead.

You'd be back to making smaller decisions each of which have less importance for your family's future, you could maintain the discipline of the monthly payments, would constantly have your eye across your investments as you looked for the next purchase, invest across a far longer time horizon taking away your fears about market timing, and should anything close to the worst ever strike you you know you have the security of already owning your home.

GoSeigen wrote:Would this apply to payments into a SIPP too?



Yes. Pop your £2880 in and wait for the bump to your balance.


Return to “How Do I Invest”

Who is online

Users browsing this forum: No registered users and 1 guest