Ask Sindie: There's no wrong time to buy into the stock market

Has a reader really 'missed the boat' on growth?... ISAs and inheritance tax


Q: For well over a year, I've been meaning to put some money into the stock market. But due to a hectic work schedule and a new baby, the moment just hasn't come.

In those 12 months, the markets have risen so much that I'm afraid I've missed the boat and won't see growth like this if I invest now.

Like many people, I lost money (over £4,100) in 2001-02 as markets fell, and worry that I could be on a hiding to nothing.

I'm kicking myself and unsure what to do. Should I take the plunge?

DE, Reading

A: For months, a succession of FTSE-100 highs have been sending professionals and investors like yourself into a hot flush.

Last week, this index of Britain's biggest blue-chip stocks closed at 6,091.7 - still several hundred points off its all-time peak of 6,930 in 1999 but still remarkably buoyant compared with its 3,287 nadir in March 2003.

It's not the only index to have seen explosive growth. Two weeks ago, the FTSE 250 selection of medium-sized companies broke through the 10,000 barrier - a milestone reflecting vastly increased investor confidence. Meanwhile, both the Dow Jones in New York and Nikkei 225 in Tokyo are creeping steadily towards their old peaks.

But your query about whether to invest now is an old one that regularly crops up in debates about stock market investment, and it's usually the wrong question.

For most investors, it's not about timing your entry into the market correctly, but the time spent in it.

"This is a classic question that we're hearing from many clients as the markets go up," says Anna Bowes of independent financial adviser (IFA) Chase de Vere.

"You can't time the market and, although it's been rising recently, the surge could all fall through. A lot of fund managers have been talking about this."

Recent research suggested that, regardless of whether you invested at the top or bottom of a market, there was little difference to your return over an average 10-year period.

The stark message, Ms Bowes stresses, is that the stock market is for investing for the long term.

Put your money in for at least 10 years and try not to worry about it. There should be enough time for economic cycles to run their course, and the lows to be more than offset by the highs. If you're still concerned that you could channel all your money into a fund at just the wrong time, your best bet is to drip-feed it into the market instead, adds Ms Bowes.

With this method, known as "pound cost averaging", you hedge your bets by buying into a unit trust fund at an average price.

For example, for the first four months, a direct debit of £50 buys 10 units worth £5 each in your chosen fund. But then a market surge could cause the monthly cost of investing to rise to £6 a unit.

While this means you'll buy only 8.33 units with your next payment, your existing units (bought for cheaper prices) will now be worth £6 each.

Q: I'm updating my will and want to know what will happen to money in individual savings accounts that I want to pass on.

My husband and I have been putting nearly £3,000 into different mini cash ISAs since 2001 and plan to hand the money to our grandchildren.

But will the ISAs' tax-free status still hold when they get their inheritance?

Both are toddlers and don't have any savings from their parents. Is there any action I can take to transfer ISA allowances?

GP, Rochester

A: No. The special status disappears when you die, says Patrick Connolly of IFA JS&P, "and money can't be passed on tax-free".

While everyone, including a new-born baby, has an income tax allowance, you have to be over the age of 16 to open a mini cash ISA - and over 18 for its equity fund counterpart.

However, there are other options. If you cash your ISAs in now and put the money into a normal savings account in your grandchildren's names, they will be able to get their hands on it when they reach 18. Make sure you fill in form R85 to exempt them from paying tax on the interest.

Keep the sums set aside in one year to £3,000 or less. Assuming you're not making any other large gifts, tax rules mean you can give £1,500 to each grandchild without it being caught in an inheritance tax trap if you were to die this year.

(If you live for seven years after a gift of any size, you can pass on as much as you like and your heirs will pay no inheritance tax.)

Any child can receive up to £5,035 free of income tax (in this tax year), so stagger any payments to avoid breaching this threshold.

Of course, this action assumes you're happy to give them responsibility for the cash in the future. If not, you might need to set up a trust, but be aware of changes in the recent Budget as well as hefty charges. A tax specialist is your best bet.

If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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