What to do with that inheritance

INVESTING FOR GROWTH In the first in a series on strategies, an independent adviser looks at how to invest £25,000

Brendan is a company manager, aged 35, living in Bath. He is married with no children, and currently earns £35,000 a year. His wife works as a teacher and the couple have a £75,000 mortgage, fixed for three years at 6.75 per cent.

Brendan has recently inherited £25,000 . He says that he is prepared to take some risks with his money and that he does not need the income from it at present.

Brendan should first be told of the possibility of using the £25,000 to repay part of his mortgage.

While, over the longer term, equities have comfortably outperformed the 6.75 per cent rate that he is paying on his mortgage, it is not certain that they will continue to do that over the next three years.

If Brendan prefers to invest his money over a 10-year period my advice would be to keep some of it back, say £4,000, for a rainy day.

Yorkshire Building Society currently pays 6.2 per cent gross on deposits of £1,000 or more in its First Class Access Account. Britannia Building Society offers 6 per cent gross on its Capital Trust Account for deposits above £5,000.

The remainder of his inheritance can go towards a portfolio of funds.

What I have tried to do is construct one that is based on a relatively high acceptance of risk, together with an understanding that Brendan is prepared to invest over a minimum period of 10 years.

I would recommend that he considers the tax-free advantages of personal equity plans.

He should place his £6,000 entitlement into a St James' Place UK General & Progressive unit trust PEP. This is in a sector where funds invest mainly in the UK equities sector. The St James Place fund has been an excellent long-term performer, either top or second in its sector over both 12 months and five years.

An investment in March 1990 would have delivered gains of 228 per cent at the end of February this year.

Given that Brendan's wife is also entitled to a tax-free PEP allowance, she should also set up one in her name.

Johnson Fry's Hy5 PEP is an investment package that aims to provide both high income and high growth.

Consider the advantages of PEPs

The Hy5 PEP works on an automatic share-selection system, which assumes that this year's poor performers will be next year's stars.

Shares are selected from the top 30 companies in Britain and from those with the highest dividend yield.

Although the fund is new and this sounds a strange investment strategy, Johnson Fry claims that its "trial performance runs" would have shown excellent results over the past 10 years.

That shares are held in blue-chip companies diminishes some of the risk.

My advice would be to place a further £6,000 into this PEP.

The smaller companies sector has not performed too well in the past year, recording a fall in the value of investments of up to 15 per cent.

In the longer term, however, small company funds have done their investors proud.

Foreign & Colonial's Smaller Companies Fund has been one of the better performers over most of the past 10 years, showing gains of more than 300 per cent in that period.

My advice, therefore, would be to place £3,000 in this fund.

In the international sector, an important part of a diversified portfolio, one of the areas likely to show good returns, as long as stocks are carefully selected, is the technology sector, much of it based in North America.

The HTR Global Technology unit trust has been among the top 10 funds in the international equity growth sector over one, five and 10 years, recording gains of 442 per cent in that period. But because these funds

High risks but good gains in emerging markets

can be volatile, I would recommend just £1,500 in this one.

My last two funds also invest in overseas equities. The Japanese market has been hit very hard in the past six to eight months, not least by the Kobe earthquake.

Although many investors must by now be sick of hearing talk of a recovery in Japan, it can certainly be argued that the market there has now hit lows from which it can only come back

I would recommend £3,000 is placed in the Schroder Tokyo unit trust. Schroder, which has considerable experience in Japanese equities markets, has been in the top ten of 80 funds almost every year in the past 10, showing gains of more than 390 per cent.

Finally, we should look at emerging markets, an area of high risk for the unwary but also one offering good gains when a particular country's economy booms.

This investment trust sector, composed largely of developing countries, is of course still tiny, so rankings don't count for much.

Nevertheless, Templeton's Emerging Markets investment trust has delivered relatively consistent returns of up to 295 per cent in the past five years.

My advice would be to place Brendan's final £1,500 in this fund.

Changes in market conditions may determine the need for a fresh look at this portfolio. So regular reviews will be necessary.

The author is an independent financial adviser at Kohn Cougar, in Bristol.

BEST DEPOSIT RATES

INSTANT ACCESS Telephone Account Notice Deposit Rate Interest

or term % interval

Yorkshire BS 0800 378836 1st Class Access Postal £1,000 6.20 Year

Skipton BS 01756 700511 3 High Street Instant £2,000 6.25 Year

Northern Rock BS 0500 505000 Go Direct Postal £20,000 6.70 Year

Nottingham BS 0115 948 1444 Post Mark Postal* £25,000 7.25 Year

NOTICE ACCOUNTS

Bradford & Bingley BS 0345 248248 Direct Notice 30 day (P) £10,000 6.90 Year

Coventry BS 0345 665522 Postal 50 50 day (P) £2,000 6.55 Year

Scarborough BS 01723 368155 Scarborough 50 50 day (P) £25,000 7.35 Year

Northern Rock BS 0500 505000 Postal 60 60 day (P) £50,000 7.25 Year

TERM ACCOUNTS

Portman BS 01202 292444 Fixed Interest Bond 1 year £500 7.00 fixed Year

Halifax BS 0422 333333 Guaranteed Reserve 1 year £10,000 7.20 fixed Year

Birmingham Midshires BS 0500 710710 Quantum Fixed 2 year £5,000 8.15 fixed Year

Woolwich BS 0800 400900 3 yr fixed rate bond 3 year £500 8.50 fixed Year

MONTHLY INTEREST

Birmingham Midshires BS 0645 720721 First Class Postal £1,000 4.79 Month

Britannia BS 01538 392808 Capital Trust Postal £2,000 5.84 Month

£10,000 6.17 Month

£25,000 6.41 Month

TESSAS (tax-exempt special savings accounts)

Sun Banking Corp 01438 744500 5 year £8,300 8.50 fixed Year

Market Harborough BS 01858 463244 5 year £9,000 7.75 Year

Hinckley & Rugby BS 0800 774499 5 year £3,000 7.65 Year

Barclays Bank 0800 400100 5 year £1,000 7.50 Year

HIGH-INTEREST CHEQUE ACCOUNTS

Woolwich BS 0800 400900 Current Instant £500 3.85 Year

Halifax BS 01422 333333 Asset Reserve Instant £5,000 5.00 3 Mths

Chelsea BS 0800 717515 Classic Postal Instant £2,500 6.00 Year

£25,000 6.50 Year

OFFSHORE (gross)

Portman Channel Islands 01481 822747 Instant Gold Instant £5,000 6.20 Year

Derbyshire IOM 01624 663432 Instant Access Instant £25,000 6.65 Year

Bradford & Bingley IOM 01624 661868 Island Ninety 90 day £25,000 7.05 Year

Halifax JSY 01534 59840 Fixed Rate Intl 2 year £50,000 8.00 fixed Year

NATIONAL SAVINGS

Accounts & bonds (gross) Notice or term Deposit Rate % Interest interval

INVESTMENT ACCOUNTS 1 Month £20 5.25 Year

£500 5.75 Year

£25,000 6.00 Year

INCOME BONDS 3 Month £2,000 6.50 Month

£25,000 6.75 Month

CAPITAL BONDS (Series I) 5 Year £100 7.75 fixed Maturity

FIRST OPTION BONDS 12 Month £1,000 6.40 fixed Year

£20,000 6.80 fixed Year

PENSIONER'S GUARANTEED INCOME BOND (Series 2)

5 Year £500 7.50% fixed Month

NS Certificates (tax free)

42nd ISSUE 5 Year £100 5.85 fixed Maturity

8th INDEX-LINKED 5 Year £100 3.00+RPI Maturity

CHILDREN'S BOND (Issue G) 5 Year £25 7.85 fixed Maturity

P= by post only. *=7 day notice. =fixed for first 18 months. All rates are shown gross and are subject to change without notice.

Source: Chase de Vere Investments PLC - 0171 404 5766. Compiled on 20 April 1995

BEST BORROWING RATES

MORTGAGES

Fixed rates Telephone Rate/period Max Fee Incentive

% advance % £

Hinckley & Rugby BS 0800 774499 1.5 to 1/5/96 70 £250 -

Northern Rock BS 0800 591500 5.49 to1/6/97 95 £250 Free valuation

Yorkshire BS 0800 378836 7.49 to 1/4/98 95 £250 -

Ipswich BS 01473 211021 8.25 to 1/1/99 95 - Free valuation - EBs

Northern Rock BS 0800 591500 8.54 to 15/4/00 95 £250 Free valuation

TSB Local branch 9.49 to 31/3/05 95 £250 Free valuation

Variable rates

Coventry BS 0800 126125 2.00 to 1/6/96 95 - £300 cashback

Staffordshire BS 01902 772611 3.59 to 1/1/97 50 - -

Principality BS 0117 929 7804 5.25 to 1/6/97 90 - Free valuation

Northern Rock BS 0800 591500 6.14 to 1/7/98 90 - Free valuation

PERSONAL LOANS

Unsecured Telephone APR Fixed monthly payments on £3,000 for 3 years

% With insurance Without insurance

Midland Bank Local branch 15.40 £116.54 £103.14

National & Provincial BS 0800 808080 15.50 £118.22 £103.29

Clydesdale Bank 0141 248 7070 16.20 £113.94 £103.33

Secured Max advance % Max term

Royal Bank of Scotland 0800 161616 10.90 70 3 years to retirement

Midland Bank Local branch 11.40 80 5 to 30 years

First Direct 0800 222000 11.20 80 Up to 40 years

TYPICAL OVERDRAFTS

Telephone Authorised Unauthorised

EAR % EAR %

Barclays Bank Local Branch 19.20 29.80

Lloyds Bank Local Branch 19.40 26.80

National Westminster Bank Local Branch 18. 90 33.25

BEST OVERDRAFTS

Telephone Authorised Unauthorised

EAR % EAR %

Woolwich BS 0800 400900 9.50 29.50

Alliance & Leicester BS 0500 959595 9.50 29.80

Abbey National 0800 555100 9.90 29.50

CREDIT CARDS

Telephone Card name Minimum Rate APR Annual

income pm % % fee

Standard

Robert Fleming (S&P) 0800 282101 MasterCard/Visa - 1.00 14.60 £12

Royal Bank of Scotland 0800 161616 MasterCard - 1.14 14.50 -

TSB Local branch MasterCard/Visa - 1.38 17.90 -

Gold cards

Lloyds Bank Local branch MasterCard £20,000 1.15 16.50 £40

Midland Bank Local branch Visa £20,000 1.30 18.10 £35

MBNA International 0800 062620 MasterCard/Visa £20,000 1.45 18.90 -

STORE CARDS

Payment by direct debit Other methods

Telephone pm APR pm APR

John Lewis Local store - - 1.39 18.00

Marks and Spencer 01244 681681 1.90 25.30 2.00 26.80

Burtons Local store 1.97 26.30 2.21 29.90

EB=Existing borrower APR=Annualised percentage rate. EAR=effective annual rate.

All rates are subject to change without notice.Source: London & Country. Freephone 0800 373300 Compiled on 20 April 1995

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

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