Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

ISAs

have you a review on Halifax stocks and shares isa

moiralevy, LDN

21 October 2017

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Dr Richard Bradley

Those who use Halifax Share Dealing typically rate it highly for value for money. For an ISA it’s only £12.50 per year and then £10.50 for each transaction so it’s pretty low cost, particularly for people who don’t buy or sell very often. Users tend to find the website a bit basic and not as slick as some of the other ISA providers out there. So, for investors looking at cost alone it’s a solid option, but it lacks some of the pizzazz of others.

Investments

My mother is 84 and has around £35,000 in cash, realised when she moved to a smaller house. She would like to invest it and draw income that would be slightly higher than the natural yield - say around £2,000. What is the best vehicle for that please?

Ed , SXE

18 September 2017

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Danny Cox

£2,000 a year is just under 6% and higher than the income which could be taken from a stock market investment (typically around 3.5%) and higher than most other types of investment such as corporate bond funds.  This means that your mother will be spending some of her capital each year. This may not be a problem, however if invested, spending capital could increase the rate at which the money might run out if the stock markets are unkind to you – if you spend capital when markets are rising there is no problem, however if you spend capital when markets fall, your investments have toi grow much faster to get back to where they were and you can easily be in a position where they fail to recover.

 

You also need to take into account inflation and the need to potentially draw more money in the future: £2,000 this year will have the spending power of around £1,600 in 10 years time.

 

Therefore we should assume that each year the income needed is going to rise by 2%, from £2,000 this year to £2,400 in 10 years time.

 

So let’s look at 2 potential options:


- Hold in cash: interest rates are poor but limping upward. If we assume an optimistic average interest rate of 2%, the money runs out after 17 years. This may be perfectly satisfactory and the advantage of this strategy is there is no stock market risk and being in cash there is lots of flexibility to make further withdrawals if needed

-Invest in the stock market: If we assume a conservative average 4% return each year after charges, after 20 years there is still £6,000 left.

 

My preference would be a combination of these. Hold some money in cash for flexibility and to pay the first couple of years income, and invest the balance in either a low cost FTSE All Share Tracker, or a combination of equity income funds. Use a combination of cash ISA and stocks and shares ISA to eliminate any tax issues, sheltering the whole £35,000 over 2 tax years (the ISA allowance is £20,000 a year).

 

- £10,000 in cash, £25,000 in the stockmarket which would mean the money would last around 19 years, assuming the markets are kind to you.

 

Of course this is just looking at this money in isolation and there could be other, better options.

Investments

I have just sold my house and have a significant sum of money I want to invest. I may want to draw some income but also want to achieve capital growth. Are there funds that aim to achieve both or should I just invest for growth and draw money as I need to for income ?

Jon darlison, SRY

13 September 2017

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Peter Matthew

Investing for both income and capital growth is possible (advisers call it investing for total return) but usually requires some compromise. If you go all-out for income, you are likely to limit the growth of the portfolio, whereas going all-out for growth will likely lead to a lower income being generated.

But that's OK! The best place to start is to define what you need out of this investment. If income is the priority, how much do you need, how long for, and when does it need to start? Begin with your goals and work from there to build a portfolio that aims to achieve those goals.

It's important to consider both the level of income and the capital value of the money. For example, if you need a higher level of income than the portfolio is likely to generate, you may need to dip into the capital. If you do this, how long will the capital last? What happens if you need to draw down from the capital when markets are dropping in value?

I suggest that you keep up to a couple of years' income in a risk-free bank or building society account, and give the portfolio chance to begin producing the income and capital growth you need. This will place a buffer between your income needs and a market decline, and enable you not to have to touch the portfolio if it is temporarily looking a bit sick. This might all seem a bit complicated, but with a bit of research it is possible for anyone.

 

Finally, there are funds which aim to do all of this for you (except for the cash buffer part). Look for funds with names that include the word 'income', but make sure that they include a spread of different kinds of assets and that the money is spread around the world, rather than just in the UK.


If in doubt, seek advice from a good financial planner, who will be able to help with both the cashflow planning part and the portfolio construction.

I have a delightful 12 year old daughter and she has just opened her first bank account. I am dreadful with money but I would like to know what I should teach her so that she does not pick up my bad financial habits. Do you have some top tips of things to teach our children so they are wise and responsible with money please?

Louise, Greater London

11 September 2017

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Lesley James

Hi Louise. Wow, there are so many things I would say to my own younger self had I the chance, so its fantastic to hear your desire to help your daughter onto the right path.

 

Your daughter is not (yet) working, so for now, the money she sees being spent is your money. I would therefore suggest involving her in the household budget. Be open about decisions you make. And (if you’re brave enough) perhaps also about the impact of your own less than great decisions. You consider yourself ‘dreadful with money’ so, what have you had to sacrifice or miss out on as a result?

 

If you haven't already, then pocket money in exchange for completing certain tasks or simply passing over control of some of her personal expenditure will also help. The management of phone credit, for example, what is used, and what happens when it runs out. And let her put any savings she makes into that account she’s opened up.

 

Longer term, however, I have a tip for you both. In ‘The Richest Man in Babylon’ (George Samuel Clason), we are advised to ensure that “a part of all we earn remains ours to keep”. A tenth in fact, if possible. Or as Monica's father in Friends says "10% of your paycheck - where does it go?" (In the bank...)

 

Starting out with the attitude that you control your expenses and save often creates very positive life long habits. And wealth. Teaching your daughter could also be a great way to start trying to organise the same for your own finances.

 

Its never too late for us to make a difference to our long term financial health. Good luck, therefore, and happy saving.