Wealth Check: 'What shall I do with Gran's gift?'

Each week we give 'Independent on Sunday' readers a financial makeover

The problem

A £15,000 share portfolio won't sound like much of a problem to many. But when you're a student and need all the cash you can get, a basket of stocks may not be the best way to generate income.

"I have been wondering whether I could make more of a return [by not leaving] my money in shares," says Daisy Ritchie, 19, who is studying human resources management at the University of Gloucestershire. Her grandmother gave her the portfolio last year.

"I'm not sure whether it would be better to use some of this cash to pay my student loan off more quickly or whether it should be put into different accounts," she adds.

Her money is invested across shares in Barclays, Anglo Irish and Merrill Lynch banks. She receives an income of £80 a month from these shares by asking Rathbones to transfer funds from her portfolio.

The company advised her recently that her investments are "high risk" and that she might consider putting her money into unit trusts instead. She has not yet acted on this advice.

Daisy did consider selling the shares and putting £2,000 of the proceeds into an easy-access savings account to cover emergencies. The remainder she would "tie up for the next five to 10 years to stop myself from spending it".

She has no other investments or savings.

She rents a room in a shared house in Cheltenham, which costs her £220 a month. She is wondering whether she'd be better off selling her shares and using the cash as a deposit for a place of her own.

Although she is a student, Daisy is interested in saving for a pension. More pressing, though, is her concern that she will finish college with debts of between £12,000 and £16,000 (she already owes £4,000 after just her first year).

In the meantime, she has a holiday job to help chip away at the debt.

The patient: Daisy Ritchie, 19, a student from Launceston, north Cornwall

Job: part-time bar work in term-time

Income: annual £4,000. Government-backed student loan; £80 a month from shares portfolio

Savings: none

Investments: £15,000 portfolio of shares managed by investment manager Rathbones

Goal: to make better financial use of her shares portfolio

The cure: Cash in your shares for an ISA

Our independent financial advisers (IFAs) all suggest that Daisy sell the shares and invest the money elsewhere. The high-risk nature of the investment and the costs of running a share portfolio do not meet her needs.

By spreading the money across savings accounts and investments, she should be able to prepare better for her post-graduate life and make her student days cheaper.

Investments/property

The £15,000 portfolio could be divided between individual savings accounts (ISAs) in equities and cash deposits so that it will grow tax-free.

She can invest up to £3,000 this tax year in a mini cash ISA; Abbey's postal option pays 5.1 per cent interest, recommends John Donaldson of IFA Positive Solutions.

If she opts for this ISA, however, she will limit the amount that she can invest into an equity ISA fund to £3,000. Juliet Schooling of IFA Chelsea Financial Services suggests Liontrust First Income or Rathbone Income funds for lower to medium risk.

If Daisy invests all her ISA allowance in shares, she can put £7,000 into a maxi ISA. Ms Schooling suggests using an online fund supermarket to broaden the spread of funds.

Mr Donaldson is less keen on Daisy putting her money into unit trusts. "Unit trusts are subject to fluctuation and would not match the time scales for which she may need the money," he says.

He suggests that, after using up her £3,000 mini-cash ISA allowance, she put the balance into a fixed-rate bond. This would tie up her money for just two years and ensure it won't fall in value when Daisy needs it most - on graduation.

"As a non-tax payer, she could get gross interest of 5.7 per cent on a two-year bond with Capital One bank," he adds.

Or she could invest the full £15,000 into a bond and generate £843 tax-free each year with no risk to her capital. This could later be used as a deposit on a house, he adds.

Debt/savings

"First, Daisy should avoid taking on any debt," says Meera Patel of IFA Hargreaves Lansdown. It is worth using her money to pay off student debts, including the £4,000 already accumulated, rather than pay interest on the loans.She should save the remainder in a high interest account with limited withdrawals to stop her spending. Birmingham Midshires' Telephone Plus account pays 4.9 per cent gross although it allows only six withdrawals a year.

But Ms Schooling believes Daisy should leave her student debt alone, since low interest rates mean it can be paid back over a long period, leaving her money to invest elsewhere.

She recommends a guaranteed income or distribution bond that lets Daisy draw an income: AXA's Distribution bond pays 4.5 per cent annually.

Retirement

Daisy could take out a stakeholder pension with a provider such as Standard Life to get a headstart on pension planning, says Ms Patel.

She can open a stakeholder with as little as a noe-off £20 lump sum payment - and the Government will top this up at the basic rate of tax.

"She can make the odd additional contribution as and when she can afford to," adds Ms Patel.

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