‘How do we invest our £250,000 windfall?’

A reader wants to protect money they freed up by downsizing. Melissa Lawford finds out how to beat inflation

Mike Edwards, 84, has been grappling with the ultimate downsizer conundrum. Mr Edwards and his wife Jennifer, 74, sold their family home in Warwickshire in June for £1.12m. “We needed somewhere smaller and more manageable,” Mr Edwards said. But they got hit by the property supply crunch: “We couldn’t find anywhere to move to.”

Instead, they have rented a bungalow for a year, paying £ 2,200 per month while they house-hunt. Now, they think they have found a home they like and expect to pay around £800,000 when they buy.

This will leave them with about £ 250,000 in cash – and another conundrum. “We want to put it somewhere but we are completely at a loss as to where. We are not at an age where we can wait out market downturns,” Mr Edwards said.

The couple has a combined income from their pensions of about £60,000. “We are living comfortably within our means, we just want to keep the money safe to cover the possible costs of healthcare, and so we can be confident to spend a bit more of our pension income now,” Mr Edwards said.

They have not had a foreign holiday since the pandemic began, he added. “We would like to go on some more expensive trips to southern Europe – particularly the Italian lakes.”

The couple each have stocks and shares Isas, as well as investment portfolios with Quilter. Their main holdings are similar, and include Jupiter Corporate Bond, Allianz Gilt Yield and GlaxoSmithKline. Altogether, their investments are worth more than half a million.

They are open to new ew ideas for their downsizing windfall. ll. “We were thinking of stocks and d shares, and property is a possibility. bility. We want as diverse a portfolio ortfolio as possible.”

Mr Edwards wants ts a safe haven for the cash, but they need enough growth th to stop it disappearing g to high inflation.

Ben Yearsley

Investment director at t Shore Financial Planning ning It is sensible to have ve a cash buffer – perhaps ps of £ 25,000. Kent Reliance ance

Mike and Jennifer Edwards ( below) would like a holiday in the Italian lakes (right) and Shawbrook banks offer instant access savings rates that are not far off the Bank Rate.

I would also recommend Mr and Mrs Edwards put £25,000 each in Premium Bonds. They are better for higher rate taxpayers than basic rate, but the prize fund is now 1.4pc (up from 1pc in May).

This would leave £ 175,000 to be invested. Infrastructure – which includes things like road, rail, electricity generation and mobile phone towers – is an excellent asset class to help combat the effects of inflation. This is because many infrastructure assets are directly linked to inflation through contracts or regulated pricing.

Two funds to consider are First Sentier Responsible Listed Infrastructure and Time UK Infrastructure Income. There is no real crossover between the funds. Mr and Mrs Edwards could also look at some of the specialist renewable energy investment trusts such as Downing Renewables & Infrastructure and Foresight Solar, although the Time fund will possibly hold these.

The next area I would look to are the funds and investment trusts that are committed to beating inflation, and protecting a person’s initial capital from being eroded. In this bucket I would include Personal Assets ( or its sister fund Troy Trojan), Ruffer Investment Company, Capital Gearing and Pyrford Global Absolute Return.

They all do things slightly differently. Personal Assets only invests in gold, high- quality equities and inflationlinked government bonds. Ruffer, on the other hand, will invest in more esoteric areas, such as the holding it had in Bitcoin at the end of 2020.

None of the suggested investments will shoot the lights out, but in a bear market they should be resilient. A return of 5pc per annum over the long term would be a reasonable expectation. Over Ove a 10-year period, the £ 175,00 175,000 pot would grow to £285,0 285,000.

Th These investments will dive diversify their existing portfol folios. It goes without saying

t that they should continue

to use their Isa allowances.

Anna Clare Harper Director at IMMO the bank, this money will lose value to inflation. stocks and shares, value can be eroded in the space of a day. Residential property, however, tends to hold and grow its value, making it an attractive investment option to protect the Edwards’ wealth.

Savills estate agents has forecast mainstream house prices will grow by 17.4pc over 2022 to 2026, which equates to average growth of 3.48pc per year.

Market growth is a helpful indicator, but not all property is equal. There are many considerations: geography, type of property, quality of property and type of tenant.

To protect their wealth, the Edwards should invest in property in locations with stable and growing values. They should consider areas with stronger jobs markets, transport infrastructure, amenities and inward investment (from government and private companies). One helpful indicator is where major supermarkets locate, as they tend to choose areas with strong current and future demand.

The Edwards need to make sure there are good reasons for people to want to live in the area in five, 10 and 20 years’ time; examples include Bolton, Derby and Hastings. With a good agent, they should not need to visit regularly.

Freehold properties ( typically houses) are best for low-hassle investments. It may be sensible to focus on homes that have been recently built or refurbished, to minimise the need to make improvements themselves.

In addition to house price growth, properties of this type in attractive regional growth areas typically offer rental yields of 3pc to 8pc, depending on the quality of the property.

Since the Edwards are looking to keep risks to a minimum, and due to their age, it would be sensible to buy using cash. This can easily be done in their personal names, rather than through a limited company structure

ht (which would be more tax efficient if they were paying mortgage interest).

They would need to factor in the additional stamp duty surcharge of three percentage points, along with costs for conveyancing, a building survey and works to make the property compliant with rental regulations.

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