Investing in your 40s - the childless couple
What sort of goals are you likely to be investing towards in your 40s, and which funds are well placed to help you get there?
The second in our three-part series looks at the family years: you may be in a more senior job and earning more money but the demands of your kids now, and in the future, loom large.
Our three case studies are relatively new to investing. For each scenario, we outline what their financial priorities should be and make three suitable fund recommendations.
Case study: Michael and Jessica Cattermole, childless, with a fairly low-cost lifestyle
Michael and Jessica Cattermole are in their late 40s. Both are in steady employment and are basic-rate taxpayers, earning £28,000 and £21,000 respectively, with relatively conservative outgoings.
Their modest lifestyle means they have some scope to invest a regular amount in various funds in order to generate a degree of longer-term capital growth.
While they primarily want to lay the financial ground-work for when they retire, they would also like the option of giving their salaries a boost via some income-generating investments - even if they end up reinvesting the dividends.
The couple already have a combined total of £10,000 in cash ISAs; and with no dependants they are happy to take more risk with their money. They can afford to invest a lump sum of £5,000 and make monthly contributions of up to £100.
This couple's finances are in a pretty healthy state: their level of outgoings is fairly low, they don't have any dependants and they are already contributing to stakeholder pensions. This means that every penny they bring into the house - after tax - is their own, to do with as they please.
Again, it makes sense for the couple to make use of their full ISA allowances when they come to invest.
And as with all our 40-somethings, the couple should keep to a strict budget to ensure that they are also able to make provision for life, critical illness and income protection cover, as well as maintaining their cash balance as a financial safety net.
M&G Managed Growth
"As they are willing to take a higher degree of risk, the Cattermoles could consider this multi-manager fund run by Graham French," advises Geoff Penrice, chartered financial planner at London-based Honister Partners.
"It is adventurous and will have a relatively high level of volatility. The funds it holds include M&G Recovery, which looks for troubled companies with strong management teams that can turn them around, and M&G Global Basics, which invests in Western companies benefiting from the growth in developing economies," he adds.
Jupiter Merlin Growth
"This fund is run by John Chatfeild-Roberts and has a fairly adventurous asset allocation as it's almost entirely in equities," says Penrice. "Although this means the fund is more volatile as a result, the team has produced consistent outperformance."
Threadneedle Global Equity
"The fund, managed by Alex Lyle, invests in a range of underlying Threadneedle funds and invests almost exclusively in shares, with around 65% being international and 35% from the UK," explains Penrice. "This global outlook allows the fund to invest in the best companies around the world".
Signs you need to review your portfolio
What are your short-term and longer-term goals? Are you looking to buy your own home and/or start a family?
Having a baby
This changes everything. Not only will you have greater day-to-day expenses with another mouth to feed, plus reduced household income as one parent takes time out from work, but you'll also need to think about your child's long-term future.
Hopefully the move will mean more money – a proportion of which can be put to good investment use.
Reaching the age of 50
Make sure that you are not embracing too much risk, as there is less chance to make up any losses. However, even at the age of 50 you may have 40 years to go, so don't be overly cautious.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).