Wealth Check: 'How should I best invest my inheritance?'

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The Independent Online

James Brewerton, 23, from Leeds is set to receive a £6,000 inheritance after his grandparents died last December and wants to know what to do with it. He works for a firm of insolvency practitioners in Leeds and lives with his partner, Emma, in a two-bedroomed apartment that the couple bought in May 2009.

"I want to make the most of the inheritance as well as being able to arrange my finances so that we can afford to move into a house within the next five years," says James. "I'm close to completing an accountancy qualification and will then get a £2,000 pay rise. My main aim is to become a chartered accountant within the next three to four years so that I can earn a guaranteed amount for the rest of my career."

Case notes

Salary: £21,000 plus 10 per cent bonus each year. Also earns £100 a month from running a night club
Mortgage: £100,000, monthly repayment £515
Other monthly outgoings (jointly with his partner, Emma): £200 (food), £550 (bills, such as utilities), £859 (entertainment, clothes), £40 (savings)
Debts: £12,000 Student loan and £500 interest-free overdraft
Savings: £800 in a cash ISA

Giving advice this week are Alex Pegley of Calculis, Dennis Hall of Yellowtail Financial Planning and Gordon Bowden from Quainton Hills Financial Planning...


"James should accumulate a contingency fund in readily realisable cash deposits," advises Gordon Bowden. "He should keep at least his £6,000 inheritance on instant access deposits to cover any emergencies. A telephone or internet account at ING Direct would be ideal. The current interest rate is 3.2 per cent with instant access."

Alex Pegley suggests James should put an amount equivalent to three months' net salary in a savings account as an emergency fund. "A good proportion of this can be held in a cash ISA, avoiding tax on the interest."


"As he's not planning to use the money for five or so years, the balance of James's inheritance after putting away an emergency fund should be invested in a portfolio of collective investment funds (OEICs and unit trusts)," says Alex Pegley. He picks Jupiter's Merlin range of funds as consistently good performers.

"A shares ISA would be a sensible option, retaining tax advantages whilst investing in growth assets," agrees Dennis Hall. "Any medium-term investment should be considered as seven to 10 years, particularly for someone who describes themselves as slightly risk averse."


"It is good that James and Emma have no credit card debt or borrowings other than their mortgage, student loans and overdraft," says Gordon Bowden.

But Dennis Hall is critical of the overdraft. "Running overdrafts is not a sensible habit to get into," he says. "The banks could alter their terms at any time, and once the interest-free period is over there is no guarantee that the overdraft will be extended or have a low interest rate. James should plan to have the money available to keep accounts in the black."


James has life cover, critical illness cover and income protection in the case of redundancy. They cover his mortgage or provide a lump sum payment upon death or diagnosis of a terminal illness. Emma also has the same cover. "It sounds like James and Emma are well protected against death or ill-health, but is worth checking to whom the benefits would be payable in the event of a claim," suggests Alex Pegley. "With life and critical illness policies, we recommend using a split benefit trust. This enables the insured to receive the benefit in the event of a critical illness claim and the survivor in the event of a death claim, thereby speeding the settlement of the claim at a traumatic time."


James currently pays £28 a month into a final salary pension scheme with my current employer, with the company contributing £70. He's doing well, says Gordon Bowden. "James is in the fortunate position of being in a final salary pension scheme. This means that his long-term retirement planning is relatively secure for as long as he works at his current firm."

"But James should check exactly what type of pension he's got," suggests Alex Pegley. "If it is indeed a final salary arrangement, then he's well set at present and, as he's not looking to retire early, he can for the moment enjoy the perks of a great scheme."


James and Emma need to make wills, the experts agree "Without a will, James's assets will not go to Emma on his death, passing instead to his parents under the law of intestacy," points out Dennis Hall. "He should also make a nomination to the pension scheme trustees about where he would like his pension benefits to go in the event of his death. While not binding on the trustees, it does provide some direction."

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@independent.co.uk

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