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Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

Investments | Saving | ISAs | Junior ISA

Hi. I’m 36 years old, earn £85k, and have about £40k savings in the bank, mainly in an old ISA that I’ve done nothing with. I am embarrassingly bad when it comes to savings and investments so keen for a steer. I have a five year old daughter and would like to put my savings somewhere clever so they start to do something useful by the time she starts at an independent secondary school and fees go through the roof. Any bright ideas please?

Milly, Berkshire

22 February 2019

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Catherine Morgan

Private school inflation rises are often far greater than your loaf of bread rises. Cash isn’t always best and planning ahead is key, so great timing to be thinking about this.  Fees increased by 3.4% last year and I can guarantee you aren’t getting that kind of return on your old ISA, which means your money is decumulating in buying power.

 

Your ISA options

You could retain the money in your own ISA (which would make sense as a higher rate tax payer as you won’t have any capital gains tax to pay, nor will you have to put it on your tax return). This also gives you control of the money. Other options such as Junior ISAs will only be accessible from age 18.

If your “old ISA” is in cash, consider the merits of transferring this to a stocks and shares ISA. You have more than the recommended minimum time to invest to be able to ride out the volatility of the markets. Over 7 years you could start off more adventurous with the view to reduce the volatility and risk as you come to the time when you may need to take money out to fund her schooling. If you are concerned about risk think about investing in lower risk investments such as government bonds. These are readily available on the market in ready-made portfolios that are easy to set up.

 

Other bits and pieces to be aware of

Some schools will have annual payments, some termly, so be prepared to withdraw the money at a time that suits you. Some private schools offer the option to pay in advance as a lump sum, known as ‘advance funding.’ This could protect you from hefty inflation rises on fees in the future and help you time a withdrawal.

Boring Money have some great resources for you to read to weigh up which investment proposition may be best suited to you. Once you have chosen an investment company, you would need to complete an ISA transfer form with them to transfer from cash to stocks and shares. This won’t affect your allowance for this year so you could continue to add to this investment in a very tax efficient way. (£20,000 for this tax year).

You should also consider making sure that you have a Will as the ISA is in your name but intended for your daughter. That way you have worst case scenario covered.

 

Pros and cons of Cash ISAs versus Stocks and Shares ISAs

Cash ISAs

  • Instant access (or after a fixed period)
  • Receive a variable or fixed interest rate
  • Great for emergency funds or short-term homes for savings
  • Readily available
  • Not great for long term growth potential
  • Poor interest rates

 

Stocks and Shares 

  • Much better opportunity to grow over the longer term
  • 1000’s of investment funds available at low cost
  • Investments ranging from low risk (yes you don’t have to accept high levels of volatility) to more adventurous
  • Access is normally gained within just a few days (gone are the old-style investment days of having no or ltd access!)

Finally, don’t forget to consider scholarships to help you with fees. Around 1/3rd of independent schools have funding for this.

 

 

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.

Investments | Pensions | Personal Finance | Robo Advisors

Is there a Robo Investor who provides both income and growth for those who are retired? (There must be a large market for this?) It seems to me that at the moment all the Robos focus on long term growth and reinvesting dividends - which is fine if you are younger. Have I got this right? Any comments / thoughts? P.S. I think your website / service is very good

David,

18 January 2019

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Dr Richard Bradley

Thanks for getting in touch, and for the nice feedback on our site.

You’re right – many robo-advisers are focusing more on investors building up assets rather than those taking income.  Most don’t offer pensions yet, and those that do typically don’t offer income drawdown for retirees.  The only one I know of which has specific drawdown functionality is PensionBee: https://www.pensionbee.com/drawdown

In terms of the actual investments that robo-advisers make, they’d typically reinvest dividends rather than focus specifically on generating income – they would look at the total return of a portfolio and let investors draw down from that.

 

 

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.

Investments | Funds | Shares

Are you able to comment on The Investment Company? I wanted an investment trust with an income, so I put £10,000 in there. It does deliver a reliable quarterly dividend but the capital value has dropped by 10% since I invested 2 years ago. Can you comment on its performance? I was considering selling it and moving the money to another fund with a similar return but a better performance. If you could tell me your favourite investment trusts at the moment that would be great.

Fran, Greater London

08 August 2018

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Mark Dampier

The Investment Company is a tiny trust at £17m. At this size I find it hard to believe it can be a going concern.

The original fund manager was a small cap specialist and a good one at that - so I am unclear why he was sacked. The management has gone to a London based broker, Friske, who I don’t know.

UK income funds have generally struggled over the last 2 years, and the market has been in love with tech type stocks. They've tended to shun traditional income funds who look for companies with a market type yield (around 3.8%), which will grow over the years. I have no idea whether Friske have any expertise in running funds.

Looking for alternative bigger, more established names - I would look at Edinburgh Trust, which is currently on a near 10% discount*.

It’s had a difficult time recently, but the fund manager has an excellent long term record. (I have bought some myself).

I would also add Standard Life Equity Income which has performed better and is therefore only on a 1% discount. (I have bought this too!)

I think the two funds complement each other. Edinburgh pays quarterly dividends while Standard Life is twice a year.

 

Holly adds

“If you have a collection of funds or investment trusts, you need to set up an account somewhere to buy them. Most people use an investment platform. Our Best Buys tables will show you which ones we like, and let you filter your search according to what you want.”

 

 

Jargon buster:

Yield -

Some companies (and shares) generate spare and excess cash which they choose to ‘divvy up’ and pay out to shareholders. As dividends.

This means that some investments can generate an annual income as well as hopefully going up in value.  For example, if a £100 investment pays out £3 a year, it is said to have a yield of 3%.

 

*Discount -

Investment trusts are slightly weird creatures – they are companies themselves and their business is buying and selling shares. So let’s say I set up Holly Trust PLC. I buy Apple, British Airways and HSBC. Their shares are £100 each. So the trust has £300 in it. 300 people buy shares at £1 each. Now imagine a month later the shares haven’t moved in price. All of the shares I have are still £100 each. A few people are fed up because they think Holly Trust PLC is rubbish. So they sell out. This pushes the shares in Holly Trust PLC down to 90p. So you have this weird situation where the total value of the shares in Holly PLC is actually less than the value of the shares that Holly PLC owns. This is trading at a discount. The opposite is when everyone loves it and the investment trust is worth more than all its underlying holdings – then this is trading at a ‘premium’.

 

 

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.

Investments

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 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.

Richard, Hertfordshire

06 August 2018

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Holly Mackay

That’s a hard question. Here goes!

There’s no rule, but I would say that about 12-20 funds is sensible. But make sure these are diversified in terms of geography, and what they do. No point in having 20 UK equity funds – that’s technically known as a bugger’s muddle and doesn’t achieve much – you’d be better off with one low-cost FTSE All Share tracker fund.

Now to the underperformers. This is very hard, but leaving them 6 months is not enough.

There are two key reasons that we see things as underperforming – speaking as an investor here, not as an economic analyst! The first is that we have a natural tendency to compare things to the FTSE 100. I once sold the Fidelity India fund because it fell by about 20% or 30% over two years, and the FTSE was doing really well. Of course the next year political reform kicked in, and the Indian market went up by about 40%! So be clear in your mind about whether underperformance is because you hold a global mix, and some markets are just out of favour. Trying to pick the best performing market is an impossible game, so holding onto a well diversified mix is the only sensible approach. It sounds as though you have a good mix of regions, as well as bigger and smaller companies – so that’s good.

Now to funds where you see a lot of red, and everyone else seems to be green.

Why is Fund B giving you only 1% compared to Fund A's 15%, if they are investing in the same region and asset type? Woodford’s Equity Income is a good example at the moment. He’s had a shocking 2 years, and backed lots of firms which have announced some unwelcome surprises. However the 2 year period before that, he did pretty well compared to the FTSE All Share. I don’t believe that we can write someone off with the track record he has – you don’t just ‘lose it’ overnight. OK, so he’s made some bad calls, but he has different opinions to many which is another sort of diversification. He thinks China is going to come a cropper and has positioned his portfolios accordingly. So he could do very well if China starts to melt, whilst everyone else bleeds.

However at times we do end up with funds that are not doing well and we should make a change – and hence ignore the usual industry advice to hold on to funds and not chop and change. I held the Aberdeen Emerging Markets Equity fund about 4 years ago and I got fed up, traded it in for the JP Morgan Emerging Markets Investment Trust, and I’m very glad I did. Its performance wasn’t up to scratch and I couldn’t see an obvious reason why.

I know this is not a black and white answer, and your question is hard.

I would make sure that you try to understand why the fund is not doing so well – is it because the manager is sticking to their guns, and taking a contrarian stance which sounds reasonable in its logic? Or are they just being a bit limp!? I would read up on the qualitative research from groups such as Trustnet or Hargreaves Lansdown. If the numbers are a bit off, but the analysts who look at the managers still rate them and their processes, I think jumping ship every 6 months is a bad idea. That said, if you’ve picked a turkey and there’s no decent explanation for said ‘turkiness’ (!?) then a considered move is on the cards.

You shouldn’t need to look at a fund portfolio every few weeks – every 6 months just to check all is in order should be enough.

Fiddling isn’t often a very good idea with investments.

 

 

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.

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