INVESTING A WINDFALL
It’s fun to dream – but the results were revealing when we asked five top financial experts...
FOR a few lucky readers, 2016 will have finished on a high with a big win on the Lotto or Euromillions. But how would you invest an unexpected cash lump sum? Personal Finance Editor JEFF PRESTRIDGE asked five of the country’s leading investment experts what they would do if they had a surprise £100,000 windfall.
1. Ben Yearsley Wealth Club, Bristol
IF THIS were a client’s windfall, I would ensure any credit card debt was paid off first. I would also encourage them to have a healthy cash fund.
But as it’s my money, I would not need to worry about these issues. Given a windfall is a lucky bonus, I would spend £10,000 on a holiday or a new car. Enjoy, enjoy.
Probably a trip to watch the British & Irish Lions take on the All Blacks rugby team in June and July would get my vote, although not far behind would be a trip to Australia for the Ashes cricket series. Maybe both – life is for living after all.
I would then invest the remaining £90,000 in a broadly based portfolio with just under half in UK funds. Diversification is good for your wealth, while having a core invested in your home country makes sense.
I would not invest in bonds or property. Of the equity fund holdings, there would be a smaller companies bias because of their better growth prospects. I would also have a healthy exposure to Japan (cheapness of the market and quality of companies), Asia and emerging markets (growth prospects).
2. Jason Hollands Tilney Bestinvest, London
AS someone with a long-term investment horizon, no current need for income and happy to take risk, my £100,000 would be focused on equities.
There is not a single bond in the portfolio as I think bond markets face a tough time ahead as a result of rising inflation and interest rates. My only concession to less risky ballast is £5,000 in Invesco Perpetual Global Targeted Returns, a fund that aims to deliver positive returns irrespective of whether markets are rising, falling or flat.
The lion’s share of the £100,000 windfall would be invested in UK funds. Not only has the UK economy defied the worst predictions of the doom-mongers but the stock market has also performed well post the European Union vote.
This year it should benefit from the weaker value of the pound. Most revenue made by UK listed companies, especially the largest, is generated overseas. When these earnings are converted back into sterling, they are likely to boost profits and dividends.
My six UK investments all bring something slightly different to the table. A focus on blue-chip companies (Majedie UK Equity, JO Hambro UK Opportunities); smaller companies (Henderson Smaller Companies Investment Trust and venture capital trust Unicorn AIM); or across the market (Evenlode Income and Liontrust Special Situations).
I would put £15,000 into US funds. It is a fact that US companies represent more than half of stock markets globally by size, so you cannot ignore it.
I would split the money equally three ways, with investments in two exchange traded funds, which are low-cost, listed index trackers (Vanguard S&P500 Ucits and PowerShares FTSE RAFI 1000); and one investment fund, T Rowe Price US Smaller Companies.
If President-elect Donald Trump does make the US economy great again, the biggest beneficiaries would be domestically focused US firms and the T Rowe fund is ideally positioned to benefit from this.
I would invest £22,000 across Japan and Asia Pacific; £12,000 in Europe; and the remaining £8,000 in two thematic funds – F&C Global Real Estate Securities and Lazard Global Listed Infrastructure Equity. Both these funds could benefit from Trump’s wish to boost the US economy through a $1trillion infrastructure spend.
3. Ben Willis Whitechurch Securities, Bristol
I LIKE risk, hence why the majority of my portfolio is invested in global equity markets. I am not looking to keep some cash on the sidelines waiting to invest if the market weakens. My £100,000 windfall portfolio is a ‘time in the market’, not a ‘timing the market’ portfolio.
The core of the portfolio – £22,000 – is domestic. Sterling weakness has benefited large overseas-oriented businesses and this could well continue this year. But if the UK economy remains resilient, we could see small and mid-cap companies outperform.
Woodford Equity Income provides the large cap, defensive equity position. Aberforth UK Small Companies, Artemis UK Special Situations and JO Hambro UK Dynamic are the exposure to small and mid-cap companies.
My next biggest geographic exposure would be Asia and emerging markets (£20,000). I see the four fund selections as long-term growth drivers of the portfolio and would be left to run irrespective of shortterm blips.
A £5,000 investment in GAM Star China Equity may seem a gamble and I accept there will be sustained periods when it is out of favour, but I am confident it will make decent returns over the next ten years.
In terms of specialist holdings, I would put £6,000 into BlackRock World Mining Investment Trust because commodity prices have some way to go. The trust’s 5 per cent yield is a great starting point.
I would also invest £6,000 in Jupiter International Financials on the basis that banks have been getting their houses in order since the 2008 financial crisis. They are now better capitalised and starting to enjoy stronger earnings. Inflation and rising interest rates can only be good for financial stocks.
Finally, I would invest £5,000 into both Odey UK Absolute Return and investment trust UK Commercial Property. The Odey investment team get most investment calls right, although the fund has had a poor past 12 months, registering losses of 18 per cent.
UK Commercial Property currently yields four per cent and provides exposure to an asset class that is not correlated to equity markets.
It’s a little bit of ballast in a portfolio designed for economic and investment growth. Fingers crossed.
4. Susan Hill Susan Hill Financial Planning, St Albans
WHILE planning for the future is important, so too is living for today. So my first investment would be £2,000 in a Chanel handbag.
We need financial education in our schools, so my next £2,000 would be given to a local school. Maybe the money could be used to take the children out for a day visit to the Bank of England and the Stock Exchange in London.
Some £6,000 would be kept in cash. I use website Deposit Sense to find the best savings rates. Aldermore Bank is offering 1.15 per cent fixed for two years and this would provide me with tax-free income as it falls below my £1,000 personal savings allowance.
In terms of investments, I would put £5,000 in each of two investment trusts. The City of London and JP Morgan US Smaller Companies. By doing this I would be hedging both sides of the Atlantic.
The remaining £80,000 would then be invested in a portfolio of low cost funds, providing lowcost access to stock markets.
It is evident that over the long term, a majority of fund managers do not beat the indices they aim to outperform. So buy the index instead.
The £80,000 would be spread across ten low cost funds, tracking bond and equity indices. The bonds would be short duration or inflation linked as interest rates are low and inflation is on the rise. Equities would be global with a UK emphasis because I understand my own country the best. The funds would be primarily iShares (BlackRock) or Vanguard because charges are low.
I would use my annual Isa allowance – £15,240 this tax year, £20,000 from April – to fully protect my portfolio from tax, although it would take five years to do so. My annual dividend allowance of £5,000 would protect any income generated in the meantime from tax.
The only thing left to decide is what colour handbag – pink or black.
5. Neil Rossiter Blackdown Financial, Taunton
IF A client came to me with a £100,000 windfall, I would urge them to ensure they have an emergency cash fund equivalent to six months of expenditure.
I would also recommend further cash reserves for big-ticket purchases over the next three to five years, such as new cars and holidays.
But if I received the £100,000 windfall, I would already have these cash positions in place.
So I would invest the money in a portfolio of 15 low-cost funds. The underpinning investment philosophy would be based on four principles.
First, there is no way you can pick in advance future outperforming fund managers. So it is better simply to invest in the market.
Secondly, costs matter and thirdly diversification is key. Finally, it is a fact that small companies have outperformed the broader market over longer time periods.
My portfolio would have exposure to 9,000 underlying equity holdings and 8,500 bond positions. The ongoing cost would be a modest 0.3 per cent and it would have a strong tilt to small companies with the higher expected returns they offer.
Perfect.