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; request a free guide on NISAs from Hargreaves Lansdown
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
Best savings rates are not all they might seem
Questions of Cash: I checked in with Air France in time and still missed the plane
Minister's pension promise to firefighters challenged
Gold-plated pensions – the key to retirement freedom?
- 1 PlayStation and Xbox hacked by Lizard Squad
- 3 The Grace Dent Christmas Questionnaire
- 4 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
Alex Salmond has 'broken his word to the Scottish people' says Scottish Lib Dem leader
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens