Investment /Pension

086.but

Hi I am looking for a bit of advice.... I am early 50s self employed with no pension, However shortly I will have 100k to invest for my pension. What would be the best way to invest this
money ?? I was thinking of buying a house , I am reluctant to invest in shares where I could
loose this money .... I would appreciate any advice.....
Thanks

Jim2007

086.but wrote: »

I am reluctant to invest in shares where I could
loose this money .... I would appreciate any advice.....
Thanks

Now after all you have seen over the past several year how do you come up with the conclusion that you can't loose money on a house....

When you invest in property you break every rule of thumb intended to minimize investing risks:
- You fail to diversify
- You invest in an asset that does now have a liquid market
- You invest in a high risk asset class
- You invest in a low return asset class
- You borrow to do it

Invest based on facts not gut feeling that is the first rule

086.but

Thanks

Jim2007

Realistically speaking if you are in your early 50s you have about 10 years to go to pension, so while you can afford to on a reasonable amount of risk over the next few years you would need to be move towards income generating investments from say 55/56 onwards. Under normal circumstances you could expect 100K to generate 4K to 6K per annum.

If it were me I be seeking to acquire several blue chip stocks with historical dividend yields of around 5% pa. In addition I would add some medium term government bonds and either a property ETF or a REIT so you would have some exposure to property, but not too much.

The big question will be what to do on retirement - continue to hold the portfolio or convert to an annuity??? My plan is to hold blue chips forever! So I've got a list that I'm buying of every time the prices drop - buy stocks like groceries when they are on offer.

Jonathan McDonnell QFA

I can think of a few points to consider here for you:

1. Depending on the source of the funds, it may be the case that a pension investment is the best option (from a tax perspective). That aside it is never too late to start a pension. As well as growth over the next 10 years or so if correctly managed, it also presents the income you will receive in retirement.

2. As a self-employed person myself, I am all too aware of the state benefits that we have.. Keeping that in mind, it may be best to keep some money on reserve for emergencies and then invest the remainder.

3. I like the property idea.. there still is some good value in property, especially in the UK which offer great guarantees on the amount you invest and they are very straight forward investments.

Whatever the case, sound financial advice is needed here. Understand your access to your money, where it is being invested.

Jonathan

Jim2007

Jonathan McDonnell QFA wrote: »

3. I like the property idea.. there still is some good value in property, especially in the UK which offer great guarantees on the amount you invest and they are very straight forward investments.

Lets see some hard statistics (not opinions) that shows a property in the UK has over the past 10 years out performed the return on a well balanced portfolio.

Jonathan McDonnell QFA

Absolutely no dispute to the fact that a well balanced portfolio is a great idea.

I was referring to the original post as the person who posted it advised they were particularly interested in property.

You'll find that you can invest in some great property in the UK for 45,000 / 50,000 GBP. UK Student Accommodation for example has been the highest performing asset class in the UK and the USA from 2011 to 2013. At this moment, you can invest in this with an assured rental yield of 7% per annum for 3 years with a guaranteed by back option on the 5th year of 125% of your investment.

There's no doubt that equities have performed very well in recent years also.

My point was that over a 10 year period this type of investment could simply form part of an overall investment strategy

Thanks

Jim2007

Jonathan McDonnell QFA wrote: »

You'll find that you can invest in some great property in the UK for 45,000 / 50,000 GBP. UK Student Accommodation for example has been the highest performing asset class in the UK and the USA from 2011 to 2013. At this moment, you can invest in this with an assured rental yield of 7% per annum for 3 years with a guaranteed by back option on the 5th year of 125% of your investment.

Well first of a you are talking about a two year period.... and secondly your figures do not make since - to achieve the 125% after 5 years the pa return would need to be at least 12.5%.... and of course the real red flag - if anyone was able to deliver 125% over five years they'd being doing it for themselves not the OP. Higher expected returns always means higher risk no matter how it is dressed up!

The bottom line is that you are proposing that the OP take on a much higher level of risk than he needs to in order to achieve a more or less similar potential outcome. For example an investment in an ETF (ComStage STOXX Europe 600) based on the Euro STOXX 600 REIT index would have produced a total return of around 131% over the past 5 years at a much lower risk exposure.

And that is the kind of logic that got Irish people into the situation where they are still siting on negative equity, while other investors have long since recovered and moved on.