Wealth Check: 'I think now's a good time to buy into the market'
A small mortgage, a decent salary and a long time to go until she'll need to cash in her investments. So is the share slide an opportunity to make money?
Sunday 26 October 2008
Susan Stuart, 45, hopes that a looming recession and an erratic stock market will throw up potential buying opportunities for her investment portfolio.
Until now, the events and marketing manager for Old Spitalfields Market in east London has focused on stashing away spare cash from her £50,000-a year-salary in savings accounts. Yet despite the volatile market conditions, she reckons it's time to consider ploughing some of her money into shares.
"The rocky market makes it a good time to invest," says Susan, from Croydon, south London. "And while the crisis is understandably making investors nervous, I'm not close to retirement so can give my money time to grow and see it through."
At present, she has £5,000 in an online savings account with Egg, which pays 6.55 per cent including a 12-month introductory bonus of 1.8 per cent. She also has £3,000 in a cash individual savings account (ISA) with National Savings & Investments (NS&S) at 4.4 per cent.
"But I need to achieve the best possible return on my investments for a financially secure future, and perhaps these accounts don't offer the greatest growth," she says.
Susan also holds some 200 shares in Lloyds TSB bank, worth around £342 last week, and 800 in the utility group Scottish & Southern Energy, totalling £9,728. "These were both inherited, and I'm not sure whether to keep or sell them."
For long-term retirement planning, Susan has contributed to three separate pension funds, although at the moment she is not paying into any plans.
She has around £25,000 in personal pensions with both Windsor Life and Skandia, as well as a money purchase scheme with her previous employer, Intercontinental Hotels. She paid into the last of these funds for a few years, but is unsure of its value.
Susan bought her three-bed house 14 years ago for £65,000, and she hopes it is now worth around £250,000. She pays £500 a month for a 25-year offset mortgage at 6.45 per cent with Royal Bank of Scotland. "I've four years left on this," she explains, "after paying in regular lump sums to reduce its term."
For protection purposes, she forks out £75 a month for income protection with Phoenix Life. The policy promises to pay an income of around £1,600 a month if she is unable to work due to illness, redundancy or injury. She has life insurance with the same provider, paying £40 a month for around £190,000 of cover.
Riding out the recession with a small mortgage, decent earnings and the beginnings of a savings pot shouldn't be difficult for Susan, agree our panel of independent financial advisers (IFAs).
"She also has an admirable attitude to investment risk, as she considers the current market downturn an opportunity and isn't scared into inaction," says Martin Bamford from IFA Informed Choice.
While Susan wants to create a long-term investment portfolio, she must first consider her cash accounts.
At first glance, she appears to be benefiting from a decent rate on her Egg savings deal. "But as a higher-rate taxpayer, interest after tax is reduced to 3.93 per cent, and down to just 2.85 per cent once the introductory bonus period expires," warns Mr Bamford.
She would be wise to shift some of this pot to the Egg cash ISA, paying 6.05 per cent with any interest earnt being tax-free, and she may be able to transfer her existing NS&I cash ISA money into this account to benefit from a higher rate. That is, unless she is keen to stick with the Treasury-backed savings body in light of the market turmoil.
Turning to Susan's share portfolio, Ajmer Somal from IFA Positive Solutions says she would be better off in equity income funds, although she could wait until stock prices have stabilised. These funds are traditionally less volatile than shares while still offering the opportunity for good long-term growth.
Danny Cox from IFA Hargreaves Lansdown recommends Invesco Perpetual Income and PSigma Income as funds with good track records.
As a higher-rate taxpayer, every £100 Susan saves into a pension will cost just her £60 after tax relief.
Susan could sell her shares in Lloyds TSB and use the money to make a pension contribution, says Mr Bamford. "She would get higher-rate income relief to make up some of the fall in value in these shares over the course of the past year."
However, if she chooses this path it will mean crystallising that loss.
Shares are a long-term investment and there is every chance that in time the price of Lloyds TSB will rise again. No one can say how long this will take, however.
Whichever route she chooses, Susan needs to take a greater interest in her retirement fund. "Your forties and fifties are a crucial time to build funds for income in retirement, so it's vital to know the value and risk of any pension investments," says Mr Cox.
Susan's employer is likely to offer some form of pension scheme, even if it's only a simple stakeholder fund, stresses Mr Somal. If not, she should pay into a personal pension. A low- cost self-invested personal pension (Sipp) gives the greatest choice of funds, and she can consolidate her existing plans in this wrapper.
Making regular overpayments on her mortgage has proved beneficial, reducing its term and leaving her in a good position during the property downturn.
"If she decides to try to sell in the future, setting aside some savings to buy a bigger property, without taking out a further mortgage, is advisable," says Mr Somal.
Once she has paid off her mortgage, Susan will be well placed to divert the money that was going on repayments into building up her portfolio of savings, investments and shares, the panel of IFAs agree.
The period after a mortgage has been paid off is often the key one in building a substantial retirement pot.
As a single person with no financial dependants and a small mortgage, paying £40 a month for life insurance is unnecessary. She may already have some cover through her employer, often referred to as death-in-service benefit, says Mr Cox.
However, the income protection policy is worthwhile, although it will only start to pay out once Susan has been unable to work for a period of three months. She should check that her employer will cover her salary for that time in the event of her being unable to work due to sickness or disability. "Alternatively, she should create an emergency fund equivalent to at least three months' expenditure to see her through before the policy kicks in," adds Mr Cox.
Deposit savings are normally the easiest and best route to achieving this rainy-day fund.
Independent Partners: See how much you could save by switching credit cards. Compare now
elephant appealThe first 23 lots in our charity auction have now gone. But there are 22 more still up for grabs
Look beyond the usual shows for the best festive telly
Michelle Nijhuis' daughter insists (s)he is, and she learnt a valuable lesson on gender in books
newsFormer soldier taped 33 of the animals to the floor and then stamped on them one by one
- 1 Sun will 'flip upside down' within weeks, says Nasa
- 2 Christmas comes early: Justin Bieber is 'retiring from music'
- 3 Iain Duncan Smith leaves Commons food banks debate early
- 4 Cycle death inquest: Boyfriend hugs driver of 32 tonne tipper truck that killed his girlfriend
- 5 Burglar steals video tapes of child abuse, hands them into police
Exclusive: Young people ‘want UK to stay in Europe’: Four in 10 adults aged 18 to 24 are ‘firmly in favour’ of membership, poll shows
Tom Daley ‘is gay because his father died’ says UK evangelist
Iain Duncan Smith leaves Commons food banks debate early
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
PM denies two child limit for benefits is part of Tory welfare policy
Anachronistic and iniquitous, grammar schools are a blot on the British education system
- < Previous
- Next >
iJobs Money & Business
£Negotiable: Citifocus: High calibre individual with institutional client serv...
£120000 - £150000 per annum: Cornwallis Elt : Programme Manager, Strategy Lead...
£55000 - £120000 per annum: Pro-Recruitment Group: The Financial Services Tran...
£600 - £700 per day: Harrington Starr: Client based in West London is looking ...
Day In a Page
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.