Pensioner has 500,000 to invest

[Bronte]

PMU your post is why I'm afraid of investing in stocks/shares/portfolios. I read your post and I just get lost even though I know you have explained it as simply as possible. Very informative though.

OP what I would do is buy 2 new houses for circa 250 K, generating an income of say 800 to 1K a month to make your 20K income. Your capital is as safe as can be, in my opinion (bricks & mortar), also now seems like a good time to buy as you can haggle the price with builders, plus I don't think you pay stamp duty on new homes. Even if the property goes down in value for a while, over the long term property tends to go up / keep pace with inflation (don't anyone scream Japan please) Rent also tends to go up with inflation.

Twofor1 - my understanding of blue chip shares are those in companies that will never go bust (generally banks). But tell that to the investers in Bearings Bank, Enron, Worldcom.............

 

[ClubMan]

OP what I would do is buy 2 new houses for circa 250 K, generating an income of say 800 to 1K a month to make your 20K income. Your capital is as safe as can be

That's an absolutely huge assumption on both the rental income and capital security issues in the circumstances and the current property market climate!

plus I don't think you pay stamp duty on new homes.

You do if you are an investor.

 

[F. Kruger]

Hi Woodsman,

Can you tell us what 'strategy' was employed for this http://www.askaboutmoney.com/showthread.php?t=33520 friend in August, as it may have some relevance here?

 

[shanegl]

That's an absolutely huge assumption on both the rental income and capital security issues in the circumstances and the current property market climate!

Not to mention its completely illiquid.

 

[Godfather]

what I would do is buy 2 new houses for circa 250 K, generating an income of say 800 to 1K a month to make your 20K income. Your capital is as safe as can be

Quite a bit of optimism in this delicate moment in the property market...

 

[Woodsman]

Thanks everyone for the ideas and information. I think on balance the suggestion to purchase 5 blue chip shares is best with some cash held back for an emergency. I was told many years ago to avoid advisors on the basis that I was perfectly well able to make my own mistakes so why pay someone to do it for me. The pensioner in question has currently got the 500k on deposit so the only problem is when to purchase. Perhaps right now and sit tight. Presumably its impossible to guage when the market has bottomed out.

 

[Sunny]

Thanks everyone for the ideas and information. I think on balance the suggestion to purchase 5 blue chip shares is best with some cash held back for an emergency. I was told many years ago to avoid advisors on the basis that I was perfectly well able to make my own mistakes so why pay someone to do it for me. The pensioner in question has currently got the 500k on deposit so the only problem is when to purchase. Perhaps right now and sit tight. Presumably its impossible to guage when the market has bottomed out.

Out of curiosity, what 5 'blue chip' companies is she going to pick or how is she going to go about choosing them.

 

[Janman07]

Mind if I ask what the rush is?

500k earning 4.5% will earn 22,500 per annum before DIRT. Pensioners can also reclaim the DIRT up to certain limits depending on their circumstances.

Before throwing away money on 5 'Blue Chip' shares, please try the following... 1) Go to Yahoo Finance 2) Register on the site 3) Set up a dummy portfolio called '5 blue chips' and pretend that you have bought, say 50k x 5 = 250k of your favourite blue chip shares 4) Check the value of the portfolio after 1 month, 2 months etc. 5) Sit down with your pensioner friend and ask them how they would feel if they had actually invested 250k of their nest egg in that portfolio.

There is a BIG difference between casually suggesting a gamble like that and actually watching your hard earned cash clicking up and down dramatically each day. Are you sure your friend is ready for the emotional rollercoaster of share ownership.

Personally, I think 10% of a sum like that is plenty for a pensioner to invest in an initial foray into the market.

 

[PMU]

My initial objective on this was not to get into big Brendan vs me debate.
It was to help the OP to specify the financial requirements for the pensioner in terms that matter, if / when he goes to a financial adviser , and also to highlight what I think is the main risk to the pensioner’s investment, i.e. the risk of market declines, and, related to this, the issue of recovery. This is something I would strongly suggest the OP asks the financial adviser (assuming he goes this route) to address in real terms.

However, I did think that Brendan’s ‘buy five blue chips because they are cheap’ strategy was: (a) flippant and also (b) would expose the pensioner to excessive risk, or, rather, to greater risk than could be achieved, for example, by buying a portfolio of low correlation assets, possibly via ETFs. (Of course, other solutions are possible).

Brendan has two questions:

Can you give me an example of a portfolio suited to this person?

Yes, if you pay me. I don’t do research for free.

Are you claiming that you can eliminate risk for this pensioner while giving her high returns? Brendan

As I said, based on the OP’s posts, the pensioner does not want ‘high returns’, i.e. capital accumulation. The pensioner wants a certain income (presumably index linked) with preservation of capital. (see Woodsman’s post of 18 Nov: “The income required is modest enough, say 20k annually plus preserving the value of the capital.”) The challenge is can a portfolio or portfolios be constructed that can do this, over the expected life-span of the pensioner, while minimizing risk.

 

[Bronte]

OK don't buy property then, it was only a suggestion. The OP wanted suggestions. I just thought that maybe now with 25% being knocked off some properties (AAM posts) it might actually be a good time to buy. There are of course no guarantees, not on blue chip shares, other shares, property, deposit accounts (Northern Rock) or the 2.20 at Newmarket. My point being that everything is a gamble.

PMU circa how much would that advice cost, and do you guarantee a return, is the fee refundable if there is no return? I'd pay a financial adviser a percentage of my gains if they could guarantee me a return, but amazingly enough I've never seen a scheme like that.

 

[tyoung]

Are government (treasury) bonds a possible part of inflation-proofed investment with low risk?

Conventional Government bonds are usually the worst asset to hold at a time of rising inflation. Some governments issue inflation protected bonds which are a different beast. Ireland does not.
In general if inflation is rising hard assets do well, commodities, property etc. The main reason for owning your own house is that it is the best single inflation hedge the average person can buy and you can live in it too. Stocks also act as an inflation hedge over the full economic cycle.