Investment & Investing

Risk. Higher rates of return are offered where the risk of default / delinquency are higher.

As update on the above I have now had a message from 212, they say "it shouldn't be a problem" and should still arrive in my account sometime in the next 3 days. It's not totally confidence inspiring but we'll see I guess.

There seem to be a fair few other people who've done similar but with no update of the outcome, I assume if they'd lost there money they'd have been making more noise.

I think the short time frame is the main issue. If you want decent returns averaged out over a number of years and flexibility on when you take the money that should be more achievable.

Totally agree with comment above. Over a longer time frame is shouldn’t be an issue with investing in a low fee index fund which historically has returned 11% average since 1975. It’s just that if your time frame is only 3 or 4 years you can’t be sure that we wouldn’t be in a recession when you need the money again.

I did a box and whisker plot in this thread a few years ago.

https://www.lfgss.com/comments/16283312/

Ballpark estimate was: you've got a ~15% chance of losing money if you're investing in an index tracker for a 3-5 year time frame, but in the median case you get something like 40-50% growth

I've had some similar conversations recently (not my money), but limited appetite for wealth management help given the cost involved. Would be interesting to know if they are happy with the scale of admin involved to keep it as efficient as possible?

In case its helpful, these were the broad topics we discussed. Med-low risk options are probably:

• cash interest accounts
  
• premium bonds
  
• government bonds
  
• stocks and shares
  
• pension
  
  

I would probably be doing some fag-packet calculations on what returns you would get with a mix of the above, with a bit of tax thrown in. Wealth managers may have access to some savings products that you don't, but I'd be surprised if there was a big difference.

Tax efficiency will be important but this may make things administratively more complicated. Some things to consider:

• if you are comfortable putting £50k of PB in your daughters name then you could have a bigger chunk of the cash interest-bearing accounts in her name and utilise her larger savings allowance/20% tax rate rather than your 40% rate
  
• Assume you are happy with the way the return works on PB's (not linear/guaranteed)
  
• If you go for any equities you probably want the majority in the ISA to keep unpredictable gains tax free, bearing in mind your CGT allowance. This means the more predictable savings income is taxable - likely easier to manage subject to base rate changes
  
• Pick low coupon govt bonds to maximise the CGT-free benefit
  
• Consider using your pension allowances and taking it back as your lump sum later [may not work with your timeframe]
  

Nice, reminds me of Robert Shiller’s P/E based method of forecasting expected future returns from S&P500, but looked at multiple 10 year timeframes and varied it by looking at actual annualised returns over multiple 10y periods from various starting points, this gave me a bit of a nerd-on when I first saw it in his book Irrational Exuberance. If you take todays P/E of 38 for the index, the chart shows that you might reasonably expect (based on historical performance) a return of 0% over the next 10 years from an S&P based tracker. Note the image included here indicates current PE as 31 which it was in December 2023 when that chart was last updated, and does not take into account the significant growth this year driven by a very small number of mega cap tech stocks rather than participation in the rise by the broader index . So although it is generally advised to not try and time the market, there are some valid considerations about whether lump
Sum Investments into index tracker funds are a good idea at specific points in time

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Google just threw up this... 'As of November 24, 2024, the S&P 500's price-to-earnings (P/E) ratio was 27.87.'

Just wondering where your 38 was from?

Sorry you are right I misrepresented that, 38 is the current Shiller PE ratio which smooths out price and earnings over the 10 year period in question and is not the usual 1 year PE ratio.

This site shows 2 charts comparing the PE ratio and Shiller PE ratio over the last hundred years or so
https://www.longtermtrends.net/sp500-price-earnings-shiller-pe-ratio/

We have an ifs/wealth manager but at the low end of things.

Am I guessing that if the lump sum is paying income tax then it will be bonus or shares of some kind?

Generally I’ve found that the advice has mostly been:
how to do things in the most tax efficient way
Once you’ve got that licked what are you doing with your money to get you a return on it

Am I guessing that if the lump sum is paying income tax

Nope.

bonus or shares of some kind?

I wish. I am a mere cog and not a big cheese.

Sorry for being obtuse or not grateful for the replies so far but I don't want to explain much more without making certain parts of my private life public. I've nothing to hide and there's nothing nefarious going on but I'm not very anonymous here (things have got better now that much of the forum is not googleable any more). My manager³ will probably have read this and has nothing to be concerned about!

Think of all the things that it could be (both good or bad) and then think why I might not want to have to explain the possible source of the money.

It doesn't matter how/why. Just what would/could one do, and what kind of rates would one expect, if one suddenly had £500k to invest for a 4 year period that wasn't YOLO/FAFO money.

I’m pretty sure children’s allowance on interest drops to £100 if the money is given to them by a parent. Specifically to stop parents using their kids to avoid tax on interest.

It absolutely won’t be a problem. As you say, they can’t just take your money. Happens even more regularly with TransferWise.

Of course it may take some time to return and with little to no comms, as they’re not particularly incentivised to do so.

Yeah hopefully, nothing has turned up yet, but there not going to look at it until its been 3 working days which I assume is Friday.

I suppose it’s not easy to extrapolate the HMRC £100 interest rule to PBs held in child’s name, and I think HMRC approach would be based more on core principles that money held in a Child’s account should be solely for Child’s benefit and both the initial investment and any income derived from it should not be subject to being claimed back by the parent at a future date, because if they were than it could have the appearance of intentional tax evasion, i.e. sidestepping the £50K allowance on PBs and their associated benefits that adults are granted.

Premium Bonds have no interest. The prizes are tax-free.

I think cjr was referring to other investments which do pay taxable interest and, as you say, the legality of [investing your own money in a child's name] is questionable.

There is a question of ownership of the money you put in a child's account. Something similar came up on the MSE forums: https://forums.moneysavingexpert.com/discussion/6369801/bank-need-meeting-to-transfer-money/p1

If this became a problem (e.g. child gets a big win on PBs) then it'll be a nice problem to have. Otherwise I've removed non-insignificant chunks of cash from her PB account (e.g. £1200 to pay for a school ski trip) in the past without any questions. She could, of course, decide to use some of the money to pay off some/all of the mortgage of the house she's going to inherit anyway.

Yes agreed but I suppose I was thinking about how the indirect implications of your plan might look, in that by placing the money in that non-taxable environment for your benefit and in excess of the benefit which the law entitles you to as an individual, you are avoiding the alternative which would be to place the money in an investment which would potentially be subject to tax hence why HMRC could view it as improper

whack it all in commercial property

for your benefit

Arguably it is ultimately for her benefit as, being our only child, she will inherit it some day.

Personally I don't think HMRC will worry too much about a single child's PB allowance being (ab)used. It's a small percentage of a larger sum that would be invested in other "completely legitimate" schemes that are tax efficient in other ways.

you can use my premium bonds allowance for a 10% share of returns

My deposit arrive safely in my 212 account this morning without needing any intervention from anybody at 212. So reassuringly they appear to have decent systems in place to deal with idiots, good to know.

I won't be making the same mistake again.

you can use my premium bonds allowance for a 10% share of returns

Thanks but no thanks.

Right well my experience has been that they are helpful in thinking about how best to navigate tax implications and some value in what/where to invest but I think this part is less valuable these days as most options are open to the consumer. You are therefore simply paying for them to manage your money. Which any other fund with lower % fees will be doing anyway.

If you have 4 years then stick it all in Tesla stock. Musk is best buddies with the president so unlikely to lose over the term.

Or do as the bric nations and move into gold.

It seems like people in this thread have very different definitions of "low risk"!

212 sent me a naughty boy email today, which seems overly officious but equally reassuring.