Quantcast

Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

I have been paying into Vanguard Lifestrategy for a few months now, despite losses during the peak of the coronavirus outbreak I am now making gains again now. I regret not putting more money into the market at the very bottom in March, but I thought things were going to get a lot worse and I'm quite a cautious investor, but instead the recovery took me by surprise. I still would like to put more money in but but not all in one go, but feel time is against me. I'm 50 now and hope to retire at 60. This gives me just 9.5 years to pay in and grow, do you think this is a long enough period to invest in or am I now stuck with low interest bank accounts? I also read your weekly blog today that was sent to me, it mentions that if we experience higher inflation this could hit shares and particularly bonds. Now this is somewhat concerning, but it may be years away and I can't afford to sit on the sidelines waiting for the dips to arrive. I have my money split between Vanguard LS 60 & 80 with slightly more in 60. So basically my question to you is - with only a ten year timeframe, am I coming to the end of my investing life and should now stick with cash if shares and bonds are likely to take a hit in a few years? But where else is there to go for a health return?

Richard, Hull

25 June 2020

show answer hide answer

Holly - 066.JPG

Holly Mackay

First up Richard, I can't give you financial advice. I'm not a qualified adviser and also I don't know your full financial picture. So I am just sharing some food for thought here - hope it helps you to make the best decision for you.

Yours is a really common question and a very hard one at that.

It is a bit like asking me if you should go ski-ing again aged 50. The odds suggest that you will be fine. But the older you get the riskier it gets, and the greater the chances of any broken bones doing more damage and taking longer to heal. But would you say to any 50 year old friends that they shouldn't go ski-ing? Probably not. But if they break a bone, they'd be bloody unlucky and you'd feel guilty. Welcome to my world!

Loads to say.

First up:

Your timeframes. You are only 50. And there is no rule to say that when you hit 60 you need to take all your money out of the stock market.

In retirement we have 2 basic choices. We take our retirement savings and trade them in for a guaranteed and fixed annual income till the lights turn out. (An annuity). OR we keep invested in the stock markets, typically taking a lump sum on retirement and then drawing down a regular chunk every month or year to supplement our income (Drawdown).

Annuities are certain. But right now with interest rates so low, you don't get much and you prevent any potential upside (and of course downside) from markets. As a rule of thumb, take your pension savings and divide by about 20 or 25. That's a rough guide to how much you'd get a year if you buy an annuity.

However, if you live to 90, for example, 30 years from 60 to 90 is quite a long time to lock yourself out of the stock market. So don't assume that these next 10 years are all you have left to be in the markets. You may of course take some of your pension savings as cash when you're 60 (25% is tax free), keep some invested in a 'drawdown' pension and then trade it all in for an annuity when you're older. So maybe revisit your assumed timeframes for continuing your relationship with the stock market?

Secondly...

I think markets in March took us all by surprise and will continue to take us all by surprise for the rest of the year. No-one knows what is going to happen. It's a bit like having a teenager - you just know they're going to be stroppy at some stage but you don't know when or how long for. As we cannot predict the future, drip-feeding in can be sensible. I should think it will mean this year that you get some months where you buy cheap. And some months where you buy near the top. So be it. People to claim to call the market are usually pub bores who gloss over facts!

Cash rates are rubbish and going nowhere fast in the short-term. (We might get inflation at some point which will change this but I think we're some way off that.) So you are facing the most unpalatable choice. Rubbish cash. Or potentially ugly markets. I personally think bonds are a bit pointless right now (but that will anger some people who will violently disagree!) There is no easy answer so it's just a case of mitigating risk. My personal view is that with a 10 year + window you can ride out any storms in markets. As long as you don't bottle it and sell if things get bad. That's a bad mistake to make. If you make your bed, you have to keep lying in it!

Let's think of it in a more day-to-day way. If you tell me that you think stock markets will not grow over the next 10 years, that is similar to saying that you think there will be next to no growth, innovation or opportunity with companies - no room for any big global brands to become bigger and more profitable than they are today. 10 years is a very long time to hold such a pessimistic view for.

A key example is climate change: in order to meet the goals set out in the 2015 Paris climate agreement, investors need to allocate an additional $1.5tn per year to renewable energy and other low carbon projects – and to do so very soon, within a decade or so. Someone's got to get that money!? This will drive growth, expansion and change. See what I mean? There will be some sectors which will grow whatever the broader doom and gloom.

Funds...

Now to the funds you mention. Vanguard is a big credible low-cost global name. It's as safe a pair of hands as you can get. So that box is ticked. 60% in shares is like a single measure gin and tonic. 80% is more like a double. Bigger highs. Bigger lows. In my analogy however the 80% doesn't necessarily equal a bigger hangover if you have long timeframes. If you think back to my earlier comments, you only lose money in stock markets when you are a forced seller. So although the 80% in shares will be more uncomfortable at times, if you don't need to sell - it doesn't matter. And if you think that you will have some money in 'drawdown' pension products after 60, well your timeframes are longer than 10 years.

So maybe your 60% stuff is your 10 year pot. And your 80% stuff is your longer-term stuff? (And really, for 10 years or more, I suspect many people would actually select the 100% version but of course this will be more volatile.)

(Vanguard is a good player but they are passive. People will argue about whether this is the right approach for markets which are likely to fall further. You are in safe hands as I've said and I don't want to overload you. But as you become more comfortable with investing, do read up on the difference between active and passive funds in different market conditions. Not a critical one for today though - don't want to bombard you!)

Read up on annuities and drawdown

I think the first thing to do is to read up on annuities and drawdown. Revisit that 10 year timeframe in your head. Expect great volatility and even a potential crash - that way you can't be surprised. Drip feed in. Make sure you balance your innate caution with making your money work hard enough. Make sure you have enough cash around to weather any short-term needs so you're not a forced seller. Set up a plan and stick to it. Split your money into short-term (cash), medium term and long term pots.

I just worry that with lots of people living longer than ever, nervousness now will force people to sit in cash for 30 year timeframes or even more - and as weird as things are today - that doesn't feel like the right approach.



Hope that helps.

 

P.S. Money Advice Service has an annuity calculator so have a play on that. Hargreaves Lansdown and AJ Bell Youinvest typically have good information on drawdown. If they fry your brain, try Standard Life for more reading.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

I'm a newbie investor looking for a SIPP. I see AJ Bell have low fees compared to Hargreaves Lansdown. Is it worth the lower fees even though there are exit charges, or pay the higher Hargreaves Lansdown charges, but have no exit fees?

Andy, Hampshire

20 April 2020

show answer hide answer

Holly - 066.JPG

Holly Mackay

Both options you mention have very good service and are decent propositions. The AJ Bell Youinvest fees are indeed lower cost from an ongoing administration perspective.

You don’t say if you are in saving-up mode with your pension, or are close to ‘drawing down’ money out of it. AJ Bell Youinvest does have a menu of costs for those in drawdown mode whereas Hargreaves Lansdown's fee is more inclusive so it’s worth considering that too if you are close to retirement.

As for exit fees...

AJ Bell Youinvest is really quite unusual these days in having them.

I hate them, BUT you can make the argument that moving stuff out of an account costs money and why should everyone else subsidise those who do this?

This argument gets thinner and thinner the more that tech brings costs down. My gut feel is that if you chose AJ Bell Youinvest you would be broadly happy there, and I trust the integrity of the management team not to change direction/stuff things up/ become greedy.

So the exit fees question could be a moot point.

Broadly speaking I don’t think you’ll go far wrong with either. The larger your account, the more material the cost difference between the two options will be.

 

Hope that helps,

Holly

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

With China (well on the face of it) emerging from the COVID-19 nightmare, and its economy already up and running as the US, UK, and other countries are still battling, is now a good time to invest into China? What funds with equities that have a China focus are out there on the market? As a novice investor, I was looking at Vanguard's LifeStrategy 60% fund but know this is heavily geared towards the UK market. Any suggestions/thoughts would be most welcome!

Tariq, Lancashire

09 April 2020

show answer hide answer

Holly - 066.JPG

Holly Mackay

Hi Tariq,

You say you are a novice investor. As such I suspect you will do little more than tie yourself into knots if you try to be ‘too clever’ about things and second-guess geopolitical, economic and pandemic outcomes. I think actually I’d say the same to a very experienced investor.

As always the very first thing to be clear on is your investment timeframes. Is this long-term stuff and general “I’m saving for 10 years+ just to be sensible and build a nest egg?” Or is it shorter-term and more like 5 years with a specific deadline? The answer to this will really point to your risk profile. If I talk to people in their 30s for example, who are saving into a pension (i.e. we’re talking 20 years+) , then I think they should start with considering 100% in shares/equities.  

Just because you are a novice, doesn’t mean you should adopt a 60% equities mix – this is determined by timeframes rather than knowledge.  On the other hand, you have to feel confident that you wont bottle it if things tumble by 30% as they did last month – and if you suspect you may not weather the more bumpy ride that a 100% shares portfolio gives you, then go for something less punchy. Even if logic suggests this will not make your money work as hard as it should.

Now – to China. Who knows is the honest answer? There could be a second outbreak, trade wars, an alien invasion – OK that was flippant, but you see the point. Trying to cherry pick regions is nigh impossible. The boring old truth is this is just about diversification.

If you think that the Vanguard option is too weighted towards the UK (the 60% Vanguard LifeStrategy fund currently has about 22% to the UK) then you could try to look for other ‘multi-asset’ funds which have a lower weighting to the UK. But here’s where it gets tricky. The FTSE100 companies are actually very global in nature – take HSBC for example. In 2019, 49% of their revenues came from Asia. And just 29% from Europe. So this is not a UK company by revenue source – it’s just listed on the British Stock Exchange. So that % allocation to the UK can be a little misleading.

If you really want to back a recovery in China – and your guess is as good as anyone’s – then you could always put the majority of your money in a multi-asset fund and allocate a small proportion to a fund with a higher weighting to Asia or indeed China. Many of the DIY platforms including Hargreaves Lansdown, AJ Bell Youinvest or Fidelity have good research you can read up on.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

I am planning on investing in the stock market. Due to the COVID-19 downward trend on the market, I decided it might be a good entry point for someone like me who has never invested in stocks and shares before. I am 24 years old and I am earning a decent salary, contributing to a pension pot which my company matches. I have put aside an emergency pot worth 6 to 12 month. I do not own a property and have no mortgage. I am planning on investing for the next 5 to 10 years when I would like to buy a property. My risk appetite would be medium to high. I am thinking of investing with Vanguard mainly due to their low costs and easy to use and understand platform. I am wondering if I should go for a fund like Vanguard LifeStrategy 80% or 100% equity or choose individual funds to invest in. As I mentioned my investment knowledge is limited and I would prefer not to tinker too much with my portfolio if I can. Another question is if I should do a lump sum investment of £5000 now or drip feed it. Since the markets are going down, drip feeding seems like the better option right now.

Ben, London

30 March 2020

show answer hide answer

Holly - 066.JPG

Holly Mackay

Hi Ben,

Lots of things to consider here. You sound like you are prepared for the market volatility of investing. As a word of warning as a first-timer, a 100% equity portfolio will be a bumpy ride. For a 10 year timeframe it’s not necessarily a bad option, but make sure you are mentally prepared!

You say you are investing for a property. In that case you should read up on the Lifetime ISA - which comes as a Cash or a Stocks & Shares version.

You get 25% contributions from the Government – so if you save up to £4,000 a year here, they will give you £1,000. There are penalties if you don’t use this to buy a property and take the money out before you retire so do read up on this.

Vanguard is a good option for a newcomer as their LifeStrategy range you mention sees them taking all of the day-today decisions. They do not have a Lifetime ISA but you can always open up a Lifetime ISA with another platform and buy the Vanguard fund there. Have a look at AJ Bell Youinvest for a low-cost option. Hargreaves Lansdown is also cheap for a £5,000 investment.

Both platforms will allow you to deposit the full amount this tax year if you get your skates on and then this can sit in the account as cash, and you can set up regular buy instructions to drip feed this into markets as little at a time. This will certainly help smooth out the volatility we’re seeing at the moment. This could be £500 a month, or £1,000 a month for example.

Do read up on the Lifetime ISA, get familiar with the penalties and weigh these up against the Government freebies. And then work out your timeframe.

The 100% equity option will likely do better over the long-term but in markets like these it will also tank the most. So timeframes are important. The 80% option will not do as well in stellar years, but will be cushioned slightly against falls such as the ones we have seen most recently.

Hope that helps.

Holly

 

Stock Market Meltdown

In a new series, Holly provides straightforward answers to your difficult questions.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Sign up for Holly's blog

Stay up to date

Our free weekly blog with Holly's
no-nonsense opinions, tips & food for thought.
If you change your mind, you can unsubscribe at any time. We'll never share your details and you can unsubscribe any time.