Thinking about investing an inheritance

[Rituximan]

My mother died recently and I am wondering what to do with the inheritance once probate is done and all the bills are paid. I have regularly used my ISA allowance over that last 20 years or so to build up a portfolio of dividend-paying shares, mainly FTSE 100 companies. I could use the inheritance to continue this strategy, but it might be an opportunity to broaden my investments beyond the FTSE. I enjoy reinvesting my dividends, so I am wondering about looking for income-paying investment trusts, or ETFs possibly. Am I correct in thinking that one can find both ITs and ETFs that provide income and have reasonable TERs? A breakdown of my current assets would be: house (22% of total), pension (34%), ISAs (39%), cash (5%), no mortgage or debt. Does this seem like a sensible strategy? I’ll be 58 this week, supposed to retire in 8 years but may well retire before then.

[Lootman]

Regardless of the source of the funds I think you absolutely should invest outside the FTSE-100, which is only about 3% of the global market cap of shares.

The essential market to invest in is the US. It's about 50% of global market cap, and contains all the drivers of growth like IT and Biotech. The Vanguard ETF VUSA covers this nicely.

Then I'd look for exposure in Continental Europe, Developed Asia and Emerging Markets. I don't think you need to emphasise yield which typically will put you in duller sectors like utilities, phones and banks. Just use trackers to keep costs to an absolute minimum.

One ETF that covers the entire planet is VWRL (Vanguard All-World Index ETF). It will cost you 25 basis points a year and is invested in everything. Buy it and sleep.

[77ss]

My mother died recently and I am wondering what to do with the inheritance once probate is done and all the bills are paid. I have regularly used my ISA allowance over that last 20 years or so to build up a portfolio of dividend-paying shares, mainly FTSE 100 companies. I could use the inheritance to continue this strategy, but it might be an opportunity to broaden my investments beyond the FTSE. I enjoy reinvesting my dividends, so I am wondering about looking for income-paying investment trusts, or ETFs possibly. Am I correct in thinking that one can find both ITs and ETFs that provide income and have reasonable TERs? A breakdown of my current assets would be: house (22% of total), pension (34%), ISAs (39%), cash (5%), no mortgage or debt. Does this seem like a sensible strategy? I’ll be 58 this week, supposed to retire in 8 years but may well retire before then.

Yes, there are ITs that give a decent yield. But at the expense of capital growth. Be sure that is what you want. I would have thought that at age 58, you might be better advised to look at total return. VWRL is one obvious possibility; so are the big global ITs (Witan, F&C...). I wouldn't fret too much about TERs - if an investment is doing the job, why should you care about costs?

[monabri]

I would also suggest looking at Vanguard VHYL ( World High Yield)...current yield roughly 3.8%.

I'd also suggest downloading the free Pensioncraft "ebook" which provides a good summary of the Vanguard funds

https://pensioncraft.com/fundbuyers-checklist/

Plus viewing a few of the free videos

https://pensioncraft.com/blog/


Income ITs ( not UK) - plenty on offer. Have a look at the AIC website.

[Rituximan]

Thanks to all for your input. I had not considered investing for growth. Not having an income from these investments would mean that I would not have a problem with taxation from these investments. Something worth thinking about.

[Backache]

You have not stated what you are investing it for or what your time scale is. Nor what proportion of your portfolio it would be.. If you are likely to need some of the capital in the near future for instance for a big holiday on retirement it may be worth considering putting a proportion into a less volatile vehicle than a full equity fund , one of the Vanguard Life strategy funds may be appropriate.
Equally if you think it is largely for long term growth with an idea of passing some of it on a full equity holding may be very sensible.
I am not suggesting this or trying to contradict previous suggestions its just without an idea of the purpose and time scale you may buy something less suitable.

[Urbandreamer]

I'm with Backache here, you need to think about your investment intentions. We would just be guessing.

My intentions are such that I agree with those who argue that you need to invest internationally and include at least some growth investments, but those are my intentions.

Others have ceased work in their early 50's and live off the return of their investments. In those cases UK income is very important. They seek investments that hopefully provide stable and growing income with little exposure to currency fluxuations. Of course they are regecting many great investments, because they can't accept/afford the risks.

I am not suggesting either of these investments, they are examples (though I hold both).
SMT https://www.youinvest.co.uk/markets/inv ... ment-trust
Great growth, Quite high risk, little UK exposure.
or
CTY https://www.youinvest.co.uk/markets/inv ... ity-london
Decent returns, Great payment record, UK targeted.

Note that I provide those examples to illustrate the choce of direction that I think you need to consider. Others would argue that passive ETF's or tracker funds would be their choices to achieve the same objectives. I don't want or feel the need to get into a passive/active debate.

[Rituximan]

I have been doing the tax assessment of my mum’s estate, and it is worth about 25% of my total assets. So – it’s not massive, not life altering – but not to be sniffed at either. Trying to decide what my investment intentions are has become tricky. The aim of the dividend-paying portfolio of FTSE 100 stocks was indeed retirement income. However, eight years ago I was diagnosed with a slow-growing form of blood cancer. Incurable, unpredictable but treatable, and no consultant I have met has wanted to give an estimate on exactly how long I might expect to live. It ‘could’ be as much as 20 years. I spent the first few years after diagnosis trying to convince myself that I should retire early. When I had to go through chemo nearly three years ago I had a few days off work after each treatment and realised how much structure work gave my life. Thus, thoughts of early retirement vanished until a random act of management occurred about a year ago, when the powers that be switched me onto a new account and I had a major fall out with them. I nearly left but settled into an uneasy truce by going down to a 4-day week. This is pleasant, but when my partner goes away for a weekend occasionally I am reminded of how retirement threatens to be a rather empty experience. I could get another job, but I have only a ten minute commute and I enjoy the company of my colleagues; the management and their dispiriting displays of ineptitude are the problem. So, I can see me working for another two years at least, quite possibly four or five. For now, I could keep on using my annual ISA allowance to add to the dividend-paying portfolio, and perhaps use this inheritance to create a more global growth portfolio.

[Dod101]

I know quite a lot about blood cancer (or at least one form of it) and I am very sorry to hear of this issue. They seem to be so individual that I doubt that anyone can give you anything like an accurate prognosis. I think your comments are totally understandable and you need to have an outside interest, whether work or otherwise.

In the circumstances, I would be inclined to use your inheritance to build up income and probably a HYP like portfolio will prove the best idea. That would then give you the option to fall back on that if you are either forced to or decide to retire early or simply reduce the hours worked. I would not have thought that a rather more complicated worldwide growth type of portfolio is what you need. Why would you want that? Earlier you mentioned reducing the tax problem but as has been said many times, do not let the tax angle rule your decision.

If you are looking for lo term growth, I would be very inclined to go for one or two ITs such as Scottish Mortgage and Caledonia to sit alongside an income portfolio. Neither has much of a dividend but both have very good growth records and are simple and straightforward to run.

Keep it simple.

Dod

[richfool]

I have been doing the tax assessment of my mum’s estate, and it is worth about 25% of my total assets. So – it’s not massive, not life altering – but not to be sniffed at either. Trying to decide what my investment intentions are has become tricky. The aim of the dividend-paying portfolio of FTSE 100 stocks was indeed retirement income. However, eight years ago I was diagnosed with a slow-growing form of blood cancer. Incurable, unpredictable but treatable, and no consultant I have met has wanted to give an estimate on exactly how long I might expect to live. It ‘could’ be as much as 20 years. I spent the first few years after diagnosis trying to convince myself that I should retire early. When I had to go through chemo nearly three years ago I had a few days off work after each treatment and realised how much structure work gave my life. Thus, thoughts of early retirement vanished until a random act of management occurred about a year ago, when the powers that be switched me onto a new account and I had a major fall out with them. I nearly left but settled into an uneasy truce by going down to a 4-day week. This is pleasant, but when my partner goes away for a weekend occasionally I am reminded of how retirement threatens to be a rather empty experience. I could get another job, but I have only a ten minute commute and I enjoy the company of my colleagues; the management and their dispiriting displays of ineptitude are the problem. So, I can see me working for another two years at least, quite possibly four or five. For now, I could keep on using my annual ISA allowance to add to the dividend-paying portfolio, and perhaps use this inheritance to create a more global growth portfolio.

Rituximan,
I can relate to your comment about how work gives structure to one's life. I found after initially retiring, overseas, I had plenty to do and the climate was conducive to doing so, though since returning to live in the UK I find little to do during the colder months of the year, particularly as my wife works part-time. There is much merit in keeping involved in many activities & pastimes.

In terms of your situation at work, I would try not to be too despondent about things there, as systems, procedures and personnel seem to change ever more swiftly these days, thus the situation there could change for the better. Make the best of it and take whatever enrichment you can from it.

In terms of investments, I am a firm believer in Investment Trusts and have a portfolio of them. There are trusts to suit various investment objectives, be they growth, income, a mix of the two, or wealth preservation, with scope to focus on UK or Global sectors. They provide me with an additional interest in retirement.

Good luck.

[dspp]

I have been doing the tax assessment of my mum’s estate, and it is worth about 25% of my total assets. So – it’s not massive, not life altering – but not to be sniffed at either. Trying to decide what my investment intentions are has become tricky. The aim of the dividend-paying portfolio of FTSE 100 stocks was indeed retirement income. However, eight years ago I was diagnosed with a slow-growing form of blood cancer. Incurable, unpredictable but treatable, and no consultant I have met has wanted to give an estimate on exactly how long I might expect to live. It ‘could’ be as much as 20 years. I spent the first few years after diagnosis trying to convince myself that I should retire early. When I had to go through chemo nearly three years ago I had a few days off work after each treatment and realised how much structure work gave my life. Thus, thoughts of early retirement vanished until a random act of management occurred about a year ago, when the powers that be switched me onto a new account and I had a major fall out with them. I nearly left but settled into an uneasy truce by going down to a 4-day week. This is pleasant, but when my partner goes away for a weekend occasionally I am reminded of how retirement threatens to be a rather empty experience. I could get another job, but I have only a ten minute commute and I enjoy the company of my colleagues; the management and their dispiriting displays of ineptitude are the problem. So, I can see me working for another two years at least, quite possibly four or five. For now, I could keep on using my annual ISA allowance to add to the dividend-paying portfolio, and perhaps use this inheritance to create a more global growth portfolio.

Rituximan,
I can relate to your comment about how work gives structure to one's life. I found after initially retiring, overseas, I had plenty to do and the climate was conducive to doing so, though since returning to live in the UK I find little to do during the colder months of the year, particularly as my wife works part-time. There is much merit in keeping involved in many activities & pastimes.

In terms of your situation at work, I would try not to be too despondent about things there, as systems, procedures and personnel seem to change ever more swiftly these days, thus the situation there could change for the better. Make the best of it and take whatever enrichment you can from it.

In terms of investments, I am a firm believer in Investment Trusts and have a portfolio of them. There are trusts to suit various investment objectives, be they growth, income, a mix of the two, or wealth preservation, with scope to focus on UK or Global sectors. They provide me with an additional interest in retirement.

Good luck.

Rituximan,
From where I sit, it sounds as if the best investment you could make is in consciously developing your own life: taking up new interests, hobbies, sports, whatever. Most easily done now bit by bit, rather than all at once and under (internal) pressure if you suddenly part company with your workplace.
Regards,
dspp

[JohnB]

Conservation volunteering gives structure to my retirement, with 2-3 sessions a week to fit in. As your CGT allowance matches your Personal Allowance, it makes sense to have investments that do both, and focus on total return-expenses. Equity Index trackers do that for me.

If I were 58 with less than 20 years life expectancy, it would have to be a great job to keep me working. You do need to talk about inheritance planning with your wife/children

[monabri]

If I were 58 with less than 20 years life expectancy

In my family line 78 would be a blooming good innings and 18 yrs longer than my father achieved. I'm 57! ( hence retired at 51 and not a moment too soon).

[XFool]

Thanks to all for your input. I had not considered investing for growth. Not having an income from these investments would mean that I would not have a problem with taxation from these investments. Something worth thinking about.

Nor would you have if they were in an ISA, as dividend income whether inside or taken from an ISA is Tax Free.
(Of course, you likely already know this.)