Investing in your 40s - the young family
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: John and Andrea Lyons, and their young children
John and Andrea Lyons are in their early 40s and have two young children. John is a company director on £75,000 a year and the family are entirely reliant on his salary.
The couple say their priority is planning for the children's future, as they want to be able to put them through university. They also hope to help out when their kids want to get married.
They have £20,000 tucked away in a cash ISA, ready for a rainy day, plus a further £20,000 lump sum from an inheritance, and can afford to put away £200 every month.
They are willing to take on a moderate amount of risk to achieve their longer-term financial goals - but not so much as to find themselves badly exposed should the markets move against them in the coming years.
As the kids are currently under 10 years old, the couple can take a reasonably long-term view in their investments. They should consider taking a bit more risk in the early years in order to boost their returns.
From a tax point of view, they should both use their tax-free annual ISA allowance of £10,680 this year. As John is a high earner and Andrea a non-taxpayer, they should consider putting any investments outside their ISAs into her name.
Jupiter Merlin Balanced Portfolio
This is one of Jupiter's highly regarded range of multi-manager funds. "As the Lyons's main objective is growth and they have a long timeframe, they could consider this well-diversified fund, which invests in a wide range of underlying funds," says Geoff Penrice, chartered financial planner at London-based Honister Partners.
JPMorgan Natural Resources
If John and Andrea are happy to take a higher level of risk in order to increase their potential return, Penrice suggests JPM Natural Resources.
"It taps into the increased demand for resources, which is primarily being driven by the rapidly developing economies of China, Russia, India and Brazil," he adds.
"This fund benefits from having a very experienced manager in Iain Stewart," says Penrice. "It provides reasonably high exposure to equity markets with core exposure in the UK, as well as some non-equity holdings for an element of lower-risk exposure."
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
Investment funds that invest in other investment funds from a wide range of asset managers and are often referred to as funds of funds. Some multi-manager funds only invest in the funds of the investment house providing the fund of funds and these are known as “fettered”. An “unfettered” multi-manager fund is free to invest in what the fund manager believes are the top performing funds from across different markets and industries. Investing in multi-manager funds means your risks are spread across geographical regions and industry sectors but it also adds another layer of charges and some multi-managers also levy an out-performance fee.
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.