What should I do with my inherited high risk investment trusts?
11 July 2018
Question by Paul
Hi Holly, You seem to make sense. I was lucky enough to inherit a significant sum... currently in Alliance trust platform in 10 investment trusts. They were set up by my father and have delivered well in the last 20 years. But they are UK equity based. And highly risky - according to a couple of financial planners who I have had the pleasure to tell me that their route to eternal happiness is a much better route. With significant fees... Do you offer a sanity check service for confused individuals like myself? I don’t know what to do... Can you help? Paul
Answered by Holly Mackay
Sorry to hear about your Dad.
I can’t give you personal advice or specific investment recommendations but here is some food for thought.
First, managing this money isn’t just about what investments to pick.
There are a whole lot of tax implications and thinking about the structure of this. I don’t know how old you are but have you thought about pensions? This isn’t just for ‘old people’! You get nice tax relief (free government top-ups) and you can get this money out from 55 (going up to 57). You can put in up to £40k a year and use the previous 3 years’ allowances too if you haven’t already. If you can set this money aside, could be a sensible thing to investigate.
There's also your annual ISA allowance - you could for example, shift some of these investment trusts into an ISA if they are not already quarantined in one. If you ask Alliance Trust Savings to move up to £20,000 of these investment trusts into an ISA, you'll minimise future tax bills. Worth considering if you still have your ISA allowance left this tax year. Some people don’t realise that ISA contributions can be stock as well as cash.
Second, you are sceptical about financial advisers.
But the good ones are so much more than investment pickers, and can make up their fees and more by what they save you by structuring stuff properly. You can find a local adviser and pay an hourly fee for one-off advice as a sense check - usually about £150 to £200 an hour. If you have a lot of money to manage, I'd suggest mentally allocating £1,000 to making sure things are set up right makes a lot of sense? And see what the service is like? Have a look on
Third - your funds and platform.
Alliance Trust Savings has been bought by Interactive Investor, which means your accounts will be shifted over and that’s good - that will probably be marginally cheaper (depends on account size) and the online service is better. That will take a while to filter through.
As for the investment trusts you have. It sounds like your Dad was a canny investor who didn’t like paying above the odds. And he probably was comfortable with this world of investment trusts, making some good decisions. But you are not so comfortable.
The biggest mistake most DIY investors make is to have too much in our home markets. The UK.
I think you need to diversify as you suggest. If you are not confident then I would consider picking a multi-asset fund and getting an expert to do the work for you. Vanguard LifeStategy is an option. This could then be a professionally managed globally diverse set of investments you get, at a fee of about 0.22% a year. This is the investment equivalent of a ready-meal - one choice and you get someone else to blend it all together.
This cheaper fund is passive and won’t do as well as the better investment trusts when things are firing, but it will give you some peace of mind and diversify your risk. Neither will it do as badly as some of the more actively managed options which don’t earn their crust - it's a halfway house and by definition will just track global markets and return the average. But someone is managing and tweaking it on your behalf. Have a read up on this Vanguard option which I use for about 50% of my savings. (There are other good passive 'multi-asset' choices too.)
If your Dad had a collection of good investment trusts like the Scottish Mortgage one then these are like a good pair of jeans. Solid and reliable. No point in changing everything around.
And you need some global funds too. Read up on what groups such as Hargreaves Lansdown or Bestinvest or AJ Bell Youinvest have to say about their recommend fund ranges. They have analysts who put together 'Best Buys' lists.
Lindsell Train have done me proud - but I can't guarantee they won't hit a stumbling block in future.
A final thing to consider
You say this is a decent chunk of money. Is it enough for you?
Because if so, your focus might not be growing it as much as possible, but keeping it, protecting it and just growing in line with inflation?
Not everyone will want their money to be in strong growth options so think about whether your focus is growth or protection. If it's the latter then having some lower-risk options is worth investigating. The other main style choice is whether you want this money to produce an income. So-called equity income funds focus on this and can pay out about 3% - 4% a year to you, as well as trying to increase in value over time too. So don’t forget to be clear in your own mind about what job you want this investment stash to do for you.
Hope that's helpful food for thought.