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

Hello there, Can you advise me if there is an average number of funds that one should ideally hold. I have in excess of 20 covering the UK, Europe, Asia and the US small and large companies etc. I am happy with my portfolio and coverage but wonder if I have too many funds. The second part to the question is how long should you I leave an underperforming fund, I have 6 months in mind. I do appreciate that funds are for the long term and in my case I am looking at 10 years plus but if after 6 months fund A is giving me 15 % and fund B 1 % for example; then I would be looking to close down fund B and move the monies to fund A. Is my thinking correct here ? I ask because I don't like looking at them all the time just every few weeks to see how they are trotting along. Thanking you in advance... best Richard

Richard, HRT

09 October 2017

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Holly Mackay

There's no hard and fast rule. It depends a bit on how big your portfolio is - if it's a large amount then there is arguably a case for having more than you would with a £20,000 portfolio for example. The trick is to spread your bets around so that you are not totally exposed to the UK stock market, or the US markets or the financial sector or mining stocks, for example. Some people like to have some property exposure, or a bit allocated to gold which can hold up when stock markets collapse and everyone shrieks Armageddon.

 

I think it makes sense to have between 8 and no more than 20 funds although it depends on your individual circumstances and preferences. Any more and you’re not diversified enough. Any more and you’re trying to hedge your bets too much and probably undoing the work of the active managers you have selected. If you pick 8 UK share funds, for example, well you end up with what my gran might have called a bugger’s muddle! And frankly you may as well just buy a single tracker.

 

The next part of your question is very hard to answer. The theory goes that if it’s a good manager they might well have periods of underperformance which could last for a few years. And if you sell up in the slump you just crystallise a loss. Also if Fund B is in a different sector or market than Fund A you are not comparing like with like. A few years ago I broke my rules and sold an India fund because I was fed up with its slow returns and bingo India boomed the next year! As lay investors we can’t really know how good an individual manager is because we can’t interview them and it’s hard to quantify skill. I think the best thing to do is to read a few of the analysts assessments. Try reading the content on Hargreaves Lansdown. On Bestinvest. On Trustnet Direct. As long as the consensus view is that a manager is still good, and there have been no material staff changes, and you still want to be in that sector, well I would hang on. 6 months isn’t long enough. But I do understand your point so do your reading, see what the investment professionals say, and if you’re still not convinced you could just plump for a single low-cost tracker for that region or sector so you’re getting market returns at very low-costs. You might miss out on a recovery. But you remove the chances of paying a lot for a dud too.

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.