Each month we ask different Independent Financial Advisers (IFAs) to give us their solutions to issues facing those who take an interest in their money. Expert opinions, for free, each and every month.
It is easy to contact an independent financial adviser in your local area visit or call 0800 085 3250
Q. I believe that the time is right to invest in the FTSE 100. Maybe upwards of £2k - £3k for a period of five years. From a beginners point of view what is the best way to go about doing this?
Keith Churchouse, Churchouse Financial Planning, Guilford
A. I would suggest a mini stock and shares ISA would be a good
beginning point. Your investment would be managed and therefore the risks involved
in direct investment in the FTSE would be reduced. There are many ISA providers,
and http://www.fsa.gov.uk/tables
can aid you in finding a low charging provider and a fund such as a tracking
fund.
Justin Modray, Best Invest, London
A. The simplest, and cheapest, option is to buy a fund that
tracks the FTSE 100 Index. The Liontrust Top 100 unit trust is one of the cheapest
with total annual charges of just 0.39%. A FTSE All Share Tracker provides a
little more diversity as although around 80% of he Index comprises FTSE 100
stocks, it has some exposure to medium and smaller sized companies. The Fidelity
Moneybuilder UK Index is a god option with total annual charges of just 0.3%.
Alternatively, consider a fund manager who actively tries to beat the Index,
the managers running Merrill Lynch UK Special Situations and Invesco Perpetual
High Income have good track records.
Amanda Davidson, Baigrie Davies, London
A. Market timing is notoriously difficult to get right so you
are wise to consider a 5 year investment. You may have to wait longer if the
markets move against you.
The best way you can invest in the FTSE 100 is via a unit trust. This spreads
your investment as you are invested in a number of shares. A FTSE tracker is
probably what you are seeking as this gives exposure to the index. Look at L&G's
range for some options.
Q I am 39. I decided to switch my mortgage to interest only - putting the money into my pension instead. I am in the 40% tax bracket and my mortgage term is 16 years. Does it make sense to put the money into my pension instead of my mortgage?
Justin Modray, Best Invest, London
A.Potentially, provided you can afford to pay off the mortgage
when due. Your pension contributions benefit from 40% tax relief, so every £100
contributed costs just £60 which is very attractive. However, pensions
are inflexible, you cannot access them until at least age 50 (55 from 2010)
and even then you can only take 25% of the fund as a lump-sum (tax-free), the
balance must be used to provide an income. Assuming you can access the pension
when the mortgage is sue, will 25% of the fund be adequate to repay the mortgage?
If not you’ll need to either extend the mortgage or come up with another
way to repay it.
Adrian Kidd, Mint Financial Services, Lee, London
A. Doing this is a risky strategy and the one main point of
consideration would be you would need to significantly invest more money into
your pension as it will have to provide you with an income in retirement AND
pay off the mortgage. Yes, there are tax advantages but I would need to see
all your circumstance before saying if it would be advisable or not. Initially,
I would not recommend this and again your investment risk attitude would be
very important as if the funds do not give you the desired returns (and none
are guaranteed) you could have a small pension pot with a small residual mortgage.
Not great at 6-65 years of age.
Q I have £5,000 to invest - currently just residing in a high interest account - but I'd like to do a long term investment that is a little more exciting. I'd like it to be something I can enjoy seeing do well even if it doesn't make me a fortune..maybe something environment focussed? Maybe investing in a forest or something like that?
Keith Churchouse, Churchouse Financial Planning, Guilford
A. Forest investments potentially have very high rewards, but
they are long term investment with the returns on your investment being realised
sometimes up to 50 years later.
An alternative you could use a Maxi ISA solely for a long-term growth investment in an ethical stock market linked fund (a Stocks and Shares ISA). The ISA is a tax efficient form of saving, and if you use an online investment company you can track the progress of your investments. http://www.ethicalinvestors.co.uk/ has a directory of ethical funds.
Amanda Davidson, Baigrie Davies, London
A. Exciting investments can be the risky ones and I would not
advise putting this sum in very high risk unless you have other savings that
can be relied on.
Q I've already put £3,000 in an isa for this year but have about £1,000 more I want to save. Can you tell me the best place to put it. Ideally I would like instant access to my money as I don't know when I'll need it.
Keith Churchouse, Churchouse Financial Planning, Guilford
A. If you’re interested in having a bit of fun with this
money, try Premium Bonds as the winnings are tax free. You can cash in all or
part of your Bonds at any time, and the money is transferred to your bank account
or building society within 8 days of receiving your encashment form. See http://www.nsandi.co.uk/products/pb/index.jsp
for more information.
If you are uncomfortable with this then I would suggest an internet bank as invariably they offer higher rates of interest. The rates available can be checked on http://www.fsa.gov.uk/tables
Amanda Davidson, Baigrie Davies, London
A. If you would like instant access then you should keep the
money in a cash account. Having taken up your ISA allowance then other deposit
accounts are where the money should be saved. Online accounts usually offer
better rates of interest. Try www.abbey.com
or www.northernrock.co.uk both accounts
giving over 5% gross at time of writing - but that includes a bonus for a few
months.
Q I'm thinking of buying a new car but don't have a spotless credit record - would I be better off with dealer finance or a loan and what kind of rate of interest should I expect to pay. I want to get the cheapest deal I can.
Justin Modray, Best Invest, London
A. The rate of interest you’ll pay depends on the extent
your credit record has been damaged. Initially you should check that your credit
rating does not contain errors, you can do so free of charge at CreditExpert
or www.annualcreditreport.co.uk. Then shop around for the best deal, comparing
dealer quotes with banks and other specialist lenders. A quick search on the
web reveals plenty of companies who will search for you, although it’s
always worth asking how many loan providers they represent and compare at least
two such companies.
