If you think shares will crash, don't be rash

READERS' LIVES; Stock market worries... the married couple's allowance. Your financial queries answered

You have written about a possible stock market crash. Is this a problem for me? I have a general PEP which spreads the risk across various companies. It cannot give complete protection against the vagaries of the stock market but it does offer the prospect of the value recovering in the long term. Is this a realistic approach? MD, Oxfordshire

Stock market crashes undoubtedly have their downside. Individuals can get badly hit and there can be uncomfortable consequences for the economy. But private investors should not panic about an imminent crash, so long as they are prepared to invest for the medium to long term.

A bigger worry for the private investor should be how to avoid an expensive or incompetent investment manager. The private investor also has to take the ultimate decision on where to invest.

But the general ups and downs of the stock market, including stock market crashes, should be less of a concern. There is a risk that you'll come home from work one day and find that your investments are worth 20 to 25 per cent less than when you left in the morning. A PEP worth pounds 5,000 could slump in value to, say, pounds 3,750.

But if you put money into the stock market, you should think of it as money locked away for at least five years and preferably ten years. Certainly, avoid the risk of losing too much too soon, especially when share prices are high. It makes sense to drip-feed money into the market, through a unit trust savings plan, for example, rather than investing your life's savings in one go.

But maybe you have already had money invested in the stock market for five or more years. Maybe you are now nearing the time when you want to convert your investments into cash to spend. In that case it may be a wise precaution to cash in now while markets are high. A key part of stock market investment strategy is to cash-in well in advance of when you might need your money - even though you risk losing out on the benefit of further rises in share values.

Assuming history repeats itself, the short-term ups and downs of the market are not significant. Finely tuned attempts to optimise investment timing, and jumping in and out of share-based investments to maximise returns, are best left to the professionals.

My tax office says that, as a married woman, I can claim half the married couple's allowance. But it seems I cannot claim half of the extra married couple's allowance given to those over 65. Is this correct? LM, Edinburgh

Strange but true. The married couple's allowance increases if either husband or wife is 65 or over at some time during the tax year. But the extra part of the allowance can be given only to the husband. And entitlement to the extra allowance always depends on the husband's income. You start to lose extra age-related allowances once your total income reaches a certain level - pounds l5,600 in the current tax year.

q Write to Steve Lodge, Personal Finance Editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number. Alternatively, fax 0171-293 2096/2098 or e-mail: s.lodge@independent.co.uk. Do not enclose SAEs or any documents that you wish to be returned. We cannot give personal replies or guarantee to answer every letter. We accept no legal responsibility for any advice given.

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