I have £120000 to invest. Where would you put your £120000 with a hope of retirement in 7 years. Medium maximum risk investments please

29 July 2021

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Question by Anthony

I have £120000 to invest. Where would you put your £120000 with a hope of retirement in 7 years. Medium maximum risk investments please


Answered by James Greenly

Hello Anthony, thank you for your question.

Planning for your retirement will require a comprehensive evaluation of your wider circumstances, assessing your assets, liabilities, income and expenditure, your investment risk tolerance and financial objectives. Any decision now should also take into consideration how you are likely to access your money and pensions in retirement.

I would suggest with the help of a financial adviser you first and foremost be as clear as you can on your retirement goals and what a good retirement looks like. Cost it out in detail.

Having £120,000 to allocate to your retirement planning I would consider the following:

Option 1. Pensions

  • Consider making use of tax efficient investments and pensions. You may have the option of funding a pension to benefit from tax relief and you may have the ability to carry forward unused tax relief from the previous three years if you are an existing pension member.

  • Typically you can invest up to £40,000 gross into a pension or 100% of your salary if lower and have the ability to carry forward unused allowance from the previous three years.

  • You should speak with a financial adviser and potentially an accountant to help work out your available contributions.

  • Funding your pension provides you with tax relief, a tax efficient growth fund, a pension commencement lump sum of 25% of the fund and the ability to provide both a secure income via annuity or flexible income.

  • I would also request a state pension forecast and consider the merits of making voluntary NI contributions to boost your entitlement if allowable.

Option 2. Investments

  • Consider funding an ISA for tax efficient growth, income and tax exempt withdrawals when you need access to you money.

  • There is a £20,000 limit each tax year due to the favourable tax treatment.

  • You could also consider investing in a General Portfolio to use your savings and dividend allowances and capital gains exemption.

Option 3. Clear debt

  • I do not know your wider circumstances but it will be worth looking at the merits of clearing debt if you have any.

When deciding on your investment strategy you need to be clear on your timeframe. Is it the 7 years until retirement because you are then going to buy an annuity or is the timeframe “the rest of your life”, which could be 40 years! My guidance here would be:

  • Make use of your tax allowances.

  • Make use of your permitted tax efficient investments.

  • Consider clearing expensive debt if you have any.

  • Ensure you have a rainy day emergency cash fund – 3 to 6 months expenditure as a good rule of thumb.

  • Consider the impact of inflation on your retirement planning.

  • Consider the effect of tax on your investments.

  • Don’t take unnecessary risks in trying to achieve your objectives.

  • A “medium maximum risk” would perhaps lead me to suggest exploring a portfolio that has 60% in growth assets such as shares and property and 40% in defensive bonds.

  • Don’t put all your eggs in one basket – diversify your investments across assets. I would therefore suggest you consider a globally diversified portfolio across markets and sectors.

  • Remember that past performance is not a guide to future performance. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

  • To give you the best chance of success I would urge you to seek specialist advice from a financial adviser that specialises is retirement planning.

I hope this helps.

Thanks

Answered by

James Greenly

Chartered Financial Planner

I am a Chartered Financial Planner at Capital Asset Management, a boutique financial planning and wealth management firm based in the City of London.