Reply to: £200k to invest - what would you do ?

[scooterscot]

Now, the idea of FIRE seemed appealing. Work out how much cash one would need to retire, how long it'll take to accumulate, and stick a retirement date in the diary

At this point, passive investing is now looking like the preferred option over BTL. Am still reading lots, but this is the outline plan:

Basics - done:
- Home on a long-term fixed mortgage
- No other debts currently
- FU Money already stashed

In Progress:
- Work out current expenditure
- Create a budget, and realise the available monthly cash
- Identify how much cash needed to live on in retirement, and based on current stash and the available monthly amount, work out retirement year
- Stick pot of cash & monthly free cash into savings, invest in a world equity index tracker & bonds, balancing ratio to manage the risk (investing as tax-efficiently as possible)

Oh, and also: Marie Kondo the house

Definitely the way to go. BTL is energy draining, zaps your brain juice. Furthermore you'd be buying into an overinflated overhyped market. Soon enough interest rates will begin their journey north. When they hit 2-3% many yields from BTL will go up in a puff of smoke. We'll soon have a BTL glut as landlords look to unload their properties when a savings account look infinitely more appealing without the management stress.

The only thing I'd suggest, as in my first post, on this thread is to diversify. Don't go all in on the bond market, too many are throwing money at the government. Even in Germany money back will be less than they gave. Nuts.

Even the equity market should be give caution amidst the epic amount of share buy back that's been going on.

Equity Market Concentration - Market Capitalization of 10 Largest Companies as Share of S&P 500 Total


Take aways, diversify and don't be too keen to use up your cash on investments. A year from now folks with cash will be in the minority.

Take 1% of your portfolio and buy Ethereum. Sell it in June. Not financial advice

[Whorty]

Most of this is reasonable advice, but premium bonds pay less and less over the years due to government changes in the percentage of total held money then awarded as 'prize' money. It's basically, on average, well below inflation.

Wife and I both have max amount in premium bonds. Over the past 2 years we have both just beaten their 'average' return, so not great but no worse than cash ISAa and there is the possibility of winning bigger one year (well, we all have to dream!). This is our rainy day, easy access cash.

[rogerfederer]

So if that's the case and I was him I'd probably split it in to a number of different vehicles

Max out premium bonds for a few years (just because I've fancied having a go but never had enough 'spare' money to put in to this)
Decent sum in RateSetter and another like Zopa or similar
Max the ISA every year in a medium to low risk fund (possibly use any other family ISA if you can)
A lump in a slightly higher risk fund, possibly tech but be prepared to keep an eye on market crashes
Couple of terraced properties in a good area (low risk but not the most fantastic returns and go long term)

I think the spread of high risk which is doing OK would help bump up the fund with the steady returns from RateSetter, the house and possibly PB keeping it ticking over. In a couple of years the profit from all will give me enough of a buffer should the risker investments not pay off so averaging a lower figure that I would have been happier with.. Fairly standard risk spreading I think.

Most of this is reasonable advice, but premium bonds pay less and less over the years due to government changes in the percentage of total held money then awarded as 'prize' money. It's basically, on average, well below inflation.

[Spoiler]

So, ~7 months since I originally posted this thread, and it's been a bit of a learning journey ...

TL;DR: BTL looked a decent investment option, certainly using leverage to boost returns. But world equity index trackers look a much easier ride

Initially, my focus was BTL. I read a Rob Dix book, listened to podcasts, read websites, signed up to newsletters, etc. For a while this was going to be the recommended plan: Invest in property, use the Leverage advantage to maximise gains (or amplify losses!).

Then, I happened across FIRE, passive investing, read the RESET book, watched the Lars Kroijer Investing Demystified video series, signed up to a load more newsletters, read website after website.

This Amazon review of the RESET book stuck out for me:

As per almost all of the FIRE community he focuses almost entirely on the use of equities and bonds as investment choices, writing off the idea of renting out property in a couple of short paragraphs.
Since our personal FI journey has been largely driven by letting out houses we used to live in, this is a shame. The suggestion that property isn't passive income is fair, but we've used full-service management agents for many years, and have been able to travel full time abroad while they took care of finding and vetting tenants, rent collection, checking the houses, holding deposits, making repairs, arranging gas inspections, everything.
While if we were starting from scratch now we'd go down the index tracker (shares) fund route David suggests, renting out property is well worth investigating more outside of this book if only to ponder a wider asset diversification.

Now, the idea of FIRE seemed appealing. Work out how much cash one would need to retire, how long it'll take to accumulate, and stick a retirement date in the diary

At this point, passive investing is now looking like the preferred option over BTL. Am still reading lots, but this is the outline plan:

Basics - done:
- Home on a long-term fixed mortgage
- No other debts currently
- FU Money already stashed

In Progress:
- Work out current expenditure
- Create a budget, and realise the available monthly cash
- Identify how much cash needed to live on in retirement, and based on current stash and the available monthly amount, work out retirement year
- Stick pot of cash & monthly free cash into savings, invest in a world equity index tracker & bonds, balancing ratio to manage the risk (investing as tax-efficiently as possible)

Oh, and also: Marie Kondo the house

[greenlake]

Porsche 911 3.8 991 Turbo S PDK AWD (s/s) 2dr

Remaining 40k can be wasted used to replace the wall that you're likely to demolish.

Shirley?

Nah, he drives a Merc SUV now, so the damage is likely to be far more extensive....

[Zigenare]

Porsche 911 3.8 991 Turbo S PDK AWD (s/s) 2dr

Remaining 40k can be wasted used to replace the wall that you're likely to demolish.

Shirley?

[DimPrawn]

I got all my investment knowledge from these guys:



They're selling Mortimer: Orange juice futures hit 9-year low

[AtW]

Porsche 911 3.8 991 Turbo S PDK AWD (s/s) 2dr

Remaining 40k can be wasted

[DimPrawn]

That's probably what I would do if I came into £200k. Mortgage rates may not stay this low forever.

Buying a nicer house, and/or being mortgage free, would give me a lot more satisfaction than investing the money.

OP Said

"A friend" has £200,000 (net) coming their way, and wants to invest it in a lower-risk way that would provide some level of income"

Well, instead of investing for an income and them paying a mortgage, a risk free approach is to pay the mortgage off, suddenly your outgoings fall and you have the same outcome as an increased income.

However, if the OP really does need an increased income, buying a bigger house isn't going to provide it.

[mattfx]

Thanks for the replies regarding B2L - it's likely this will be the main investment for the available money. Just need to do some more research...

Any tips on identifying the better areas to buy in - up & coming ? new rail connections ? is it better to stick closer to home ?

Rob Dix has a fantastic, no BS book about property. https://www.amazon.co.uk/Complete-Gu...gateway&sr=8-1

He explains things clearly and concisely without too much anecdotal crap in between.

There are some good property channels on YouTube. Samuel Leeds appears to be quite good from what I can tell / have watched.

A swift google will tell you that Nottingham and Liverpool have 5 of the top 25 rental yield postcodes. However, with patience and time and a ton of effort, you can find local properties that have still yield well. (in my so far, very, very limited experience.)

[fiisch]

Vanguard Lifestrategy funds via Vanguard's own platform. Cheap, already diverse, set and forget, done.

Will take a while to get £200k ISA wrapped mind.

[northernladuk]

To be fair NLUK, I am not aware of the other issues that come with them, if you want to PM them to me if you have experience, that'd be great and i'd appreciate any insight.

Not quite experience with the setup you are talking about but I've had problems with a flat in a converted mill where as I haven't had an issue with multiple houses. It's unexpected problems of which mine were and I just can't help are there with converted properties so I just steer away now. I also feel people are more likely to make a home of a full house than they would a converted property so more chance of people staying/taking more care as well. Depends on the size and quality of the conversion I guess but if it's shoehorned in to make max profit of less space then it's not the best. There is more than enough good small whole properties out there where good bartering or quick offers etc can make more than the savings of ground rent so I'm in for single houses now. I guess it's just my risk factor. I won't go near student areas, flats and try and shy away from 'cheap' areas. Profit may not be as great but it's a nice slow easy burn with less hassle.

The mortgage has been stress tested to 5% and the property still turns a profit. I've set aside a monthly maintenance allowance (12% of rental income) and included management fees in my calcs.

I've setup a ltd. to hold the properties; as long as HMRC don't decide to come after limited companies holding property as well (only a matter of time I guess..) then I think I'm in an okay position. CGT and personal taxation against the investments can then be mitigated to some extent.

I've tried to plan without having any rose tinted glasses on and plan everything around a medium to worse case scenario. I also think you're right and the market is due a correction, but, analysts have been saying that for years and it still hasn't arrived. My strategy is to rely on rental returns rather than price increases to make my money. If I manage to sell up for a large profit at the end of it, more the better!

All good stuff that. You've definitely not walked in like most people that just buy a property because it's the done thing so you'll be fine.

[northernladuk]

I would pick areas where it doesn't take long to evict people if you have to. The experience of my mates in London is that the courts are clogged up and it can take up to 18 months to evict. Rogue tenants know this and game the system.

You can speed up the eviction by getting it transferred from the County Court to the High Court. It's more expensive but can save thousands in unpaid rent.

Evicting tenants (England and Wales): Eviction notices and bailiffs - GOV.UK

I'd say this is pretty irrelevant. It's a pain in the ass anywhere so a very minor point (it at all) to consider. So much so that's the first time I've heard anyone mention this in decades of letting.

[northernladuk]

Thanks for the replies regarding B2L - it's likely this will be the main investment for the available money. Just need to do some more research...

Yep

Any tips on identifying the better areas to buy in - up & coming ? new rail connections ? is it better to stick closer to home ?

A lot more.

[Zigenare]

I'm sure some of that is racist.

Seek clarification from OG, he's the "Racist Finder General" when NAT isn't around.