John Lawton is living in a flat on which he has no mortgage. A single man, he is self-employed, although presently between contracts. John is looking for growth from his investments over the next few years until he reaches 65 when he may consider retiring. He has a small pension plan and a small number of investments which comprise an Equitable Managed Fund, Framlington (now Skandia) Managed Bond and an Ecclesiastical Managed Bond. In total, his investments are worth about pounds 20,000.
The adviser: Tim Cockerill, managing director at Whitechurch Securities, independent financial advisers in Bristol (0117 9442266)
The advice: The current portfolio is well balanced and although the Framlington/Skandia fund has been disappointing I feel there is little to be gained by changing this for a similar alternative investment.
Managed funds are typically invested in very much the same way as each other and it is not worth incurring the costs of switching at this stage from one managed fund to another
Were he to do so, John might face initial charges which could add up to about 6 per cent of his capital.
However, if John is determined to change his investment strategy, perhaps taking on a greater degree of risk, there would be value in looking at switching this fund for a trust that specialises in smaller companies and mid-sized companies, where we believe there is greater potential for long-term capital appreciation.
Of those available, the recently-launched Jupiter UK Smaller Companies trust is one of the better ones. John needs to consider this carefully, as it would involve increasing the risk profile of his portfolio to a quite substantial degree.
Although John is 57, it may be worth him considering investing into a personal pension.
The time horizon is nowhere near ideal, particularly when considering the potential effects of some personal pension charges, plus limited time available for substantial compound growth on his fund. Even so, the tax relief that pension contributions gain is well worth considering.
The nature of John's employment means that he does not have a regular income and therefore he has to budget carefully when he receives payments. Perhaps it would make sense to put an element of his income receipts to one side and then assess the situation towards the end of the tax year with a view to making a lump sum contribution then.
Should he make a payment of say pounds 10,000, then he would get tax relief on this at the basic rate of tax, which means the Inland Revenue will offset pounds 2,300 against John's tax liabilities when his declaration is completed.
If he goes for a low-risk strategy - perhaps even through a with-profits fund investing in a mixture of equities, fixed-interest investments and property - then any bonuses allocated to his pension pot will not be taken away. The fund, therefore, cannot lose its value. There are, of course, drawbacks in that once this capital is committed it cannot be accessed until retirement date. John may want to maintain the flexibility of having the cash available.
Everyone should make the most of tax breaks that are available and the latest is of course the ISA (individual savings accounts).
These offer investors the chance to receive any capital gain and income free of tax.
If John were to move the money from his Framlington/Skandia bond into the Jupiter trust, as suggested, he could look at placing this within an ISA.
At this stage there would be little benefit to him because the trust generates nothing in the way of income. In due course, if John were to need income and he switched the Jupiter Smaller Companies trust to a corporate bond ISA fund, this would generate an income which would benefit from the tax-free wrapper.
Invariably, and Jupiter is a case in point, the ISA wrappers do not cost the investor anymore than going into the trust directly, which is also possible.
If it is not already the case, any monies that are held in bank or building society accounts should be moved to one which pays interest.
It is worth having a good look around to see what is available because rates do vary and the typical interest rate on a bank account is extremely low.
John could increase the interest rate on his everyday cash to a considerable extent by means of switching his accounts.
His immediate future hinges very much on his next contract and, depending on this, he can decide if he wants to look at a personal pension and the tax benefits this gives or hang on to the cash for the present.
To sum up, the Framlington/Skandia fund is quite adequate but if he was looking to increase his risk profile then the Jupiter fund would be ideal.
But I must stress this does increase risk notably. An ISA is always worth considering in these instances and it may prove beneficial in the future when an income is required from it.
`The Independent' is offering a free Guide to High Risk/High Reward Investment, which outlines the most common ways in which savers can obtain higher than average returns on their funds. The guide, sponsored by Whitechurch Securities, is written by Nic Cicutti, the personal finance editor at `The Independent'. It is available by calling 0800 374413. If you would like free financial advice on how to invest a lump sum or savings, write to Nic Cicutti, Investment Masterclass, `The Independent', One Canada Square, Canary Wharf, London E14 5DL. You must be prepared for your name and picture to appearReuse content