Investing in your 40s - the divorcee with children
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: Andrew Holmes, divorcee with custody of his two children
Andrew Holmes is a higher-rate taxpayer in his mid-40s with good job prospects, but his financial pressures still weigh heavily on his mind.
As a divorcee with custody of his two children, he wants to maximise his earnings and savings potential in order to help them through university.
He earns £50,000 a year, but his divorce settlement means he can only afford to invest a £5,000 initial lump sum, plus £200 a month going forward. He is looking for a fund solution with the potential to deliver income as well as growth.
Andrew's priority as a higher-rate taxpayer is to use his annual £10,680 ISA allowance for tax-efficient investment.
Unfortunately, time is not really on his side as far as his investment goals are concerned. As his children are already approaching their teens, he only has a few years before the money will be needed.
He is looking for a balance of income to help fund university costs, and growth to provide capital to help the children with a house purchase in the future. But realistically, he may not be able to achieve all of his objectives.
Andrew may have to prioritise university costs over helping his children with a property purchase; or he may prefer his children to take on a low-cost student loan to fund university costs, and preserve his capital to help them buy a home.
Henderson Multi-Manager Income and Growth
"This is a fairly cautious fund of funds with a well-diversified portfolio, which has given consistently good returns relative to its sector," says Geoff Penrice, chartered financial planner at London-based Honister Partners.
Investec Cautious Managed
Run by Alistair Mundy, this fund has "a sensible mix of UK equities, fixed interest and cash for the more cautious investor," he says.
"It is actively managed to reflect his views on the relative value within each asset class."
Invesco Perpetual Distribution
"This fund is run by Neil Woodford and aims to achieve a balance of income and capital growth through a portfolio of primarily UK equity and fixed interest securities. It has produced consistently good performances,"says Penrice.
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
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
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).