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.
Questions Of Cash: 'Your bank card may have been cloned'
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Mark Dampier: What price equities when cost cutting does nothing for profits?
Questions of Cash: Why was my case ignored by My Civil Service Pension?
Offset your mortgage and save thousands
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 4 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash live: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
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
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
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
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 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