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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 each and every month.
It is easy to contact an independent financial adviser in your local area, call 0800 085 3250
1. Richard B in Weston-Super-Mare: I'm worried by what's been going on with bank shares and banks being taken into public ownership. How can I be sure my money's safe and which banks/other investments should I put my savings in to ensure it truly is 100% safe? I have 100,000 split evenly between two banks, and one is Kaupthing, the Icelandic bank, and I hear Iceland banks are in more trouble than the UKs.
Answer: If it were me then I would personally check the guarantees in place with Kaupthing Icelandic bank and how long and by what process it would be should the bank fold, as foreign situation can be totally different to UK bank guarantees.
The FSA has announced it is increasing the level of compensation available to £50K from £35K. If a client is looking for 100% of safety (apart from if FCSC could no longer pay compensation) in one institution, then Northern Rock have an unlimited FSCS guarantee on their deposits. Also National Savings products are backed by UK Treasury so again this would appear to be a lower risk product than independent financial institutions.
Update: Since writing my initial response Icelandic banks have got into major difficulties. While matters are still under discussion between the Icelandic government and the UK Treasury, it may calm nerves to hear that the UK Government has reassured private citizens that ALL their savings, even over £50,000 deposited in troubled Icelandic banks, are guaranteed. It may be that you will have to claim the first €20,000 of your Kaupthing savings from Icelandic authorities, but the rest can be claimed from FSCS scheme. The FSA website will no doubt publish details of the process as matters unfold.
Clients should be aware that if you hold a mortgage with an independent UK institution and savings then up to £50K which is guaranteed would be automatically paid off any mortgage balance and the net loan, would then be sold on to another bank. So I would recommend any client move their savings, if they have a mortgage with that same lender.
Answer provided by Julie Bayley, IFA, Keswick IFA
2. Sarah in Leeds: I'm considering starting a regular monthly investment into a stockmarket fund of some sort that invests in shares. Everything you read from 'experts' suggests that you should only consider this if you take a 'medium to long term' view, and by this they nearly all seem to say this means between five and ten years.
However, looking at the UK's stockmarket performance of the last 8/9 years, it's actually lower now than it was at the start of this period. And also, after the Wall Street crash of 1929, in real terms, it took the market until almost the mid-1950s to achieve the same level again. Is it still the perceived wisdom that you should take a '5 to 10' year view?
Or in light of recent events, and some historical study, experts and IFA's should be a bit more cautious with thinking 'mid to long term' means five to ten years? Regards, Sarah
Answer: I agree that a medium to long term should be 5 to 10 years plus.
If you have not utilised your ISA allowance you should consider arranging a regular savings ISA account investing in equities. Doing this you can take advantage of the stock markets volatility by purchasing on the falls and rises in the share prices often called Pound Cost Averaging.
Pound cost averaging is a term which describes how you can build up a capital sum by investing a fixed amount of money in a particular investment vehicle (shares or fund) on a regular, usually monthly, basis.
The key point about pound cost averaging is that you invest small amounts on a regular basis. This means that when prices are high your monthly contribution may buy fewer shares or fund units but that when prices are low your investment buys more shares or fund units.
This continuous drip-feed method of purchasing your investment means that the average purchase price paid over any given period is going to be lower than the arithmetical average of the market price. It also instills a useful discipline in the investor, creating the saving habit.
Pound cost averaging takes the worry out of investment decision-making - you do not need to panic when the price falls because you will merely be buying more of your chosen investment and because you are committing funds on a regular basis you need not worry about investing all your savings at the top of the market either.
While pound cost averaging can reduce your risk, it is a strategy that does benefit from volatile markets. The more the market swings the greater the benefit to somebody using pound cost averaging.
For example, if the market swings down every other month then on each downturn you would buy more shares or units, which would be worth yet more on each upturn. In a bear market, pound cost averaging allows you to build up an investment poised to benefit from a recovery without having to worry about trying to work out when the bottom of the market will occur.
However, the strategy will mean you would lose out on the best of the growth in a rising market, although this is a small price to pay for the added security that pound cost averaging brings to investment decision-making.
Answer by Bob Riach, IFA, RIACH INDEPENDENT FINANCIAL ADVISERS.
3. Andy c, Glasgow: Is buy-to-let now worth getting back into? It seems I can buy property in Glasgow for around 20% below current asking prices, talking to friends and estate agents, and at these levels the rent will pretty much cover the buy to let mortgage and then a bit more. Or would you caution against this in light of the coming protracted economic slowdown and the nock on effect in terms of unemployment and less people being able to afford rentals etc.
Answer: Property should definitely be looked upon as a long term investment, especially if you are going to borrow in order to make the purchase. Clearly the risks in the short to medium term are that the property could still fall quite a bit.
This is not important provided that you are both taking a long term and can afford the loan repayments in the event that your property is unoccupied for a period. The worst case scenario is that your property goes down in value and you can't afford to meet the repayments.
In such a scenario you could end up selling the property for less than what you paid and possibly even less than what you owe. This actually placed geared up property investment in a very high risk profile and almost on a par with some types of derivative dealing since for most conventional investments the most you can lose is your investment.
The prognosis for the property market is not currently very good and a number of informed commentators have suggested that it may still fall further. The impact of the credit crunch is starting to effect conventional trading businesses as they find it increasingly difficult to finance their operations. This will eventually result in job losses which could threaten the continued payment of rent.
In summary as long as your own job is safe, you can afford the monthly commitment in addition to your other outgoings and you are prepared to take a long term view then a buy to let may be worth thinking about now... always assuming that you can find someone to lend you the money!
Answer by Christopher Wicks, ACII ASFA, Certified Financial Planner, Director, N-Trust Limited
4. Rachel W, Hull: I'm heavily in debt. I owe 15,000k on credit cards, which at the moment I can't afford to repay and am constantly getting calls from the credit card companies. I also am about 4k overdrawn with the bank. I also am in negative equity on my flat (mortgage is 115k) and so recently had to remortgage to a v poor rate of almost 7%, which I can barely afford to pay.
My job seems stable, but I only earn 18k a year and am struggling to. I've read that declaring myself bankrupt would wipe out my debts, and although I understand you are then a 'marked man' in terms of getting future credit, it seems the only way out in my current position. Can you advise please? Thnks. Rachel
Answer: Before considering bankruptcy, you should first take certain steps. Wherever you are paying capital and interest, you should approach the Lender and ask if you can pay interest only, at least for a while.
In terms of your job, ask if there is additional income to be paid, if you have a particular qualification, such as speaking a foreign language. Is it possible for you to get a second job, perhaps in the evenings?
In addition to bankruptcy, you have a further option, called an Individual Voluntary Arrangement (IVA). In the first instance, you need information. Arrange to see someone at your local Citizen's Advice Bureau (CAB) to see if they can assist you.
As any IFA with a Consumer Credit License would have the ability to provide 'debt counselling', that is another source of help. Good luck!
Answer by Paul White, IFA, Belgravia Insurance Consultants
