I'm going to be retiring from my career soon, and as well as receiving my pension, I have also qualified for a lump sum of just over £200,000, which I will receive around January 2021.

I won't actually want to use this lump sum for another 5 or so years, and would prefer not to just leave it in my account where it will decay in value over time due to inflation. Similarly, the all-time low savings accounts interest rates in the UK (less than 1%) make this an unattractive prospect.

I've been doing some research and feel that investing it could be a much better option. Currently, I'm looking at the S&P 500, and a UK-based equity fund called FundSmith, which has performed exceptionally well in the last decade.

My question is whether investing this lump sum in one of these two funds for the next 5 years would be considered a wise decision, or whether there is a better option. Of course, I understand to some level that I would be taking a risk, and that 5 years won't necessarily guarantee a good return.

However, I'd like some further advice on what would be a good decision for the best return in this time period, whilst minimising the risk as much as possible. Furthermore, for any of the options, what potential returns might I be looking at, and would January 2021 be a decent time to invest, COVID pandemic considered?

EDIT: For context, after the 5 or so years are up, I'd like to combine whatever value has accrued from this lump sum investment with the funds from selling my current house, and some of my other savings in order to buy a larger house and a new car etc.

  • Are you going to need all the money in 5 years, or will be using the money slowly over years or even decades? Nov 20, 2020 at 13:22
  • @mhoran_psprep Realistically, I think I would like to take it all out after 5 or so years, and not leave anything for additional years/decades.
    – Rocco
    Nov 20, 2020 at 13:24
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    Buying a larger house with retirement funds seems like a rather counter-intuitive option to me. Also, for advice about these kinds of amounts of money it is WELL worth paying an IFA for proper advice rather than trusting the views of a bunch of people on the internet. money.co.uk/guides/5-steps-to-finding-an-ifa-you-can-trust.htm
    – Vicky
    Nov 20, 2020 at 13:44
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    There are two reasons the "larger house" idea is counter-intuitive to me. The first is that many people downsize as they head into retirement as they simply don't need as much space any more once their children have grown up and "flown the nest" etc. The other is that the downsizing typically frees up cash that can then be invested to provide an income. Tying it all up in a house which you plan to live in completely removes that option, other than via equity release which is typically not terribly efficient as a way of turning capital into income.
    – Vicky
    Nov 20, 2020 at 15:17
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    In March, the S&P 500 dropped 35%. Ignoring the subsequent recovery, do you have the stomach to withstand such a loss with your retirement funds? Would you sleep well at night if your £200,000 turned into £130,000? Invest carefully if near, at or in retirement. Nov 20, 2020 at 19:12

4 Answers 4


As you note, these days putting money in the bank is a poor choice. If you look long and hard you might find someone who gives 1% interest.

You could invest in real estate, i.e. buy a house or apartment building in the hope of renting it out and eventually re-selling it. But that's very risky, especially for a short term. And it's tough to be successful as a landlord if you don't know something about the landlord business or are prepared to learn fast. (Just like if someone told me that he was going to open a store selling, whatever, bicycle helmets, my first question would be, How much do you know about bicycle helmets?)

The easy answer is to invest in the stock market. There are many stocks and funds out there. You can invest in different industries, choose different levels of risk, etc.

I'd suggest you talk to a broker, banker, or financial advisor. You're talking about enough money that I don't think it would be hard to get someone willing to take time with you. A few years back I went to a financial advisor with $200,000 to invest and he was happy to talk to me for free because that was enough money that his margin on any investments would be enough to pay for his time.

I have several different investment accounts for different purposes. There's one that I think of as my "savings account". I talked to a brokerage guy at my bank and I told him that I wanted a very safe investment, something that wasn't likely to lose more than 1% or so in bad years, and of course I understand that the flip side of that is that it wouldn't make all that much in good years but it would be better than the interest I'd get on a savings account. He found me a couple of very conservative funds that tended to range from losing 1% to making maybe 4%. That was pretty much what I was looking for so I've kept modest amounts of money in that account for years now.

That's very different from my retirement accounts, which I have in more aggressive investments. My biggest retirement account made 20% one year, which of course was great. But the previous year it lost about 15%.

  • Thanks for your response. I'm definitely going to seek some concrete advice from a financial adviser soon now that I've been able to gain a better idea of what's available. I'm glad you pointed out real estate as a possibly risky as it was another option I was considering.
    – Rocco
    Nov 20, 2020 at 22:16

There's not really such a thing as a low-risk stock market investment over a 5 year period.

An S&P 500 fund will track the market, and so will go up and down with the market. These sorts of fund are considered to be "low risk" as they invest in a large number of companies, but that's still no guarantee that you won't lose some money.

FundSmith invests in a small number of companies - about 25 at any time. As such it's considered "higher risk". But if the people managing the fund are good at picking the right companies, then it will minimise losses while the rest of the market falls.

Ultimately, the only way you can really reduce (but not eliminate) risk is to spread your money around a diverse range of investment funds. (Several funds that invest in the same thing isn't diverse.)

  • Thanks for your answer - I think I've definitely settled on the idea of investing the money for at least 5 years. Now just the real question of what to invest in. FundSmith is definitely appealing considering its record so far, but I'll have to properly weigh up my risk-tolerance etc. with a financial advisor to get a final decision soon.
    – Rocco
    Nov 20, 2020 at 22:18
  • @Rocco for what it's worth, I do have money invested in FundSmith. But it's only one part of my investments.
    – Simon B
    Nov 21, 2020 at 0:17

You are asking for "low risk, high return", which of course doesn't exist; but what you may want to consider is an asset mix that mirrors a 2025 Target Date Retirement plan. This is the "recommended" mix from any one of the major investment banks for someone retiring in five years; while you're actually retiring now, the idea is the same: the mix that lowers risk so that you have a secure amount at retirement, while balancing that with some desire for appreciation.

You could simply put the money in a Target 2025 fund itself, at Vanguard, Fidelity, any of the major brokers (whomever you prefer). For example, Vanguard's Target Retirement 2025 Fund has a 58% Stock/41% Bond mix (and 1% cash); you could either invest in that or similar, or simply invest your funds in a similar manner.

You can also read this article from Motley Fool, which goes into some details. One of the things it points out is that, most of the time in a 5 year period - 85% - the market goes up; but if you're in the 15% where it goes down, one thing you could do is simply put this off some. If the "five year" window to use the capital is not a very firm set in the ground time frame - it's just when you would ideally like to buy that house or whatever - then this might allow a little more risk tolerance.

You also could cut it down the middle, and invest in something like 60% stock / 40% bond, and then each year move a little more to Bond as a percentage - so if the market is going up you'll move more into bonds that year, and if the market goes down you might not move any. 60/40 this year, 55/45 next year, etc., by 5 years you're 40/60, and still making a decent return on half of your money.

If that risk tolerance isn't up your alley, then I'd simply invest mostly in Bonds and none in stocks, or even invest in inflation protected securities, which simply earn the amount of inflation. TIPS is the American vehicle (Treasury Inflation Protected Securities); in the UK there is something similar; you can read this Vanguard white paper on the UK version. This doesn't "gain" you anything, but it (in theory, anyway) keeps the value relative to inflation, and is extremely low risk.

One note to consider: while you mention you want to buy a bigger house and a car, this is an unusual thing to do in retirement. It's good that you're waiting a few years - because you may well find that this isn't something you want five years from now. Many retirees find that retirement is very different from what they expected, and either end up downsizing houses or even moving to renting; the big advantages being the reduction in maintenance of the house, and the ability to pick up and move at a moment's notice. Being able to move to where the grandkids are, or even being able to move to Bermuda or somewhere else for a few years just for fun, is one of the perks of retirement, and something you could potentially find yourself wanting in five years.

As such, while I won't try to convince you what you should do with your money now, I would recommend whatever you do making sure you keep flexibility in mind. Being flexible means you can change your mind in 5 years, or not, just depending on what you want - and that's the best part of retirement: being able to be flexible!

  • One issue with "near-date" Target Funds is that they hold a lot in bonds. If interest rates ever rise again, the value will plummet.
    – RonJohn
    Nov 20, 2020 at 20:26
  • @RonJohn Presumably interest rate increases will be positively correlated with stock market gains also, though, no? The bonds are the insurance against stock market dropping.
    – Joe
    Nov 20, 2020 at 20:27
  • Thanks for your response, target funds aren't something I'd looked into before, but I'll definitely do some more reading up on them. From what I can tell though, they make most sense when the target date is a lot further in the future than 5 years. Though it'd be more risky, the S&P 500 or a fund like FundSmith seem more appealing.
    – Rocco
    Nov 20, 2020 at 22:26
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    @Rocco Really they make sense at any timespan - that's sort of the point of the target date funds. They're not ideal, but for a novice investor just looking for somewhere of the appropriate risk level, they're pretty reasonable. The whole idea of the "short" window is that they're less risky than VOO or similar ("S&P 500").
    – Joe
    Nov 20, 2020 at 22:33

It depends on: your age, your employment status after retirement (part time work?), amount of pension or not (and can you take any more of it as a lump sum?), any spouse/children, need for insurance or not, health, tax situation, monthly cash flow, other assets and net worth, etc. Suggest you consult a financial advisor, but only one who is a fiduciary, not a stock broker, banker, insurance agent, etc..

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