5

It's a good problem to have, but a problem nonetheless.

I bought a house (London) last year, gave all my cash, except my 50 bitcoins. Fast forward end of the year I sold all my bitcoins, for £650,000.

My mortgage was around £500,000 at 2.5% for 5 years, with option to early repay 10% with no penalty every year. I paid around £90k towards house principal with no penalty. Another £110k has to go to tax :( My 9 to 5 job as software consultancy company earns around £140k/year, my wife and me being almost equal owners. We draw £680/month salary + dividends up to $45k/year/person, below the max dividend rate. Rest will stay in company (plan to take £10k/person as pension directly from company). Wife stays with kids currently. Have 2 kids and expenses are around £20-25k/year plus £2.2/month mortgage payment.

That leaves around £450k cash to use somehow. Options are: 1) Stay safe in NS&I 2) Bonds or equity indices in Vanguard/Fidelity etc 3) Pay mortgage (just 10% of remaining balance per year for free or around 1% early repayment penalty per remaining year in fixed term). 4) Buy some property

My goal is to be able to retire (that for me means survive off passive income like Mr Money Mustache, try some business ideas etc, not sit doing nothing).

I'm a bit confused by all the possibilities. Pay off house and be able to save a lot per month and invest it aggressively? LKeep it safe in NS&I and wait for economy cycle to finish to buy equities in half price and watch it double in some years? Keep a mix of 1/3 year fixed term deposits and bonds and invest say £50k/year to equities while paying the 10% penalty free repayment to the mortgage? Seek professional help?

  • Not saying they are all created equal, and you should certainly listen more than you do with them, but have you considered speaking to a wealth manager to see what options are available to give you some hints on what you might be comfortable with or what you may/may not have considered to do with it? I would suggest that as a good starting point. – GµårÐïåñ Mar 23 '18 at 0:19
  • I think a professional would be a good option if more advanced solutions were required, e.g. setting up trusts, off shore etc. For me the options are more common, so I doubt they would have more context than myself to make a better decision for me. – MrNoName Mar 23 '18 at 6:59
  • You probably want to think about using up your unused pension allowance for the last 3 tax years (to make use f the generous tax benefits) - Though does depend how large your pension already is – Neuromancer Apr 9 '18 at 15:06
  • You probably want to consider capital gains taxes. Mr(s) Tax (Wo)Man is almost certainly going to want a share of that money. – a CVn Apr 9 '18 at 17:30
9

Firstly, don't feel any obligation to be overly aggressive. You took a punt that paid off big time, and are now in a very comfortable position. Assuming that your next aggressive investment will work out as well is a good way to lose a lot of money.

wait for economy cycle to finish

Don't do this. Assuming you can time the market is a known recipe for failure.

Keep a mix

Definitely.

Thoughts on the mortgage:

  • Paying a penalty to overpay the mortgage seems pointless. You can get 4-5 year bonds at about 2.5%, so put some money in there so you can pay it down when the low fixed rate expires.

  • Don't pay off the mortgage completely while rates are low. Keep your money diversified. If you pay the mortgage down to 60% at the end of the term then you will be getting the best rates available. This advice may change if mortgage rates rise a lot in the next few years.

Do the calculations, but be conservative in your assumptions. Assume your aggressive investments will go wrong. Assume interest rates changes are not in your favour. ABSOLUTELY DO NOT assume that you have the power to 'double your money in some years'. If you are looking to retire long term, then you need security.

Summary

I am not convinced you have enough to be thinking about retiring. If you bought the house outright then you have few savings left and are reliant on the one business. This is a huge risk. Is this business going to keep paying you $45k/year for the rest of your life? Maybe if you sold your business and diversified the money.

If you are not confident then seek professional advice, even if from a bank.

  • 9
    "Assuming that your next aggressive investment will work out as well is a good way to lose a lot of money." Magnificent. – Fattie Mar 23 '18 at 11:13
  • 1
    I know that well. I actually sold the bitcoins for more money, but bought one of the first dips with 30% of my proceeds, and lost 30% of that amounting to around 70k euros. – MrNoName Mar 23 '18 at 11:30
  • Regarding aggressive investment, how about maxing out my and wife's stocks and shares ISA every year? That's my current strategy, just I have bonds in them now. That's £40k/year that can go to equities and it will average out during a couple of years? I keep the pension funds in equities. – MrNoName Mar 23 '18 at 11:33
  • Buying a considerable number of equities sounds like a decent option certainly. And the ISA provides good tax benefits. Within that you have a lot of option on higher risk stocks, lower risk stocks, tracker funds, managed funds, etc. And feel free to take some risk, but don't rely on it paying off. – Mark Perryman Mar 23 '18 at 11:36
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    Buying stocks at the £40,000 or so per year you suggest is a conservative way to start investing that will protect you from peaks and troughs as you get in (see pound-cost averaging). Trying to time the market will fail more often than it works. – Mark Perryman Mar 23 '18 at 17:48
1

My initial thoughts

1 Max out both your 20K ISA allowances - if you are on 140k you should have been doing this or close to it already - stick it in cash until know what you want to do in terms of equities bonds.

2 Max out your kids ISA's

3 Pensions I assume you mean your company pays £10k pa into you pension? I would look at going back and using up any unused allowances for you and your partner for the last 3 years - you probably need to talk to an IFA for that.

4 You could look very long term and start a pension now for both of your kids - you cant contribute much per year but starting very young like this gives them a great advantage in 60 years time.

5 For the rest you need to look at collective investments personally I prefer Investment trusts over index funds as the charges are lower and your not forced to buy the index. As far as possible these should be held inside an ISA so as to remove them from the reach of the taxman.

Id suggest generalist trusts like Wittan, Lowland, Bankers and so on some of these have been going for over a hundred years and have a record of decades of dividend increases.

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    Given the OP has no assets above the value of his house, tying money up for 60 years in his kid's pensions seems an odd recommendation. – Mark Perryman Apr 9 '18 at 17:05
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    @MarkPerryman its only a few K per year 3.6 I think and the OP has almost 1/2 a million and a house in London the op and his partner need to start planning now for inheritance tax now and also for their children – Neuromancer Apr 9 '18 at 22:25
  • @MarkPerryman £x per year from age 0-20 gives the same pension pot as £3x per year from age 20-60, iirc. Nominal, but still... – AakashM Apr 10 '18 at 8:35
  • My stated goal is to retire as soon as possible, by having a passive income I can live off from, to be free from day job and to start other business ideas. Putting money in my kids pension works against that. The other suggestions are interesting. – MrNoName Apr 11 '18 at 6:35

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