Investing £50k for income

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23rd Jan '20 by CheshireUK

10 comments 1096 reads

My wife will shortly receive £50k from the proceeds of her mothers will. She would like to draw a small income from it, and I am interested in the views of people here on what approach they might take. I know there are many other factors to take into account so I will just list what I think are important.

She has no pension income other than what she will receive in 4 years time when she will be 66

We could live off my own pension income (SIPP in drawdown), so we are not really reliant on income from her £50k

She is very risk-averse, I am not.

She is talking about putting most of it in premium bonds, but already has £20k invested in Premium Bonds.

I have been thinking she might be wise to look at Investment Trusts that provide a regular income, say 4% per year.

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About the Author

CheshireUK

Premium Member

I have managed my own investments for over 30 years within the tax efficient wrappers of ISA's and a SIPP.

10 comments

bryans1311

23rd Jan '20

This might be above your risk threshold, but is a portfolio constructed specifically to generate a reasonable income, ignoring fluctuations in capital values.

https://www.stockopedia.com/content/how-i-build-an-hyp-459388/

john2

23rd Jan '20

She might think about investing in a FTSE100 ETF,which is currently yielding around 4.3%. That’s a decent yield and over time the underlying shares should go up.

Laughton

23rd Jan '20

The overriding point I've taken from the OP is:

"She is very risk averse"

A HYP is all very well but how would you feel (let alone how would your wife feel) if you suggest a 10 share portfolio and one of them goes bust or drops 30%? Not good I imagine. Bear in mind that very often shares are high yielding for a reason.

There are ITs out there which will give you a decent spread to cut down on risk - but they do go down as well as up and who's to say this year/next year might be that down time? A 4% yield is all very well - but not so great if the share price drops by 6%.

So, my suggestions would be:

Buy another £30,000 of Premium Bonds - the most disappointment you'll experience will be if you don't win any prizes on the first of any month (but you'll then start looking forward to the first of the next month). And your wife will sleep soundly. Inflation/bank interest is so low that you're not missing out on much and the money is always available at a few days notice.

Then you could think about the balance invested in a small spread of preference shares. There are some out there that could be thought of as pretty safe and yield in excess of 5%

and/or

a tracker (some of those are really low cost, no stamp duty on purchase, will give you more spread than you could get buying individual shares and currently have a reasonable yield).

But hey, what do I know? I've done all the things I've suggested you don't do.

I have though also done all the things I've suggested you consider.

JollyBiologist

23rd Jan '20

The John Baron portfolios http://www.johnbaronportfolios.co.uk/index.php have a range of different Investment Trust portfolios, some constructed for growth, but others built to provide an income. I've put together a £50,000 portfolio for my mother based on these - along with a few shares I regard as low risk/high income, and it currently yields well in excess of 5%. They're nicely diversified to reduce risk and some of them have shown decent capital growth. You have to subscribe, but I find it well worth it for the informed content.

Gromley

23rd Jan '20

Stephen Bland's excellent HYP model was the first thought that came to my mind to.
But perhaps it is outside the risk tolerance? Not much more risky than the FTSE ETF I would guess.

In my view though, one does need to differentiate between risk and volatility. It would certainly have been uncomfortable to hold a FTSE ETC from the back end of 2007 through to early 2009. However the FTSE is now showing an annualised return since the pre-crash peak of I think a little over 1% p, so even picking the worst starting point it's not far off matching inflation (and will probably catch up again). So if you had no plans to touch the capital one could have sat back an enjoyed the ongoing dividend income.

I do though have some lifestyle thoughts on this.

You do not mention whether your wife is currently working. If not, then she could bring forward the effective date of higher income from state pension, by drawing c. 8k annually for the next four years. And if she is working, and will be comfortable with the retirement levels of income, she could splash the same £32k on early retirement.

Just to take the example of the c. 4% yield on the FTSE ETF mentioned above that would be £2,000 per year - a nice holiday each year.

It all comes down to personal choices about what has the biggest impact on your aspirations.

I am somewhat swayed in my views here but having recently reviewed the financial standing of an elderly relative.

Since loosing her husband a few years ago; she now has pension income of c.150% of annual outgoings, investments that if deployed intelligently could provide a similar level of annual income and a fully paid off house that could probably realise a similar amount though a lifetime mortgage.
She is frankly 'minted' (in the context of her expectations and experience of lifestyle) - She could 'splash the cash' on all sorts of things, but she is at the time of life where she is happy with her routine - she doesn't want for anything that money could buy.

Her assets only really serve to pay for later life residential care, should it be needed.
Had she known a few years ago just how prudent her finances were,she may have made different choices I think.

gus 1065

24th Jan '20

A similar issue cropped up in our household a couple of years back. Not very exciting, but one of the best uses of some of that surplus cash was to “buy” the missing years in my wife’s National Insurance contributions (due to an extended gap in her employment record) to make sure she qualified for the full state pension at retirement.

Very much depends on personal circumstances but for a relatively modest payment of a few thousand pounds she was able to secure a pretty decent U.K. govt. backed, index linked perpetual/lifetime weekly income stream on terms significantly better than she could have got through a regular private investment (unless of course the politicians decide to mess around with it). If you think it might apply (easy enough to check your status online via the HMRC website) it might be worth looking into.

Gus.

jonesj

24th Jan '20

Park it in about 5 investment trusts from managers with good 10 year records.

Also, obviously within an ISA. With 2 of you, all of it could be in ISAs by April 6.

Then ignore it.

dmjram

24th Jan '20

"She is very risk-averse, "

If she can't cope with seeing the capital value fluctuate and go down by a large amount in a bear market which she will almost certainly experience given the age she is investing at, then she shouldn't go near the stock market.

facepalm

14th Jun '20

for £50k I would invest in four or five inc investment trusts - do some research on ii who have some great selection tools or choose from their 'super 60' funds if you are not sure and need some guidance.

Do not just invest and forget these funds, check up on them regularly. If you have any concerns you should check their performance against other similar funds (benchmarking) and if you think they are underperforming in comparison - move them. If the sector you have invested in is underperforming generally, then also consider a move.

I set up a fund for my son as per above three years ago, as you can see and I have achieved 41% after probably an hour or so research. There were four funds originally, the most underperforming one I dropped and reinvested in the best performing two after about six months i think.

If your wife is risk averse I advise you do not invest in individual shares, and choose funds that have a low risk score (there are many).

Apologies if i missed the boat on this, but comparitively safe investing isn't so difficult with all the tools available to you on various websites.

My sons funds pre covid were approx 55% gain so that gives you an idea of how safe Trusts can be.

Please don't copy the funds I have chosen, this is just an example - always do your own research!

Macro

14th Jun '20

Well, many people think that the markets are heading lower as we move further into recession. So, I would take 4% for the 1st years income (£2k) and set it aside in a seperate cash deposit now. With the rest (£48k) I would put it into a trading account. From there two paths to chose from:

- Path A: Wait in cash for the markets to fall, and _then_ invest in Renewables (TRIG.L, UKW.L), and Infrastructure (3IN.L, HICL.L).

- Path B: Proceed with extreeme caution with Ruffer (RICA.L) the Brevan Howard trusts (BHMG.L, BHGG.L), Capital Gearing (CGT.L), and then relax your levels of caution as we come out of recession along the lines of Path A.

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Investing £50k for income

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CheshireUK

10 comments

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