Little ways to make large gains


Nicola Potts is 35 and has been running her own business as a freelance writer and marketing consultant for the past five years. She earns between pounds 20,000 and pounds 25,000 a year. She is unmarried but her boyfriend lives with her in Hayling Island, near Portsmouth. Nicola is seven years into a pounds 40,000 repayment mortgage, the outstanding balance being about pounds 35,000.

She describes herself as having "accumulated one of everything through fleeting encounters with different financial advisers", including a pounds 100-a-month investment trust PEP with John Govett Investment Management, a pounds 26-a-month personal pension with Scottish Equitable, and an income protection policy that pays out pounds 500 a month - roughly her basic outgoings - after 13 weeks of her being unable to work. She also has some pounds 2,000 in various building societies.

Nicola wonders if she has her financial priorities right. She'd also like advice on a short-term investment vehicle to put money aside for tax.

What a financial adviser recommends:

Nicola has all the right sort of financial products for someone of her age and circumstances, and what she should now look at is increasing the value she gets from her financial affairs.

She would like to repay her mortgage early, perhaps by increasing her monthly payments. Before she does this she should ask her lender about how it does its mortgage interest calculations - she may find that additional monthly payments are only taken into account at the end of the year, in which case it might be better to save the extra money in an interest-bearing account in the meantime and hand it over at the year-end.

Nicola has pounds 2,000 in a range of building societies that would cover her basic outgoings for a few months if work dried up or she was ill. She also has an income protection policy (also known as permanent health insurance) in the event of ill-health, but should consider increasing the pounds 500 a month of cover. She might also consider a critical illness policy, which would pay out a lump sum to clear her entire mortgage in one go if she became very ill.

Nicola says she would like to retire on about half the equivalent of her present income. She has been paying into a pension for five years but her present premium of pounds 26 a month is not nearly enough to achieve the goal of a comfortable retirement. In her case, the best way of upping the value of her pension is to pay in lump sums late each tax year when she has an indication of her likely taxable profit.

In addition to a basic income, she could also look at insuring her pension contributions against long-term ill-health. A contribution protection policy will cover the premiums typically from six months after she becomes ill right up until retirement.

Nicola has not been overly-impressed with the performance of her PEP savings. She has been paying pounds 100 a month to the same investment manager for three years and the money has been invested for growth in Asia and Europe. Nicola's policy of saving a little regularly is a good one but she should remember that investing in stockmarkets should be done on a five year-plus view. That said, there is nothing to stop her from switching managers every tax year. It may be worth choosing a different PEP for next year.

Finally, Nicola should make a will. Nicola likes her financial independence and has no plans to get married or have children. And while she may consider buying a property with her boyfriend at a later date at present he lives in her house. If she were to die without a will he would have no rights over her home or the rest of her estate.

q Editor's note: premium bonds are a well-used savings product for people who want to put money aside for a known tax bill payable in the future. They pay no interest as such, but your bonds go into a draw every month for a range of tax-free cash prizes ranging from pounds 50 to the pounds 1m jackpot. Average winnings amount to 4.75 per cent of the value of your bonds, which you can buy in multiples of pounds 100 from the Post Office.

q Nicola Potts was talking to David Lewis of EFS Financial Management, an Isle of Man-based independent financial adviser and a member of DBS, a leading network of IFAs.

If you would like to be considered for a financial makeover for publication, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Fax: 0171-293-2096 or 2098; e-mail: Please include details of your current financial situation, a daytime telephone number, and state why you think you need a makeover.

Start your day with The Independent, sign up for daily news emails
sportSo, how closely were you paying attention during 2014?
Arts and Entertainment
Dennis speaks to his French teacher
tvThe Boy in the Dress, TV review
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
The Plaza Theatre in Atlanta, Georgia was one of the 300 US cinemas screening
filmTim Walker settles down to watch the controversial gross-out satire
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
Life and Style
Mark's crab tarts are just the right size
food + drinkMark Hix cooks up some snacks that pack a punch
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect