Please be brutal. I have spent thirty years being told I’m wrong by the market, competitors, and occasionally a judge. I can handle it.
The situation
Couple, early 50s. Four children who are all technically adults but remain financially connected to us. Thirty years of running geared investment businesses …. serious debt, and real “if this goes wrong we lose everything” sleepless nights. The businesses are sold. The tax bill has been paid. I have cried about that bill.
What remains: £50m liquid, zero debt, all kids education pre-funded, and two people who have absolutely no idea what to do with their mornings.
Annual spend: £400k. Withdrawal rate: sub 1%. The maths doesn’t need to work this hard. We know. We don’t care. Thirty years of existential business risk needs time to heal. We have zero desire to “make it bigger”
The three buckets
Bucket 1 — Cash: £4m
Ten years of spending sitting in cash. I can already hear the intake of breath. This is not a mistake …. it is a deliberate, eyes-open, rational decision to be irrational, because I am very tired and I might want to buy something expensive without doing a spreadsheet first.
Call it liquidity insurance. Call it psychological permission. Call it whatever gets you through the night. We’re keeping it.
Bucket 2 — Gilt ladder: £12m
Low-coupon gilts stretched across forty years. Generates somewhere between £500–650k annually depending on where on the curve we sit. Covers £400k of spending with enough left over to absorb very modest inflation. We hold to redemption, so rising yields are someone else’s problem. Tax is minimal as most of the return is pull-to-par rather than income.
The risks: sterling concentration, and the tail scenario in which a future (Green?) government decides that fiscal credibility is for cowards. We are not dependent on selling, so this is more of an aesthetic concern than a financial one.
Bucket 3 — The children’s inheritance they don’t know about yet: £34m
Global equities and stakes in private companies. This bucket is not for us. We are unlikely to touch it. If the compounding works as advertised and we ignore tax for a minute, this reaches somewhere north of half a billion by the time we’re doddering around in our nineties. At which point our children will have a very interesting conversation at the funeral.
We’re considering wrapping this in a Family Investment Company for IHT efficiency. The structure is mildly annoying to administer. The alternative is donating a significant portion to HMRC, which I find more annoying.
Bucket 3 also functions as our inflation disaster insurance. If gilts get cooked by a decade of stubborn inflation, the equity bucket rescues us. We have a £34m safety net. I mention this with appropriate embarrassment.
What I’m actually unsure about
One, ten years of cash is obviously too much. I know this. My advisor knows this. Is there a version of Bucket 1 … short gilts that doesn’t compromise the “sleep like the dead” objective but stops us leaving quite so much return untouched?
Two, should we be mixing low-coupon supranationals and high-grade corporates into the gilt ladder? The diversification logic is sound. The complexity is the enemy. We are actively trying to own fewer things to think about, not more.
Three, with a sub-1% withdrawal rate and £34m compounding untouched in the background, are we being too boring in our capital allocation? Private credit ( boom boom!) infrastructure, direct lending …. there are more interesting things we could be doing. But interesting sounds like work, and we just stopped working, so…..
Four, what are we missing? We’re relaxed about sequence risk, longevity, and inflation. We are slightly less relaxed about UK political risk and the creeping suspicion that the obvious mistake is always the one you don’t see.
Be as rude as you like. I’ve had worse.