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Lump sum investment for income - places to start?

Hello folks

Me and the missus are about to sell our flat in London and rent for a while (few years probably). We need increased space for the new arrival and it seems like an opportune moment to get out of the housing market.

We are lucky as we have positive equity (est. 70k sterling) and we want to invest for regular income to offset the rent on the new house.

I've done a lot of reading and am totally confused by the massive range of options. I was wondering if anyone could give us any pointers.

I know I need professional advice but right now I don't even know what sort of questions to ask or the best way to find a decent independant advisor (any pointers on this too would be most welcome).

The criteria for investment would be:

  • Capital must have a very low risk of being depreciated (or disappearing!)
  • Modest income is required (5% net would be nice - or am I being unrealistic?), preferably monthly, but could live with longer periods.
  • Term of investment would be 2-4 years.

I've ruled out stocks and shares (too dodgey, I'm no good with them, period is too short).

So far savings accounts are being rather disapointing - I can only find products offering 3.5 ish %.

Other thoughts that come to mind are:

  • UK Governement bonds (safe - but I don't know how to go about investing in them).

  • Using ISA's upto our combined limit + other options (again confused as to how to invest beyond the 3k cash limit and still need to know what to wrap with them).

  • Something offshore (Swiss or British territories - don't feel safe with anything else). I suspect that this may be pointless as I'll be briging the cash straight back so it will probably be liable for tax(?).

  • Some sort of trust (Legal & General offer lots claiming various impressive levels of past performance (yeah - I know, that's *past* performance!).

I'm sorry - I'm a complete newbie to investing - never had any spare money before ;-> Any general pointers would be most appreciated - at least I can concentrate my research - and no, I'm not an FSA spook - this is for real :-)

Thanks very much,

Best wishes

Tim S

Reply to
Tim Southerwood
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I can't give you any advice on investing your 70k, but I can give you a few extra questions to ask yourselves (you don't need to reply with the answers, just think about them).

What is your tax position? 3.5% interest gives a very different real rate of return to a non taxpayer than to a higher rate taxpayer. Depending on your circumstances, you may want to consider tax efficient investments such as National Savings Certificates.

Do you need the level of income to be guaranteed - ie you would be in financial trouble if the rate you received dropped - or is your investment for 'additional' income?

Are you prepared to tie your money up for 2 - 4 years, or do you need to have some or all of it readily available as an emergency fund? Do you expect to be able to meet all of your expected capital expenditure out of income? Could you cope if, say, you were made redundant?

When you say you don't want your capital sum to depreciate, do you mean that you want a return at least equal to inflation and that you will reinvest all or part of the return to ensure that the real value remains constant? Or do you just mean that you want to be sure that you still have 70k in a few years time?

Then there is all the general stuff - are you comfortable with the level of life/critical illness/income protection etc insurance that you have? Have you made wills?

And there will be plenty of other things - as you say, you really need to find yourselves a decent IFA. If you look in the yellow pages you should be able to find an advisor that will give you a free initial interview, and that would enable you to decide if you feel comfortable with them.

HTH

Laura

Reply to
Laura

Hi Thom

Thanks for your reply :-)

Guess so. Just had to be sure I wasn't missing anything.

OK.

Ah - OK, I follow... 2 years tie up is no problem.

That could be an option - decently chosen bonds could meet my idea of "sufficiently low risk" - especially if spread over different bonds. The risk of slow erosion doesn't scare me as much as a moderate risk of the comapany going bust and the bonds becoming worthless.

Sorry - I'm not knowledgeable on the terms here - does "high-yield" refer to the dividends or the expected capital growth?

I agree entirely - a good mix of investments is sensible.

Food for thought - thanks very much for taking the time to help.

Best wishes

Tim S

Reply to
Tim Southerwood

To clarify. An interest rate much higher than 3.5% is an indication of risk (no matter what the adverts claim!). So bonds advertising 7% are from risier companies than those advertising 4.5%.

In that case definitely use up your cash mini-ISA allowances (only a problem if you have other ISAs this year).

Personally, I think they are too risky at the moment. If shares continue to recover at the present rate then yields on bonds should increase (as the market prices in interest rate rises) - that means that the capital value falls. The higher-yield corporate bond funds _may_ be more attractive as the risk decreases as companies recover profits (and therefore are less likely to default/go bust) - this can offset the effect of interest rates rises. However, I'm not an expert and you'd probably want to consider taking professional advice on this.

Dividends. Lloyds Bank was paying around 8%, however that reflects a suspicion that dividends will fall next year (so that's been partly priced into the shares). Other banks are paying 4-6% and quite a few other big FTSE companies are high yielding.

You are welcome.

Thom

Reply to
Thom Baguley

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