Investor Clinic: Thomas is looking for help investing an inheritance for his family


#1

Originally published at: http://whichinvestmenttrust.com/investor-clinic-thomas-is-looking-for-help-investing-an-inheritance-for-his-family/
Investor Clinic is open for Thomas, who is hoping you can help him with his quandary on what to do with an inheritance to benefit his small children. The aim of the clinic is to allow ordinary investors to get help and feedback from peers like you. Thomas has been left some money and shares…


#2

My advice is to keep things simple.

Pay off the mortgage, sell the shares (with a young family you have other things to keep an eye on) open an ISA and put your full ISA allowance into a low-cost all-share tracker (accumulation units) via monthly direct debit. Continue until all the investment cash has been invested.

Alternatively use a good global investment trust such as Scottish Mortgage or Foreign & Colonial - the value is likely to be more volatile but the rewards may be greater in the long term.


#3

There’s no rights or wrongs to this @ThomasMac and @dunkuring ’ s advice is very sensible. Ultimately you’ve got to decide what you want to do.

Paying off the mortgage and selling off the shares would still leave you £40k to invest. Or, whilst interest rates are so low you could decide to invest it all, but pay the mortgage off once rates start to properly motor, which will probably not be for a while yet.

Buy and forget investments would include tracker funds from Vanguard, BlackRock or the Aberdeen one written about on this site. Or you could spread it across a few trusts or funds. Both of @dunkuring’s are good ideas, but I like Witan and City of London too.

If you want more growth and volatile investments you could look at Allianz technology, and a Biotech/pharma trust like Worldwide Healthcare or Biotech Growth Trust.


#4
  1. How many years are there left on the mortgage?
  2. What type is it, e.g. repayment, endowment, interest only?
  3. Interest rates are currently low, but likely to increase in the near future. If the mortgage is not paid off now, to what extent would these increases in payments impact negatively on your monthly finances? i.e. how easy would you find it to pay the mortgage once interest rates have risen to normal levels (and I am guessing here, would this be two, three or four times the current rates? Answers anyone…?!!)
  4. If the mortgage was paid off in full and you did want to save for the future, would you have the discipline to now save the amounts that are currenty paying off the mortgage?
  5. Regarding the individual shares, is holding them of interest or are they more of a burden? Put aside the fact that they are inherited and your uncle’s reasons for buying them: you are investing for yourself and your family now, so your requirements are paramount.
  6. If the purpose of the inheritance is to benefit your children (as the article implies), then is paying off the mortgage the way to achieve this? (I can make a ‘yes’ case for this)
  7. If the whole amount was invested and they were to fall by 20%, 30%, 40% or more sometime in the next 10-20 years, what do you think your reaction would be to this?

One of the disadvantages of investment trusts and individual companies is the need to re-invest the dividends in order to build up the eventual return - a problem which the accumulation units of OEICs do not have. However, if you decided that you were able to add to the investments either monthly, or just occasionally with a lump sum, then this would help to build up a re-investable amount more speedily - just don’t do so at the expense of going on holidays though!

If you do not want to be too active in monitoring the investments then I suggest sticking to the more generalist trusts (or other types of fund investments), such as can be found in the Global and UK sectors. A potential problem with trusts that are more industry specific is that they can fall out of fashion, and any decline can turn out to be much greater than trusts that have a wider investment remit - especially when during widespread markets falls, as will happen at some point(s) over the next 20 years.


#5

I would apply yourself to @arkwelder questions which are as sensible as you will get @ThomasMac


#6

I think that through going through this process here with you all I’ve been surprised by how emotional I has been and that has held me back responding to some of your great suggestions.

My Uncle was more like a Dad to me, I barely knew my own, he abandoned us quite young.

I think I need to mull some of this over. I’m struggling with what I think my Uncle was asking me to do with the money. I’m not quite sure if he would be happy with me paying off the mortgage or if he’d want me to invest it. My wife thinks he would be happy with me paying off the mortgage but I’m not so sure.

I will sleep on it and talk to my family some more tonight and in the morning.

Thank you from of my heart though for your very kind help.


#7

The ‘yes’ case that I would make for paying off the mortgage is that it does remove this financial burden, and not having the potential for worry and stress can make for a great home environment in which to bring up young children. If the mortgage was interest-only.or an endowment which is likely to have a shortfall, or a repayment that has a good number of years to run, then I think that there is a case for considering paying off the mortgage, especially in those first two cases. If the mortgage is reypayment with only a few years left to run then I think that there is less of a case: your future repayment situation is likely to be similar to the current situation, so your decision would be influenced by how you view your current situation - and only you and your wife can determine this.

My thinking behind Point 5 is that your uncle will have selected his investments with his own circumstances in mind, both in his requirements and his knowledge. Your circumstances might be quite different with both of these, so what was right for him is not necessarily right for you. So you ought to review those holdings to see if they are appropriate for your circumstances. If the outcome is that you do decide to repay the mortgage, or to re-invest them in investment trusts and funds, then do so in the knowledge that you are using his legacy to enhance the quality of your family’s life - and what better way to honour his memory than to do that? And this applies equally if you decide that holding the current investments is appropriate. The important thing is to review them, and not to just leave them be.

@ThomasMac, it is as @citygirl says, there are no real rights or wrongs here. All that I would add to her comment is that you should not try to rush into a decision.