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Cash quandary

Including Financial Independence and Retiring Early (FIRE)
micuda
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Cash quandary

#463908

Postby micuda » December 7th, 2021, 4:56 pm

I have received an inheritance, and when added to my existing savings, I now have way too much in cash. I'm not sure what to do.

I'm 52, single, with no dependants. Not in work, don't see myself returning.

I have:
Cash £350k
National Savings Index linked £40k
Premium Bonds £50k
S&S ISA £400k
DC Pension £370k
Qualify for full state pension
Property owned outright, worth £180k

Current Stock / Bond / Cash position 55% / 8% / 37%

I estimate an annual expenditure of about £23k.

Some options are:

1) Invest between 100k and 300k, rest in cash / national savings. As I don't have a DB pension to fall back on, I have to exercise some caution.
I struggle with the balance between protecting myself from a major crash and the inflation risk and opportunity cost of holding cash.
I also don't have a good understanding of bond funds - the bonds I hold are part of multi-asset funds such as Lifestrategy.

2) Property (BTL). I feel that this is something I should consider, for the sake of diversification and inflation protection.
However I have zero knowledge or experience of property investment, and it seems like a lot of hassle.

3) See an IFA. Would have to be a one-off review, as I'm not interested in paying annual fees.


At the moment, I'm leaning towards investing half the cash - 220k, and using the rest as living expenses for the next 4 years, and then a 5 year cash reserve.


Thanks for reading. I'd appreciate your thoughts.

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Re: Cash quandary

#463915

Postby swill453 » December 7th, 2021, 5:06 pm

Nice problem to have. I think if it was me I'd be looking to take advantage of the obvious sufficiency of my resources, and simplify everything.

Keep the NS Index Link, the Premium Bonds and about £100-£150K of cash. Invest everything else (Pension, S&S ISA, and the rest in a normal dealing account) in a world tracker.

Then get on with spending it and living life.

The dividends from the tracker will keep your cash topped up.

Maybe every year move £20K from the dealing account to the S&S ISA.

But that's just me...

Scott.

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Re: Cash quandary

#463925

Postby TUK020 » December 7th, 2021, 5:44 pm

Pretty much the same as Scott has said.
Possibly keep less cash.
Index Linkers + PB + 50k cash = 6 years expenditure.

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Re: Cash quandary

#463929

Postby Hariseldon58 » December 7th, 2021, 5:54 pm

The OP has a very long investing time span and personally I’d invest the bulk of the inheritance in line with present investments, World tracker makes sense, there’s a mention of Lifestrategy , that would work. Low cost diversified, migrate to an ISA each year to the allowance, add to the DC pension £3,600 a year.

The £23k living costs are low for the size of the portfolio.

Avoid BTL, I have done that with a few properties, a lot of hassle…..

I still have an industrial building I let out on a long lease, that’s worked out well ( yield 9%) but voids can be an issue with industrial property and after a while you have to pay rates …

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Re: Cash quandary

#463932

Postby LooseCannon101 » December 7th, 2021, 6:01 pm

A low-cost world tracker should deliver returns of about 8% per annum on average, with an equal chance each year of losing 10% or gaining 30%.

Simplicity doesn't mean lower overall returns, so long as the equity part is highly diversified. I would put most of the cash into a general investment account and transfer the maximum amount (£20k) into an ISA each year.

micuda
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Re: Cash quandary

#464387

Postby micuda » December 8th, 2021, 11:13 pm

Thanks for the responses. You've helped me form a plan of action.

I think the suggestions of simplicity and world trackers are good ones, with enough cash reserve to help me sleep at night.
I'll of course use my ISA allowance and the £3600 DC pension contribution.

I will also increase my annual spending budget. There's a transition between accumulation and decumulation that will take a little getting used to.

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Re: Cash quandary

#464396

Postby xxd09 » December 8th, 2021, 11:55 pm

If you go down the simplicity route ie a global equities index tracker and perhaps a bond global bond index tracker hedged to the pound and or cash………..
It is reassuring to know that over the long term 70/30 portfolios performed as well as 30/70 ones
So chose your asset allocation to suit your stomach acid index or ability to sleep at night -you seem to favour 55/45-equities/ cash or bonds
That sounds OK to me
xxd09

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Re: Cash quandary

#464409

Postby Gerry557 » December 9th, 2021, 7:01 am

Yes nice problem to have.

I'd second not moving into BTL. Great when it works but can be lots of hassle. Not to mention its quite binary. You have tenants or not. You can't sell just a bedroom if you need some funds.

The rules continually change and generally move against the smaller landlord and that's assuming you have a decent tenant and a property without too many issues.

Increasing investments sounds like the simple solution and you have experience of pensions and share isa's.

Others have added a few other things to consider

xxd09
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Re: Cash quandary

#464439

Postby xxd09 » December 9th, 2021, 9:26 am

Problems with BTL
Returns are comparable to shares but with immensely more hassle unless you love tenants,builders,plumbers etc
Very illiquid-you cannot realise a bathroom or kitchen if you suddenly need cash
It is for people with excess cash who have filled their ISAS and SIPPs and have no where to park their excess cash
You do get a good chance of capital growth especially over the long term as compensation for hassle of tenants,capital gains tax on selling etc etc
Having excess cash unfortunately is not a problem most of us encounter!
xxd0

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Re: Cash quandary

#464442

Postby James » December 9th, 2021, 9:32 am

If I had the same dire problems you face, I'd rent out the house, spend half the cash on a yacht and the other half spending the next decade or so sailing around the world.
By the time you get back, you can sell the yacht, the state pension will have kicked in and the investments will be sloughing off enough cash to support whatever hobby you want to take up after that.

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Re: Cash quandary

#464481

Postby stevensfo » December 9th, 2021, 11:50 am

James wrote:If I had the same dire problems you face, I'd rent out the house, spend half the cash on a yacht and the other half spending the next decade or so sailing around the world.
By the time you get back, you can sell the yacht, the state pension will have kicked in and the investments will be sloughing off enough cash to support whatever hobby you want to take up after that.


Personally, having lived half my life in other countries, I rather like the advice from James, that is, until you realise that you don't know how to reef a mainsail during a storm in mid-Atlantic. 8-)

But how about buying an apartment in Greece, Balearic islands, Tenerife (the cheapest) while keeping your place in the UK, and becoming a nomad Jetsetter. This is becoming quite the rage among retirees. You keep your mouth shut, continue residence at your address while spending the winter in your sunny location. Brexit has taken our travelling rights from us, but you can 'take back control' and apply for residence in Tenerife while keeping your address in the UK.


Steve

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Re: Cash quandary

#464655

Postby Kantwebefriends » December 9th, 2021, 11:47 pm

micuda wrote: too much in cash

I'm 52, single, with no dependants. Not in work, don't see myself returning.

I have:
Cash £350k
National Savings Index linked £40k
Premium Bonds £50k
S&S ISA £400k
DC Pension £370k
Qualify for full state pension
Property owned outright, worth £180k

At the moment, I'm leaning towards investing half the cash - 220k, and using the rest as living expenses for the next 4 years, and then a 5 year cash reserve.



The Zeroth Law: diversify and avoid tax.

(i) Leave the property, PBs, and ILSCs alone.

(ii) For reference recall the Harry Browne Permanent Portfolio: 25% equities, 25% bonds, 25% gold, 25% cash.

(iii) Possible judgements about diversification:

(a) Bonds - in Browne's sense of Treasury fixed interest - look a lousy idea to me. Perhaps replace with an ETF of US TIPS (Treasury Inflation Protected Securities) or international index-linked bonds, some infrastructure Investment Trusts - the sort that pay fixed interest debts but earn index-linked revenue, perhaps some REITS that invest in non-office, non-retail commercial property.
Even then is 25% too much?

(b) 25% gold is a lot but how about, say, some gold and some commodities e.g. oil, gas, uranium, wheat, coffee, silver, ...
Even then is 25% too much?

(c) Your ISA and DC pension are already (I assume) stuffed with equities, and a stock market crash is overdue. Note that some of the capital in your pension and ISA could be invested in (a) or (b) according to the balance of assets you'd be comfortable with.

(d) Have you considered diversifying some of your cash into other currencies e.g. Swiss Francs, Singapore dollars?

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Re: Cash quandary

#464669

Postby AF62 » December 10th, 2021, 5:43 am

stevensfo wrote:[Brexit has taken our travelling rights from us, but you can 'take back control' and apply for residence in Tenerife while keeping your address in the UK.


The issue with applying for residency in Spain, and so avoiding the 90 day rule, is that you need a visa to do so.

A non-lucrative visa for someone who isn’t working (such as someone retired) isn’t too difficult or too expensive to obtain.

However the catch is that the visa requires you to spend 183 days a year in Spain and so become tax resident there. As such that could have big implications if you still have your main property in the UK, have ISAs in the UK, pensions, etc.

Another alternative for someone retired is the Spanish ‘golden visa’ and that doesn’t have the length of stay requirement and so avoids the tax issue, but it does require you to buy a property worth at least €500,000 (or make investments in Spain of €1,000,000 to €2,000,000) and the visa fees are fairly substantial.

So if you are ‘poor’ and move everything to Spain - no problem, and if you are ‘rich’ and buy an expensive holiday home in Tenerife - no problem. But for those in the middle wanting to buy a small place to spend a the winter in Spain but keep living (and being taxed) in the UK - problem.

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Re: Cash quandary

#464672

Postby Urbandreamer » December 10th, 2021, 7:11 am

James wrote:If I had the same dire problems you face, I'd rent out the house, spend half the cash on a yacht and the other half spending the next decade or so sailing around the world.
By the time you get back, you can sell the yacht, the state pension will have kicked in and the investments will be sloughing off enough cash to support whatever hobby you want to take up after that.


I know that this is a joke answer, but it does raise a serious point. Does the OP qualify for the state pension and if so how much? It might be worth dedicating some small amount of cash to ensuring that the OP can get a good state pension. The state pension can be a great or poor investment, depending upon how much you have to pay for it. The OP's position is that they can pay the minimum required for each qualifying year in the future. Of course they may already be doing something about the fact.

Ps, I don't think that it's possible at 52 to have 35 qualifying years, so they won't receive a full state pension unless they do something.

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Re: Cash quandary

#464690

Postby DrFfybes » December 10th, 2021, 9:20 am

We saw an IFA for similar reasons, and his first question was a surprise...

Your first decision is what do YOU want to do.

I'm not talking about financially, that isn't going to be a problem unless you go mad, but you are young enough to do any number of things, become a BTL mogul, buy and do up an old farmhouse before realising a year in that the cheapest way of insulating it properly is to knock the bugger down and start again, start an animal charity, learn the clarinet, run a motorsport team, take up gardening, buy a sports car, become a solar panel installer, or gods forbid even take up cycling ;)

We're in a similar situation, youngish, good FS pensions, plenty of savings, although more money in the house, no direct dependants. We look at the bank, our expenditure, and think "hey I could go and buy a Patek Phillippe /McLaren /top spec Cannondale and not really notice", but actually what you really fancy is a new vaccuum cleaner that doesn't clog up with hair and make your ears ring after 10 mins.

Once you know what you are going to fill your time with then you have a pointer as to how you deal with your wealth. If you want to get involved in BTL, it is a job, not a hobby, and if you don't want the hassle, don't do it.

If you want to be a full time investor, sit and pore over the accounts, trade in and out, then that is a route to take.

If you want to 'fire and forget' and cruise the seas or travel from isolation hotel to isolation hotel (for a while, anyway) then set up a Vanguard (or similar) account with £750k in trackers and take £2500k a month from it, unless markets crash when you spend you cash buffer.

We chose more towards the latter - it is hard letting go, but with no children we can use our surplus income/assets to help our great neices/nephews and local charities and work on some community projects.

Paul

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Re: Cash quandary

#464693

Postby Dod101 » December 10th, 2021, 9:32 am

DrFfybes wrote:We saw an IFA for similar reasons, and his first question was a surprise...

Your first decision is what do YOU want to do.

I'm not talking about financially, that isn't going to be a problem unless you go mad, but you are young enough to do any number of things, become a BTL mogul, buy and do up an old farmhouse before realising a year in that the cheapest way of insulating it properly is to knock the bugger down and start again, start an animal charity, learn the clarinet, run a motorsport team, take up gardening, buy a sports car, become a solar panel installer, or gods forbid even take up cycling ;)

We're in a similar situation, youngish, good FS pensions, plenty of savings, although more money in the house, no direct dependants. We look at the bank, our expenditure, and think "hey I could go and buy a Patek Phillippe /McLaren /top spec Cannondale and not really notice", but actually what you really fancy is a new vaccuum cleaner that doesn't clog up with hair and make your ears ring after 10 mins.

Once you know what you are going to fill your time with then you have a pointer as to how you deal with your wealth. If you want to get involved in BTL, it is a job, not a hobby, and if you don't want the hassle, don't do it.

If you want to be a full time investor, sit and pore over the accounts, trade in and out, then that is a route to take.

If you want to 'fire and forget' and cruise the seas or travel from isolation hotel to isolation hotel (for a while, anyway) then set up a Vanguard (or similar) account with £750k in trackers and take £2500k a month from it, unless markets crash when you spend you cash buffer.

We chose more towards the latter - it is hard letting go, but with no children we can use our surplus income/assets to help our great neices/nephews and local charities and work on some community projects.

Paul


I am not sure if Paul is advocating using an IFA or not. Very early in my investing career I used one, more to get his ideas on asset allocation than anything else. I think Paul's advice is good. Until I have been on my own (my wife died 5 years ago) I have never had what I would regard as truly surplus income, she more or less saw to that. Now though I have surplus income and to a lesser extent surplus assets to do exactly what he advocates in his final sentence. I think that is important. I am though increasingly frustrated at not being able to travel as I have been taking a winter trip to warmer climes until last year. I just do not think that the ever changing picture is worth the hassle at the moment, even if where I want to go is open to visitors which some places are still not.

Dod

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Re: Cash quandary

#464713

Postby Adamski » December 10th, 2021, 11:45 am

Congrats on the early retirement! Think a lot more are finishing early, or changing hours, pandemic has made ppl reassess their lives.

I'd move house to somewhere bigger. People imagine 4 bd detached are for large families, but surprisingly a lot of them are singles and empty nesters. Then balance is lifestrategy or world trackers.

If no family could think about gifting some to extended family, Christmas, birthdays, weddings etc as can't take with you!

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Re: Cash quandary

#464754

Postby TUK020 » December 10th, 2021, 2:21 pm

link is to a pdf reprint of a Harvard Business Review article on "Managing Oneself" by Peter Drucker.
https://www.csub.edu/~ecarter2/CSUB.MKT ... neself.pdf
This article is well worth a read any way, being one of the true gems of management literature.
Of more relevance, the second half of the article discusses what one should be doing after one no longer needs to earn to fund your life/family.
The gist of it is that if you want a long and productive life, then you need to work out how you are going to continue to contribute to society, after you have concluded your primary career.

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Re: Cash quandary

#464761

Postby Dod101 » December 10th, 2021, 2:40 pm

Adamski wrote:Congrats on the early retirement! Think a lot more are finishing early, or changing hours, pandemic has made ppl reassess their lives.

I'd move house to somewhere bigger. People imagine 4 bd detached are for large families, but surprisingly a lot of them are singles and empty nesters. Then balance is lifestrategy or world trackers.

If no family could think about gifting some to extended family, Christmas, birthdays, weddings etc as can't take with you!


Whilst I would not like a small house, my current one is bigger than I need and the upkeep is more than housing just me merits, by which I mean all the usual Council Tax, heating, garden maintenance and so on. I have never read of a recommendation for a single person to look for a bigger house unless of course they are contemplating marriage. It is useful if I have people to stay but how often does that happen?

Dod

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Re: Cash quandary

#464763

Postby scrumpyjack » December 10th, 2021, 2:42 pm

DrFfybes wrote:If you want to 'fire and forget' and cruise the seas or travel from isolation hotel to isolation hotel (for a while, anyway) then set up a Vanguard (or similar) account with £750k in trackers and take £2500k a month from it, unless markets crash when you spend you cash buffer.
Paul


Taking £2,500,000 a month (your £2500k!) should be enough to manage on! (or even more if K = 1024!) :D


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