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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.

Pensions | Investments

Please help me . Choosing a pension from Aviva . It asks if I want growth or income ? Which one do I choose ? I'm 46 .

Ria, Greater London

11 September 2017

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Holly Mackay

We obviously invest to make money. And hope for better returns than cash. The money we make can either be paid out to us as income or represent itself as growth.

Here’s a basic analogy. Imagine your pension is like a bag of Minstrels. Every year you get given an extra Minstrel. You can choose whether to eat it there and then or whether to pop it back into the bag and stockpile more Minstrels.


It’s the same with your investments. When companies you invest in make a profit, they can either re-invest that cash in making themselves bigger and better, they can stockpile it in the bank or they can give a bit back to their shareholders. Any cash they pay out to shareholders is called a dividend. This is like some income for you. You can either choose to take that cash when it’s offered, or re-invest it and buy more shares with it. Foregoing the cash today for a bigger pile of shares. And that’s the difference between investment for income and investing for growth.


As an example, £1,000  in the UK stockmarket might pay you an income of about £20-£30 a year. Growth investors will choose to ‘re-invest’ this and increase the number of shares held. Which they hope will go up in value too.


If you could use some income to boost a salary or a pension, for example, you will probably want the income option. If you’re saving for something like pension which is at least a decade away, it probably makes sense to grow your stash and consider any ‘growth’ option to boost your savings.


I have a bit of excess money to play around with and I have been looking at Investment funds. What is the typical % growth rate of an investment fund?

David, Greater London

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Cherry Raynard

This question is being asked more and more often. Disillusioned with the rates on savings accounts, people are looking for alternative options when they have a bit of cash to spare. The stock market, and more specifically, collective funds that invest in the stock market, are generating more interest.


With that in mind, most people want to know the type of return they can expect, as they would with, say, a saving account. The problem is that stock market returns bounce around like a toddler on a Haribo high. Some years, you might get 20%, the next year, you might lose 30% and it’s not always easy to predict when you’ll get what.


Nevertheless, a few things are easier to judge. First, if you have a diversified portfolio of larger companies, you will probably receive a decent dividend stream – somewhere between about 3.5-4%. This is not guaranteed, but does not tend to vary in the same way as the capital value of a stock market investment. Plus, it is money in your pocket and a higher income than you can generally get elsewhere.


In terms of the capital value, past performance is not guide to future performance, as the regulator is fond of reminding people. However, looking at historic returns might give some impression as to the type of returns you could expect over time. An investment in the FTSE All Share index – a good proxy for the stock market as a whole - has given you a return of 10.1% every year for the past five years. This sounds pretty impressive, but it lost around 50% from mid 2007 to early 2009, so was starting from a low point.


Many investors who are starting out simply plump for the market return, opting for a tracker fund that simply aims to replicate the performance of an index such as the FTSE 100. However, active managers – where there is real live person in charge of selecting the shares to go in an investment fund - might give you a higher return. Over the same period, the FundSmith Equity fund has given its investors a return of 21.4% per year. Fund managers such as Neil Woodford (of Woodford Investment Management) or Nick Train (of Lindsell Train) might boast similar returns.


The trouble is, you might also have been invested in the M&G Recovery fund, which has only made 3.6% over five years and has fallen an average of 1.44% in each of the past three years. Picking the fund likely to do well isn’t easy.


At the risk of repeating ourselves, it is worth bearing in mind a few key rules when investing in an investment fund: Little and often is a good idea. Putting money into the market regularly means that you reduce the risk of putting it in at the top of the market and then seeing big losses. Start with a well-diversified portfolio – don’t make the classic first-time stock market investor mistake of betting all your cash on some technology company that promises to make oil out of hen’s feathers. Also, make sure you shelter your money from tax, where possible by using a stocks and shares ISA. If you need some pointers, we have some thoughts here.


Why should I bother with paying into a pension at my age of 55 years now when I have never had one?

Tee, Greater London

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Cherry Raynard

I see your point. Pensions are complex, constantly changing, full of jargon and subject to the whimsy of governments. Why would you bother?


Theoretically, if you have lots of other assets that you can use to generate an income in retirement, then you don’t need to bother with pensions. That said, you should probably ensure that you’re not dependent on just one or two types of investment. I met a woman recently whose whole retirement plan was based on investment in Eastern European property. It might work, but it’s a little narrow for my tastes and I’d make the same point about all those depending solely on UK property. Very few things go up in a straight line for ever.


Equally, it would have been great if you weren’t starting your pension at 55. I’m put in mind of the old Chinese proverb about the best time to plant a tree. The answer: twenty years ago. However, the other half of the proverb says that the second best time to plant a tree is today. And the fact that you’ve never done it shouldn’t put you off doing it now.


There are two main reasons to look at pensions, no matter what your age. First, your employer might match your contribution. Under ‘auto-enrolment’, all employers, even the very smallest, are obliged to offer you a workplace pension scheme. In these schemes, you might put in £200, your employer would put in another £200. So for £200, you’d up with more than £400 invested for your retirement and…..


….then there is the Government’s contribution. They insist on making this complicated by talking about ‘tax relief at your marginal rate’, but what it really means is they give you back some of the tax you’ve paid. his can be as high as 45% for high earners, though there are now restrictions on pensions relief for those earning over £150,000. Either way, it might add another £250 to your £400 pot.


These incentives are not to be sniffed at and can allow you to build up a pretty chunky pot quite quickly, quite cheaply. You don’t have to take this at 65, and you don’t have to use it to buy an annuity. You can pretty much do what you like with it. You can even completely ignore it and pass it on tax free to your dependents. Even better, you can take 25% of it as a lump sum.


So, while I’d never say you have to have a pension, there are advantages. And it’s not that difficult to do. If you don’t have a scheme through your employer yet, or you don’t have an employer, then here are some useful thoughts on personal pensions.