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£180k in "cash" - looking for ISA suggestions?
Aminatidi
Posted: 29 January 2018 20:33:00(UTC)
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I have around £180k sat between bank accounts and an old cash ISA and some NS&I Index Linked certs.

I'm 40 and debt free and paying the maximum I can into a company pension with employer matching on an 8/8.

I want to open a S&S ISA and dump £20k in and then do the same next year theory being that in spite of having been lazy to date I can dump £60k somewhere into an ISA in a little over 15 calendar months.

I was looking at an initial split along these lines

MSCI World Index Tracker - 50%
GAM Star Credit - 25%
Troy Trojan O - 25%

I'd be using a regular platform so if I want to put a smaller amount into a higher risk fund I'm free to do so and if I need to re-balance or change things I can do so.

Feedback welcome and apologies for the slightly crass thread title but "life savings earning sod all" didn't seem entirely appropriate :)
AJW
Posted: 30 January 2018 12:26:45(UTC)
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Lucky you! Will you need to access this before retirement? When do you plan this to be?
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Aminatidi on 30/01/2018(UTC)
Jim S
Posted: 30 January 2018 13:41:42(UTC)
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Nice dilemma to have Amin!

What is your marginal tax rate?
You may want to consider increasing your pension contributions above the employer matching rate, especially if you are a higher rate taxpayer. Then you would get generous tax/NI relief on your additional contribution, which you could easily offset by using some of your lump sum.
If you could potentially contribute enough to bring you down to basic rate tax, then you could work out how much less you'd get monthly and keep a few years cash to cover that. The advantage of that approach is your cash buffer makes you defensively positioned to maybe take advantage of market falls.

What other assets do you have? Eg what is your employee pension in? Mortgage?

Are you planning to either buy your first properrty in the next few years, or upsize?

What debts do you have? Paying off credit cards & loans is a no brainer, but I imagine you have that covered.

Maxing your ISA is sensible. Your 3 choices seem OK as they are, esp the cheap tracker. I don't know much about Troy Trojan or GAM Star credit. Personally I would reduce those 2 a bit, especially if you decide to hold more cash to fund a higher pension contribution

Personally I would include 2-3 global equity funds in the mix - Fundsmith Equity (or Lindsell Train Global), SMT, FCS maybe

Even if you invest 60k over 15 months, and overpay your pension from wages for 2-3 years, you might still have plenty left over. Assuming you have cleared any expensive debts, 2 possible choices might be (1) overpaying your mortgage (check the overpayment rules first!) and/or (2) starting an investment outside an ISA wrapper. Both might be good options, personally I would prioritise starting an investment outside an ISA wrapper, then use that to fund your future ISA contributions (using your annual CGT allowance every year when you sell bits off)

Sorry, this has turned into kind of a stream-of-conciousness post
2 users thanked Jim S for this post.
Guest on 30/01/2018(UTC), Aminatidi on 30/01/2018(UTC)
Aminatidi
Posted: 30 January 2018 14:02:27(UTC)
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Thank you both, so in no order -

  • No mortgage, possibly in the future.
  • Pension is a company RL scheme and I'm contributing the max under the scheme
  • Salary is around £45k and I'm employed so straight PAYE
  • Zero debt (car PCP but that's a conscious choice, I could have paid for it "cash").
  • Love my job but having turned 40 focuses the mind that I don't want to work forever


I keep reading there's a correction due which is why I may seem to be being cautious but I'd sooner settle for a lower return and less risk with most of my money and make a conscious choice to put £10k into something that's a known higher risk i.e. the Fundsmith or Lindsell Train funds you mention which I was looking at already.
Jim S
Posted: 30 January 2018 14:58:35(UTC)
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Aminatidi;56156 wrote:
Thank you both, so in no order -


  • Pension is a company RL scheme and I'm contributing the max under the scheme
  • Salary is around £45k and I'm employed so straight PAYE



Whats RL, Royal London or something else?
You might find that by contacting HR/Payroll you're allowed to put more in. Or they may let you do a salary sacrifice for SIPP. But if you're paying 8% then I think that more or less takes your income just below the 40% marginal rate (which is good & gives the most benefit)

Depending on how happy you are with where you live at the moment, your rent, local house prices (or within work commuting distance), your personal situation (wife or yourself pregnant with triplets?) etc, it might make sense to at least think about using around half your sum for a mortgage deposit (if that would even be enough nowadays).

Fundsmith Equity & Lindsell Train Global ('quality' shares) may not be risker than GAM Star credit in a bear market.

I'm not a big fan of any finance unless its very cheap, so when you're thinking of replacing your current car it might make sense to use some of that money to pay for one in full.

Good luck whatever you do & keep us posted!

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Aminatidi on 30/01/2018(UTC)
Aminatidi
Posted: 30 January 2018 15:16:47(UTC)
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Thank you :)

RL is Royal London.

My understanding of bonds is that if a company does go under you're a direct creditor and quite high up the list so you may get something whilst with equity you get nothing at all.

Did I misunderstand that?

I also understood that interest rates influence whilst (clearly) a market crash would influence equity.

That was why I was looking at funds like Trojan O and GAM as they're mostly bonds/other (I know some of Trojan O is equity).
DCB
Posted: 30 January 2018 16:11:06(UTC)
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Invest £20 in "Harrimans Book of Investing Rules" then follow the three magic rules
1.Buy the right shares
2.Pay the right price
3.Do nothing

If you can take advantage of tax shelters, .ISA , SIPP etc so much the better

Best wishes
3 users thanked DCB for this post.
andy mac on 30/01/2018(UTC), Jim S on 30/01/2018(UTC), Aminatidi on 30/01/2018(UTC)
Jim S
Posted: 30 January 2018 16:42:00(UTC)
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Aminatidi;56161 wrote:

My understanding of bonds is that if a company does go under you're a direct creditor and quite high up the list so you may get something whilst with equity you get nothing at all.
Did I misunderstand that?
I also understood that interest rates influence whilst (clearly) a market crash would influence equity.
That was why I was looking at funds like Trojan O and GAM as they're mostly bonds/other (I know some of Trojan O is equity).


My knowledge of bonds isnt great, but I believe interest rate rises also affect bonds because a bond paying say 3% a year will be 'worth' less when interest rates increase, because newly issues bonds and gilts will then be generally paying a higher interest rate. Whereas if interest rates drop, bonds generally gain in value because there are fewer bond/gilts around paying the same rate as before. Having said that, apparently some bonds (eg. short duration) might be safer than others, I think defensive funds tend to focus on those.

If you invest in shares for a quality company (with solid and growing earnings, low debt, high return on capital, renowned brand, barriers to competitors, good patents etc) - lets say Microsoft for example - then the risk is mainly that higher interest rates lower the share price (because new bonds and gilts are starting to give a better guaranteed return) rather than causing corporate collapse.

There are those who think quality companies are overpriced 'expensive defensives' nowadays, but arguably they give you some defensiveness (from consistent earnings and stability) in a bear market, as well as growth prospects in bull market. Of course, picking the right quality shares at the right price is the hard part. Lindsell Train and Fundsmith both seem to have a good track record for picking well, but of course there's always risks.
2 users thanked Jim S for this post.
Tim D on 30/01/2018(UTC), Aminatidi on 30/01/2018(UTC)
King Lodos
Posted: 30 January 2018 17:29:08(UTC)
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Aminatidi;56161 wrote:
My understanding of bonds is that if a company does go under you're a direct creditor and quite high up the list so you may get something whilst with equity you get nothing at all.

Did I misunderstand that?

I also understood that interest rates influence whilst (clearly) a market crash would influence equity.

That was why I was looking at funds like Trojan O and GAM as they're mostly bonds/other (I know some of Trojan O is equity).


I've spread the word about GAM Star Credit Opps .. It's my largest holding, but it's fairly specialist – it's largely in Junior Debt, which is debt lower down in repayment priority, and largely in UK financial companies .. So it's basically lower quality debt in higher quality companies, that could be vulnerable to certain market conditions.

I have 10% in it, but I watch it closely .. I think the manager is extremely good, so I'm happy to hold it, but assessing risk is difficult with this kind of fund – so knowing whether it should have a 5% weighting in a portfolio, or 25%, is not an easy problem .. I also note it's got a lot more popular since I started buying it, so I don't know how size and capacity might affect its ability to manage risk.

I think Troy Trojan is good, but I'm surprised it's not managed to make much of a positive return in recent years .. To an extent, you're buying 1/3rd what you'd get in Fundsmith (quality companies), and 2/3rds cash and bonds .. And obviously that means you are paying 1% (fund fee) to hold quite a lot of cash (you could get 2.2% on in NS&I bonds) and otherwise it's basically a bet on Inflation-linked bonds and gold (which you could buy separately a lot cheaper).


The only reasonable value assets at the moment are stocks .. So I'd say any portfolio should be some combination of stocks and cash (you're doing as much with as possible – e.g. NS&I bonds, current account offers, etc).

If, like Trojan, you want an insurance policy against unexpected inflation, you could consider 5-10% of your portfolio in Gold (I like Bullionvault, or you could buy SPDR Gold ETF in an ISA), and perhaps 5-10% in inflation-linked bonds (I hold Royal London Short Duration Inflation-linked as a conservative option).

But as you're not investing all your money right away, I'd just go for Fundsmith (via their own ISA) for now, as you can't really go wrong with quality stocks and a long-term perspective .. Use the period over which you're deploying cash to read more; I also like Lindsell Train Global; and I also like Vanguard Lifestrategy 80 .. All good long-term, set-and-forget options.

I'd also add the kind of defensive/quality stocks Fundsmith and Lindsell Train hold are a lot safer than a lot of other stock market investments .. Warren Buffett made his billions betting that great companies were ALWAYS good investments (no matter how wild the markets got)


3 users thanked King Lodos for this post.
Jim S on 30/01/2018(UTC), Aminatidi on 30/01/2018(UTC), Alan M on 17/02/2018(UTC)
Aminatidi
Posted: 30 January 2018 17:30:51(UTC)
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DCB;56166 wrote:
Invest £20 in "Harrimans Book of Investing Rules" then follow the three magic rules
1.Buy the right shares
2.Pay the right price
3.Do nothing

If you can take advantage of tax shelters, .ISA , SIPP etc so much the better

Best wishes


Thanks, whatever I decide to do I don't intend going near individual shares as I simply don't have the knowledge or desire to get that involved.

Funds seem the right compromise even if it's just because you add some diversity.
geoffrey Walton
Posted: 30 January 2018 17:56:35(UTC)
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I would keep the IL Saving Certs, unless they comprise a vast % of your money.

At lease whilst they still offer RPI. Not going to make any money, but not going to lose any either.
3 users thanked geoffrey Walton for this post.
King Lodos on 30/01/2018(UTC), Aminatidi on 30/01/2018(UTC), Mr Helpful on 30/01/2018(UTC)
King Lodos
Posted: 30 January 2018 18:05:34(UTC)
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Certainly keep those index-linkers as insurance.

The one market environment no one really expects is a return to stagflation, like the 70s .. In that environment index-linkers and gold might be the only ways to avoid losing a lot of money
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Aminatidi on 30/01/2018(UTC)
Aminatidi
Posted: 30 January 2018 18:09:25(UTC)
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Thank you all, some really good info there which I appreciate.

If I'm being honest on GAM I just did a sort of rating/return on Trustnet and had a look at them and they seem to have a good return and a low risk rating.

Regards returns I guess it depends what you call a positive return compared to leaving cash in the bank earning sod all v risking losing more of it chasing greater returns.

Fundsmith and LT Global Equity were both on my radar as possibly something to stick some in and then just sit back and leave, I'm just cautious of the correction that I keep reading is due.

Was also looking at MI Chelverton but based off little more than reading up on it.

@Geoffrey that makes sense, no intention of cashing them in, the originals were due in 2016 and being lazy I did nothing so I believe they've gone back into another 5 year one @ index plus 0.01%

Appreciate people will always do things a little differently but is there anything in the original portfolio that's insane?
Keith Hilton
Posted: 30 January 2018 18:35:29(UTC)
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To me, your original portfolio looks reasonable for the core of a portfolio. I might be a bit more circumspect regarding % in bonds at the present time, also perhaps spread this holding over two or three funds, to achieve some more diversification e.g. TwentyFour, RL etc.

You could look to rebalance this portfolio at regular intervals, say every year, to follow the buy low, sell high mantra, which might improve returns over just buy and hold.
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Tim D on 30/01/2018(UTC)
Mr Helpful
Posted: 30 January 2018 19:04:54(UTC)
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geoffrey Walton;56173 wrote:
I would keep the IL Saving Certs, unless they comprise a vast % of your money.
At lease whilst they still offer RPI. Not going to make any money, but not going to lose any either.


+1
Good ballast on the Defensive Side.

Just wondering if the portfolio management is to be delegated, or is to be an ongoing hands-on activity?
Aminatidi
Posted: 30 January 2018 19:44:38(UTC)
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Mr Helpful;56181 wrote:

Just wondering if the portfolio management is to be delegated, or is to be an ongoing hands-on activity?


Ideally I'd like to try and do it myself but my view is that I think I'd prefer a simply approach with the odd "punt" than trying to be someone trying to balance 20 funds.

Given I'll be building it up from "cash" via lumps and/or drip-feeds it doesn't feel like it's something I should be needing to pay someone to do unless either it builds into something decent or I screw it up completely.
King Lodos
Posted: 30 January 2018 20:08:53(UTC)
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Aminatidi;56176 wrote:
Appreciate people will always do things a little differently but is there anything in the original portfolio that's insane?


I think it's too conservative, given you'll be drip-feeding .. You can happily go 100% stocks at this point (especially with those NS&I certificates).

If you think of it this way: cash is always losing you money .. So your future wealth is really down to how much of these great companies you own – or how much of the global economy you own.

With 3% inflation, £180k is costing you £5,400 a year just to hold .. I think if we saw money that way (in 'real' terms) we'd be much more tolerant of swings in the stock market .. I hate losing £100, but it's a crazy, irrational way of behaving when losing money is the default position .. I'd say Fundsmith or a global index tracker would be equally good choices – see which makes more sense to you .. I prefer knowing what I'm investing in .. In fact, buying individual stocks seems to make me much less neurotic (because I can choose only to hold only the safest and most profitable)
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Aminatidi on 31/01/2018(UTC)
Aminatidi
Posted: 30 January 2018 20:23:40(UTC)
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That's a very fair point about inflation it's just perception v reality I guess.

Interesting that you think it's too conservative, could I ask if you mean in the allocations or the choices?

I want to keep the global index tracker as that's my diversity, though I accept that may be a lazy or simplistic view.

  • LF Miton UK Multi Cap Income Fund A Accumulation Retail
  • MI Chelverton UK Equity Income Fund A Accumulation shares

Are also options I'm looking at to try and get into the 50% that isn't the global index tracker to make things a little less conservative.

I may be overthinking this given I'm looking at dropping £10k in in the next couple of days and then another £10k by April and then repeat next tax year and so on, point being it's not like I'm dumping £100k directly in where it has to be right, if it needs tweaking there's no issue doing so, sound fair?
Alan Selwood
Posted: 30 January 2018 21:08:01(UTC)
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One point about 'risk' : if Trustnet or other statistics provider says something is higher or lower risk, they mean more volatile in price or 'likely to go up or down more (or less)'. They don't mean that there is a greater risk of becoming ultra-wealthy or losing the lot.

There was a nice comment about the defintions of words in this context in the Saturday Financial Times Saturday before last, when a fund manager at Baillie Gifford said that the latest Key Information Documents that fund managers were forced to issue, using prescribed calculations and wording, were best not looked at, or burned unread, because the regulators had no clue about concepts such as risk!

I would certainly keep all NSI I-L savings certificates as a very low risk, extremely unvolatile investment, for use as insurance against higher levels of inflation.

I would suggest that Fundsmith Equity Fund (T Class Accum) bought as an ISA direct from the managers is worth dribbling into as a major part of your core portfolio.

I find bonds rather undesirable at the moment, as they trhive best when interest rates are falling and inflation rates are declining, which seems wisdhful thinking at present. Corporate bonds look much riskier to me than Government ones - greater risk of loss if the issuing companies get into difficulties.

Have a look at Capital Gearing, Ruffer [RICA], Personal Assets Trust, and Troy funds for conservative, cautious management. Yes, as KL says, you are paying a fee to own cheap bonds and gold and near-cash as well as shares, but at least they are managing, which you don't want to do!

Moderation in all things should serve you well.
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Aminatidi on 31/01/2018(UTC), Mickey on 31/01/2018(UTC)
King Lodos
Posted: 30 January 2018 21:28:12(UTC)
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Aminatidi;56185 wrote:
That's a very fair point about inflation it's just perception v reality I guess.

Interesting that you think it's too conservative, could I ask if you mean in the allocations or the choices?

I want to keep the global index tracker as that's my diversity, though I accept that may be a lazy or simplistic view.

  • LF Miton UK Multi Cap Income Fund A Accumulation Retail
  • MI Chelverton UK Equity Income Fund A Accumulation shares

Are also options I'm looking at to try and get into the 50% that isn't the global index tracker to make things a little less conservative.

I may be overthinking this given I'm looking at dropping £10k in in the next couple of days and then another £10k by April and then repeat next tax year and so on, point being it's not like I'm dumping £100k directly in where it has to be right, if it needs tweaking there's no issue doing so, sound fair?


Principally allocations.

We'd generally say there's an 'accumulation stage' in investing – where you build your positions .. Then eventually you get to a 'capital preservation' stage (generally, as we get older, we'd shift to more defensive portfolios, as large losses become harder to absorb).

If you look at long-term returns by asset class:

https://i.stack.imgur.com/I9PiN.jpg

.. stocks are the only real game in town (doubly so today, with bond yields where they are).

If you started buying now, a fall in stock prices would be the best thing possible: you'd get a chance to buy more stocks in one of those dips .. I'd hope we get a market crash at some point while you're deploying capital – it would mean you get a chance to buy 'cheap'.

For that reason, a defensive fund like Troy Trojan might not make much sense yet .. GAM Star is a great fund, but I think it's very specialist, difficult to assess risk in, and also perhaps unnecessary at this stage.

Choice of funds, especially in stocks, I think is rather arbitrary .. Stocks are basically stocks .. Your discipline and the amount you save will have the greatest effect on returns .. Picking individual funds is much more of a lottery – you might outperform the index, you might not .. Some funds just make a lot of sense .. But most diversification we do is just neurosis and indecision manifest




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Aminatidi on 31/01/2018(UTC)
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