Richard and Millie Moss are about to receive an inheritance of £175,000 from
his mother's estate. But given the current volatility in the stock markets
they are apprehensive about the best place for their money.
Richard says: “We intend to put £25,000 of the inheritance towards moving
house and invest the rest, but the fluctuations in the stock market have
left us feeling jittery about investing too heavily in equities.”
Richard, 58, and Millie, 61, have been married for ten years and have five
grown-up children between them from previous marriages. They live in a
three-bedroom detached house in Urmston, Manchester, which they own outright
and is worth £330,000, but want to move to Bury to be closer to Millie's
daughter. Richard adds: “For easy maintenance in the future, we would like a
bungalow, probably two to three bedrooms, and have been looking at
properties of similar value to our home.”
After running his own clothing company, Richard now works part-time as an
accountant. He explains: “My company, Umbramade Ltd, manufactured
sweatshirts, initially with ten staff and turnover of £400,000. However,
this dropped gradually to four staff and turnover of £200,000 as we were
undercut by cheaper imported goods. About three years ago I realised that
the writing was on the wall and a change of career was required, so I took
an accounting course.”
Richard sold the assets of Umbramade but he has not wound up the company,
which has undistributed reserves of £10,000. He draws on this to make up
occasional shortfalls in his monthly self-employed income, but mainly it is
available to pay pension contributions of £200 a month to his Scottish
Widows Executive Pension Plan. Richard aims to retire at age 65, when the
fund will be worth about £143,000.
The couple's income comprises Millie's pensions and Richard's part-time
income. Millie retired from teaching in 2006 and her teacher and state
pensions bring in £1,235 a month. Richard earns £16,100 a year, £5,000 of
which he puts through Umbramade and chooses to take in the form of
dividends, which reduces his national insurance costs.
Monthly outgoings amount to about £1,000 and include £245 on council tax and
utility bills, £150 on petrol, £460 on food and drink, including making
their own wine, £60 annual rent on two allotment plots, £30 on Richard's
bridge club and Millie's swimming club, plus £40 to look after their cats,
Oliver and Sooty.
The couple have cash savings of £84,000. Richard's is in Vernon's Building
Society. He has £20,000 in its OptimISA paying 5.25 per cent, and £5,000 in
its Postal Account, at 4.1 per cent. Millie has £29,000 in a Royal Bank of
Scotland 60-day Isa, at 3.85 per cent, and £30,000 in the Post Office's Bank
of Ireland Instant Saver Savings Account, paying 4.5 per cent.
Richard also has a Hoodless Brennan self-select Isa, originally worth £7,000.
It rose to £9,000 last summer but has now dropped to £5,000. He intended to
change his share picks, which include RBS, Bovis Homes and Yell Group, when
they made a 10 per cent profit, but none has. The couple have no debts and
both have wills.
The Mosses: what the experts say
FINANCIAL PLANNING
Antony Cousins,
Savills Private Finance
“Richard and Millie appear to have sufficient cash funds for emergency
purposes, but they could look at switching accounts for better rates.
“They should both use their Isa allowances for the tax year before investing
elsewhere. They can each invest up to £3,600 in a cash Isa and £3,600 in a
stocks-and-shares Isa. Or, instead, invest £7,200 each directly into
stocks-and-shares Isas. Their existing self-select Isa did perform poorly
but it was high-risk, as it only invested in five companies.
“As for the inheritance, the Mosses need to decide whether they want it to
provide income and/or capital growth to determine the types of products they
use, such as insurance bonds or direct investments.
“While they are jittery about the markets, the best time to invest can be when
equities have fallen in price. For a degree of protection from the current
market volatility, they could put the money into a cautious portfolio that
invests in cash, bonds, equities, property and commodities.
“They could also invest in stages. This pound-cost-averaging method reduces
the worry of investment decisions - they do not need to panic when prices
fall as they will merely be buying more of their chosen investments.”
Action Plan
Review existing savings rates.
Decide on capital growth and/or income.
Look at investing the inheritance in stages.
SAVINGS & INVESTMENTS
Mark Dampier,
Hargreaves Lansdown
“First, let's deal with the Mosses' cash savings. For a better rate than their
Vernon's account and OptimISA, I would look at the Birmingham Midshires
Direct Telephone Savings Account, paying 5.5 per cent. The RBS 60-day Isa is
poor value at
3.85 per cent. Instead, look at Scarborough Building Society's 30-Day Notice
cash mini-Isa, currently offering 6.3 per cent, but rates are changing fast,
so keep tabs on them.
“As for the inheritance, I would suggest keeping £50,000 in cash, perhaps with
Birmingham Midshires, but over the next year invest this for the longer
term. In retirement terms the Mosses are still young and should be looking
at a 20 to 30-year time horizon.
“I understand their jitters about the stock market, but as the market has
fallen, so equity yields have risen. Therefore, I would put much of the
inheritance into a long-term income and growth portfolio. Some funds, such
as Liontrust First Income, are yielding 6 per cent net and most yield about
4.5 per cent. I would also recommend Invesco Perpetual Income, Artemis
Income, Jupiter Income, PSigma Income and F&C UK Growth & Income. I
would aim for a £50,000 portfolio within these funds but would drip-feed the
money in.
“I would also invest £10,000 in the BlackRock Absolute Alpha Trust, which has
the ability to make money even in a bear market. In the year to date it is
up more than 5 per cent while the market is down by about 12 per cent.
“For the balance of the inheritance, I would go for fixed-interest
investments, particularly corporate, bond funds. To maximise income, these
could be put into Isas over the years. Four funds to look at are Invesco
Perpetual Monthly Income Plus, M&G Optimal Income, Artemis Strategic
Bond and Old Mutual Corporate Bond. These yield between 5.5 per cent to
almost 8 per cent.
“Richard's Scottish Widows Executive Pension Plan is well worth retaining, but
the investments are likely to be weak with-profits choices, so he should
check whether there are any alternative options.”
Action Plan
Switch cash savings for better rates.
Put the inheritance into cash and a mix of funds - income and growth,
absolute return and corporate bonds.
Check pension fund options.
INVESTMENTS & TAX
Stephen Herring,
BDO Stoy Hayward
“As the Mosses appear to be cautious investors, they should keep a good
proportion of the £150,000 inheritance, say £70,000, in readily accessible
cash deposits.
“But they should not let their jitters about the stock market rule out
equity-based investments, which should provide more protection against
inflation over the longer term. They both have annual capital gains tax
allowances of £9,600. Accordingly, they could look to invest the remaining
£80,000 across a range of investment trusts, which provide low-cost exposure
to the equity market. If they were to invest, say, £8,000 in ten investment
trusts in different market sectors and hold these for at least five years,
they should secure a return well in excess of high street savings accounts.”
Action plan
Keep £70,000 of the inheritance in cash deposits.
Take advantage of capital gains tax allowances by investing the remaining
£80,000 in investment trusts.
For best returns, hold these trusts for at least five years.
Richard's reponse
“The suggestions look good. While I am still working we will look for a
greater element of growth before income, so the BlackRock trust looks useful
for this.
“When we made our existing investments, we checked rates but did not keep
doing so. With the inheritance, we realise that we need to be proactive and
review rates, as advised.
“We like the idea of investing in chunks of £8,000, as we thought that larger
sums would be required for each investment. And we take on board that it's
not necessarily the wrong time to invest in equities. We also like the idea
of putting £70,000 in cash deposits.
“While I will continue with the self-select Isa without further addition, I
will leave it to the experts within the funds to pick the buys.
“And though my Scottish Widows Pension is in with-profits, I feel secure in
the guaranteed annuity rate of 11.11 per cent.”
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