More money/investing Issues

jj_5

Hello my mother has £49,000 in a 75 day saver (Nationwide) and just been told the interest rate is going down to 1% gross. Obviously keen on moving this money but considering investing it in funds etc. rather than cash seeing as she doesn't need it for 5/10 years. Would a FTSE tracker be any good? Obviously just looking for something which will grow the money rather than preserve it's value like a savings account would (or barely would).

(She has other money which is accessible, an emergency pot etc. No pension provisions but she's 53 so would there be much point in using a pension? Also used the ISA allowance for this year.)

Linton

If she doesnt need the money for 5-10 years and she already has a significant amount of cash savings to cover unexpected needs (eg living expenses for 6 months) then funds could be a sensible additional investment.

A single focused fund like a FTSE tacker would be foolish in my view as it does not provide enough diversification. If she wants something that doesnt need her active management I would suggest that she considers a balanced managed fund where the fund manager moves the money between different types of asset to keep a constant overall balance.

Whatever fund she chooses she must accept that some of the time the fund will be showing a loss. If this would cause her stress than she should keep to savings.

She could consider a session with an IFA who will understand her situation and attitude to risk and will suggest a set of appropriate investments. The IFA will charge her for the advice, but it could be worth it.

jj_5

Linton wrote: »

If she doesnt need the money for 5-10 years and she already has a significant amount of cash savings to cover unexpected needs (eg living expenses for 6 months) then funds could be a sensible additional investment.

A single focused fund like a FTSE tacker would be foolish in my view as it does not provide enough diversification. If she wants something that doesnt need her active management I would suggest that she considers a balanced managed fund where the fund manager moves the money between different types of asset to keep a constant overall balance.

Whatever fund she chooses she must accept that some of the time the fund will be showing a loss. If this would cause her stress than she should keep to savings.

She could consider a session with an IFA who will understand her situation and attitude to risk and will suggest a set of appropriate investments. The IFA will charge her for the advice, but it could be worth it.

Thanks, just told her this but I'm worried about the advisor pushing only "his" preferred products where he earns the most commission. I know there's been changes lately maybe you could clear this up.

The fund showing a loss at times wouldn't cause too much stress.

Do balanced funds typically have a lower annual return than FTSE trackers?

Linton

jj_5 wrote: »

Thanks, just told her this but I'm worried about the advisor pushing only "his" preferred products where he earns the most commission. I know there's been changes lately maybe you could clear this up.

The fund showing a loss at times wouldn't cause too much stress.

Do balanced funds typically have a lower annual return than FTSE trackers?

With the new rules secret commission is not an issue, the adviser must declare and agree the fees up-front. As you will have read on these pages, make sure you talk to an IFA, not a tied bank salesman.

The advantage of balanced funds is that they are less volatile. The effect of this is that in the good times they would do worse than a FTSE tracker and in the bad times better. For example from https://www.trustnet.com. I note that the HSBC FTSE100 tracker lost 27% of value in 2008 during the credit crunch crash whereas the average mid-risk balanced fund lost 16%. On the other hand over the past 10 years the FTSE100 tracker has returned 90%, the average balanced fund 70%.

You could achieve the same effect as a balanced fund yourself, but it could require moving of money between your chosen equity and bond funds on say an annual basis. I dont know whether you or your mother would want to get this involved.

atush

At 53, she has at least 10 years until retirement.

So she should put some of it into pensions, as they get tax relief uplift (ie you put in 80 but it is instantly worth 100). She can put in as much as she earns in a year (up to 50K, the lowering to 40K) or if she earns nothing can put in 2880 per year which tax relief turns into 3600.

How much does she earn? What rate of tax does she pay? Does she own a property? Have a mtg? Does she have other savings and investments apart from emergency cash? Does she use her annual ISA allowance?

I would imagine cash and S&S isas, and pensions might come into this equation along with paying more off mtg if she has one.

Buffett

80% of managed funds do not beat the index trackers. You can buy global equity ETFs with very low cost ratios vs funds (e.g 0.5% vs as high as 3% for a managed fund). ETFs are also far more liquid, so you can exit whenever you like.

jj_5

atush wrote: »

At 53, she has at least 10 years until retirement.

So she should put some of it into pensions, as they get tax relief uplift (ie you put in 80 but it is instantly worth 100). She can put in as much as she earns in a year (up to 50K, the lowering to 40K) or if she earns nothing can put in 2880 per year which tax relief turns into 3600.

How much does she earn? What rate of tax does she pay? Does she own a property? Have a mtg? Does she have other savings and investments apart from emergency cash? Does she use her annual ISA allowance?

I would imagine cash and S&S isas, and pensions might come into this equation along with paying more off mtg if she has one.

Thank you for all the replies. Let me answer a few of these questions first. She earns around £15,360 a year (if that) Lower rate tax payer owns her house outright (mortgage paid off years ago) Masses of other savings (around 50k all held in cash but the best rates we could find).

Think an S&S ISA might be a shout though. I take it she can open one despite already having a cash ISA this year.

Are there only certain funds you can invest in through an S&S ISA?

80% of managed funds do not beat the index trackers. You can buy global equity ETFs with very low cost ratios vs funds (e.g 0.5% vs as high as 3% for a managed fund). ETFs are also far more liquid, so you can exit whenever you like.

Haha wee bit too much terminology there for me but are you saying a balanced managed fund would not outperform a FTSE tracker?

Aegis

Buffett wrote: »

80% of managed funds do not beat the index trackers.

Over what time frame and in which sector? I'm working in Financial Express Analytics at the moment and would like to check that claim.

I've seen it before, but haven't actually seen any evidence other than anecdotes.

BLB53

Think an S&S ISA might be a shout though. I take it she can open one despite already having a cash ISA this year.

If you have a cash isa for this tax year you will still be able to have a S&S isa and contribute the same amount.

If you can invest for 5 yrs or more, then stock & shares isa would be a good place for some of your mum's savings - maybe 50%. I think she could get a starting yield of around 4% with some investment trusts. But first it would be advisable to spend a bit of time reading up on investing.

A good starting place would be www.monevator.com (investing tab).

Here is a good article today explaining inv. trusts on another decent website - http://www.retirementinvestingtoday....nvestment.html - the theme is 'save hard, invest wisely, retire early'.

The book 'Slow & Steady Steps..' is also a good reference.

Linton

Buffett wrote: »

80% of managed funds do not beat the index trackers. You can buy global equity ETFs with very low cost ratios vs funds (e.g 0.5% vs as high as 3% for a managed fund). ETFs are also far more liquid, so you can exit whenever you like.

Not true. Trackers are typically in the middle of performance lists. Then of course it depends very much on what sector you are talking about. Over 5 years the HSBC All share tracker is marginally over midpoint in the UK Equity performance league - so about 50%. Again over 5 years about 75% of UK Small Cap funds beat the FTSE Small Companies Index.

atush

I would say, as she has no pension, she should put 15K into a pension this year. This will mean an initial fund of 18,750 into a pension.

This leaves over 30K to invest in ISAs, and other cash and investments. Or she could use last year's allowance and put 30K into the pension and have 37.5 as an initial fund and put the rest in ISAs.

Who does she work for? From this year, most employers have to start a pension scheme and contribute (or will do in the next 3 years).

In the meantime, pensions will be good for her for part of her funds and can be invested into whatever you might have wanted to in a S&S isa but will have that extra cash thrown in on top.

After all, she could take benefits (ie her tax free LS) in just 2 years time if she wanted or needed to.