Cherry Dodd, a senior independent financial adviser at Bradford & Bingley Building Societies, is based in the Luton and Cheshunt area. She was give the task of advising a couple in their mid to late 40s, who wanted to invest pounds 10,000 to obtain income in retirement without taking too many risks.
She recommended three unit trusts, with pounds 4,000 into GT's Income fund, pounds 3,000 in Credit Suisse's Income fund and pounds 3,000 in Morgan Grenfell's UK Equity Income fund. Where possible, two of these funds should have been PEPed right away, she said.
The three funds delivered reasonable returns in the year to 1 January, according to HSW, the statistics providers. GT's fund achieved growth of 15.7 per cent, Credit Suisse grew 20 per cent, while Morgan Grenfell reached 21.1 per cent. All three returns were bid-to-bid basis, with net income reinvested.
The pounds 10,000 would now be worth a notional pounds 11,861, although this does not take into account initial charges, including commission, incurred when setting up the investment.
But this is not an issue for Cherry Dodd: "In each case, these three funds have delivered excellent past returns over five, seven and 10 years. They all have excellent track records and good managers in place. We should be looking at their overall investment philosophy, not what they have done over one year. That is what I tell all my clients."
But what would she want to do with another pounds 10,000 these same notional clients are making available? "My advice, again assuming the same low- risk strategy, would be to place the entire pounds 10,000 in Sun Life's Distribution fund.
"It invests about 40 per cent in UK equities, a further 40 per cent in fixed-interest stocks and the remainder in cash or other convertibles. It is relatively low risk and allows income to be taken or reinvested."
Last year, it delivered returns of 22.4 per cent.
But what of people who need income right away? That was the task addressed by Kean Seager, an independent adviser and managing director at Whitechurch Securities, a highly respected firm in Bristol.
His investors wanted long-term income, plus capital growth to safeguard and enhance their future income stream, all with minimum risk.
He recommended pounds 4,000 in an M&G Corporate Bond PEP and pounds 3,000 in the Credit Suisse Income fund. He also recommended NPI's With Profits Bond for the remainder, although NPI does have a nominal minimum investment of pounds 10,000.
In the 12 months to the beginning of this year, M&G's fund delivered net income of 6.2 per cent, plus tax-free growth of 10.3 per cent. Credit Suisse paid 3.9 per cent net, but delivered additional growth of 16.7 per cent. NPI's bond delivered income of 8.5 per cent.
"This couple have achieved their objective in the past 12 months. I think that they should broadly stick with their existing investments in the coming year, except that they should look at their M&G corporate bond PEP. Having made some 10 per cent, let's see some more capital appreciation from bond markets.
"My advice for that money would be to look instead at GT's Strategic Bond fund, which pays income of 4.8 per cent net. It invests in fixed interest investments where the underlying bond is guaranteed by the US government.
"As for the remaining pounds 10,000, we should look at another with-profits bond, this time from Friends Provident. It is paying a guaranteed 6.5 per cent net and pounds 7 per cent for investments over pounds 5,000.
"But they should not pass up on the chance to invest for future capital growth. HSBC's UK Smaller Companies fund has an excellent manager in Ashton Bradbury. It has performed extremely well. UK smaller companies are due for a share revival on a long-term basis and I am confident this fund will deliver. My advice for the second pounds 5,000 would be with HSBC."Reuse content