Moneymakeover How Should I Invest an Upcoming Inheritance

M

Mettmo

Registered User
Messages
18
Age:
64
Spouse’s/Partner's age:
57

Annual gross income from employment or profession:
E52,000 - Pension
Annual gross income spouse:
E57,000

Type of employment:
I’m retired on a pension. Wife is a private sector employee.

Expenditure pattern:
We’re both generally 'savers'.

Rough estimate of value of home
E500,000
Mortgage on home
Mortgage is paid off.

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
E25,000 savings. E15,000 Investment policy – current value €15k. E5,000 Shares.

Do you have a pension scheme?
Yes, I’m retired and drawing down my company pension
Her company pay E393pm into a pension.
She also has various personal pension policies from when she worked as a contractor – total fund value = €580k

Do you own any investment or other property?
No.

Ages of children:
23 and 18

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?
I’m about to receive a €230k inheritance. My wife and I would like to invest it long term for our kids inheritance or to help if they want to buy a house. Her risk appetite is high, mine is medium to low. We don’t foresee needing this money at any stage while it’s invested, but would like some type of access option.

I’m retired. My wife is still working and is 3 years from retirement. Her pension contributions are maxed out in terms of tax relief for now. Our income meets the family needs and leaves some money for savings. One child is working and still living at home. Other child is about to start college and will continue to live at home. Bulk of the 4 year college costs are already saved.

Any investment advice would be appreciated.

Thanks.
 
Mettmo said:
Her risk appetite is high, mine is medium to low.
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So let's first look at this.

You have your mortgage paid off.
You have good incomes.
You have other savings onto which you continue to add.

So you are tolerant of risk. In other words, if you invest in something which falls 20% in the short to medium term, your lifestyle won't change at all.
 
There is no risk-free investment.
If you put it a savings account earning 2%, it will probably fall in real terms due to inflation.

If you invest it in the stockmarket, it will rise and fall. The potential gains from the stockmarket outweigh the potential losses.

You could be unlucky in that it might be worth less when you come to give it to your kids, but it's more likely to be worth more. And if it's worth less, you can live with that.

So you should buy a diverse portfolio of about 10 directly owned shares.

Or you could buy an ETF but the tax treatment makes directly owned shares better.

But either way, if you want some or all of your money, you can access it immediately.
 
If we had a functioning property investment market, you could buy an apartment and rent it out until one of your children needs it or if they don't like that apartment, you could sell it and give them the cash.

The advantage of this is that you get a hedge against property prices. So the value of the apartment will rise and fall in line with your children's cost of housing.

However, we don't have a functioning property investment market.
  • You might not be able to get rid of the tenant when you want vacant possession
  • If they decide not to pay the rent, there won't be much you can do about it.
So, you should invest the full amount in shares -either directly or through an ETF.
 
If your eldest is working at a taxable rate, why not help them indirectly start their pension with 3k annual tax-free gift? At least they can then get tax back this year. It’s optimising for tax and long-term compound growth, but not house buying unfortunately.

Repeat a few years for each kid.
 
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conor_mc said:
... why not help them indirectly start their pension with 3k annual tax-free gift?
Click to expand...
They could give 2x €3000 to each child each year tax free costing them €12,000 per year.

Investing the inheritance and using the (after tax) returns to make those annual tax free gifts to each child would be the ideal way to put the inheritance to work.. even moreso if those gifts were used by each child to make tax relieved pension contributions!
 
Whatever about giving the children money now, the children should not be contributing to a pension until they have bought a house.

The money compounds outside a pension as well.
 
Brendan Burgess said:
Whatever about giving the children money now, the children should not be contributing to a pension until they have bought a house.
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My main concern about this is that you either a) have to trust a 20-something-yo to be rational and not enjoy any sizeable gift down the pub, or b) wait until they’re actually buying a home and then chew into their CAT allowance with a large gift. Using the annual 3k gift but on condition of saving into pension at least provides some degree of future benefit (eg taking a break from AVC’s when saving for a deposit) and locks away the gift from an expansive social life! Plus if they make a 3k AVC each year, they still get the €600-1200 tax back, depending on their tax rate. I think it’s a pretty important lesson in both tax optimisation and benefits of long-term compounding myself.

But maybe it’s just that I myself wish I knew then what I know now!! :D
 
conor_mc said:
Using the annual 3k gift but on condition of saving into pension at least provides some degree of future benefit
Click to expand...

You are mixing up all sorts of things here.

You can still make the €3k gift and you can make it conditional on putting it into an account which must be used to buy a house.

Brendan
 
Mettmo said:
My wife and I would like to invest it long term for our kids inheritance or to help if they want to buy a house.
Click to expand...
Let's break this sentence down. The first option is to invest the money long term so your kids can inherit it...just like you have. If your kids inherit the money in their 60's, how much use are they going to get from it? You will hope that they have built their own wealth and are funding their own retirement at that point.

The second point is to help them to buy a house. It is incredibly difficult for young people to get on the property ladder and a lot of kids need financial help from parents. This is when they need the money the most. It will be a lot more beneficial for them to receive a lump sum now than in 30+ years time. Plus, you get to see them enjoy it!

With the extra money, would your wife like the option of retiring early? Are there any trips that you would love to do that you have put off due to time/ expense? Japan is a very popular destination now (October is one of the peak months). Do trips like that and enjoy the money.
 
Mettmo said:
E15,000 Investment policy
Click to expand...
Mettmo said:
Her risk appetite is high, mine is medium to low.
Click to expand...

Was this set up in joint names? What was the compromise fund? Are you both comfortable with the fund?

Mettmo said:
Her company pay E393pm into a pension.
Click to expand...
Mettmo said:
She also has various personal pension policies from when she worked as a contractor – total fund value = €580k
Click to expand...

What types of funds is she invested in?
 
Start with the basics, is there anything that needs to be done to the home house to future proof it, (insulation, repair work, a down stairs bathroom etc)?, Get those things done now when you have the time and cash to get them done.

Secondly, if I were you, I'd be planning the big holiday, kids are at an age where in future years they may not want to travel with you so do it now.

In regards to what is left, the €3k gift a year makes sense but look to lock it away in some way that it can't be spent down the pub.
 
Thanks all for the posts, much appreciated. I have some one-to-one responses for you.
 
New to AskAboutMoney and just finding out about the 1 hour wait on each post for new users.
So apologies, but posting replies to you all in this one post.

@Brendan Burgess
Re “… we don't have a functioning property investment market”
Agree with you about the property market, neither of us want to go near it right now.
As for shares, I know you need to think long term if you invest in the stockmarket and it has always gained its losses back over time, so if we’re looking at for a 10 years+ investment, maybe I need to stop thinking of it as too risky. So we’ll definitely consider an ETF.

@conor_mc & @CharlieMac
We like the idea of the €3k annual gift. At €6k each per year, I can see that will build up to a sizeable tax free inheritance bundle for them as the years go by.

@Steven Barrett
You say “If your kids inherit the money in their 60's, how much use are they going to get from it?” I take your point. So I’d say we’re steering now more towards them using it maybe in a 10 years or so timeframe when they may want to look at buying a house. Think they’re too young still to get a large amount of money. We’d prefer to wait until they’ve matured a bit and have a more definite need for it.
As for my wife retiring early, she likes her job and wants to go on until 60.

@GSheehy
About our E15k investment policy, we set it up in our joint names and it’s in a “cautiously managed” fund, which was a compromise we were both happy with at the time as this was a large portion of our savings then.

Re her pension funds, need to check the exact funds, but believe the majority of them are in mid-risk “Managed” funds. As my wife is only 3 years from retirement we’ll likely move them to lower risk funds soon.

@Peanuts20
Nothing big needs to be done to future proof the house and we have some of our savings earmarked for Fixtures & Fittings changes and a Sinking Fund.
 
Mettmo said:
You say “If your kids inherit the money in their 60's, how much use are they going to get from it?” I take your point. So I’d say we’re steering now more towards them using it maybe in a 10 years or so timeframe when they may want to look at buying a house. Think they’re too young still to get a large amount of money. We’d prefer to wait until they’ve matured a bit and have a more definite need for it.
Click to expand...
If you have a 10 year investment time frame for your children, definitely start gifting them €6,000 a year between you and your wife. Put it into something like a regular investment plan with a life company. As they are over 18, it will be in their names with you and your wife as the payor. In my experience, adult children do not touch this money., in fact, the general feeling is one of indifference. It is explained that it is for a house deposit and not for a summer in Ibiza. There's no app or easy access to it, so they don't pay much attention to it. I definitely would not put it in an account that they have easy access too. Asking a young adult not to spend it is too much of a temptation.
 
If the OP was a bit more brave and didn't really need the inheritance urgently then perhaps worth considering investing it all in an All Developed World ETF?

Yes there's a chance the value may fall but over 10+ years it will almost certainly grow and beat sitting in a current or deposit account... even after taxes and charges.

Can still take money out of that ETF fund as needed to make annual gifts to each child. Likewise those gifts could go in to another similar ETF for each child in their names.

As discussed elsewhere on this site an alternative to ETFs is a basket of individually held shares or perhaps a conglomerate company.
 
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