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?


The patient


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.

The cure

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.

Savings/investments

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.

Retirement

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.

Property

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.

Protection

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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Stockbroker

    £Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence