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Making the right switch
Q:
My husband and I would like to know if there is some form of guide to ‘best practice’ or something that would indicate the circumstances under which taking profits or ‘locking in’ profits would be a good idea. For example, we have about £40,000 invested in Fidelity Moneybuilder UK Index. A lot of this was invested a few years ago when the index was low, so we need to move it, otherwise I can see that we will end up tracking the index up and then tracking it all the way back down again! Do we just move, say, 50 per cent into a bond fund or a cash fund (e.g. Fidelity Moneybuilder cash ISA – although I’m not sure if this particular transfer is possible under the ISA rules) and, say, 30 per cent into a fund in an area where we haven’t invested before? We want to keep the money invested. Any advice would be gratefully received.
Mrs M Field, Luton
A:
Donna Bradshaw replies :
The first thing I would advise you to consider is your overall portfolio weighting and whether it is appropriate for your needs and your risk profile. As your portfolio is a considerable size it could be very worthwhile taking advice from a good independent financial adviser with investment expertise. In addition to restructuring your portfolio so that it matches your needs and risk profile, they will advise you on the best funds to invest in.
They will also take into account the costs of switching. It is very straightforward to switch funds in an ISA but the charges will depend on the ISA provider. When considering taking profits, be sure that the investments are suitable. If your asset mix doesn’t fit your profile, move funds to sectors that are more appropriate.
If the asset mix is right, consider whether the funds are good performers in their sector and switch from poor-performing funds to good ones.
You should also carefully consider your investment timeframe. If you have a long timeframe, you should be aware of the difficulty in timing ups and downs in the market; one of the most common mistakes made by retail investors is mistiming when to go back into markets.
I do believe it would be worthwhile taking advice from a good IFA. You have build up a decent sized portfolio and would benefit from advice on portfolio construction, risk profiling and fund selection. For a list of IFAs near you go to www.unbiased.co.uk.
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Downsizing option
25 July 2008 [0 comments]Q:
We have lived in our very large house in a very small village for nearly 25 years, where we have built a life and are very happy. The house now has a very high value in financial terms.
However, we are now looking at the prospect of having to make a downsize move, mostly because of the financial implications of owning a house of this size, such as higher heating bills, council tax, insurance and other essential expenditure.
We have looked into the area of equity release schemes but have constantly been told that it is more cost effective to downsize to a smaller property. However, even if we did downsize to such a property, it would still be of a high value in this area.
Additionally, it would be very expensive to make this move, considering the potential costs involved in moving home. We have calculated that it will cost us close to £100,000 to move, taking into account estate agent fees, legal fees, stamp duty and various moving costs. This £100,000 is immediately wasted and, on a personal note, we would have to start a new life in our retirement.
These factors therefore bring us back to equity release. We would require an additional income of up to £20,000 per annum for possibly a ten-year period before we need to move. If the calculation was for a property valued at £1.5 million, we would only need an increase in the property value of around two per cent a year to cover the withdrawal of £20,000 for income and the interest payments. Would this be the preferable solution in investment terms for our situation, rather than taking the money out of the property by downsizing, especially in view of the current outlook for house prices, and then investing the funds elsewhere and paying more tax on the funds we have released?
G Boot, Kent
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