Family investment diary 2014: part three

Published by Holly Thomas on 28 July 2014.
Last updated on 30 July 2014


As part of our series following families investing in 2014, we catch up with them to see how they are getting on half way through the year.

Since we last spoke to them, the Chancellor delivered his Budget along with the good news that Isa limits increased on 1 July to £15,000.

He also broke the news that pension savers are soon to be granted direct access to their pension, giving a much wider breadth of options for generating income in retirement.

From July next year, anyone who is aged 55 or over will be able to take their entire pension fund as cash - although only the first 25% will be tax-free. The remaining 75% of the fund would be taxed at the saver's marginal rate, rather than the current 55% charge for full withdrawal.

We first spoke to our families at the beginning of the year when they made New Year's resolutions to revamp their savings plans and overhaul their investment portfolios.

In our third meeting, we'll find out how the Blythes and the Messiters have fared.

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Good start to 2014

Sophie Blythe and her husband Adrian have had a good first half of 2014. At the beginning of the year, they told us they were embarking upon a savings drive to build up enough to pay off the capital part of their mortgage, as well as provide for their future.

The couple, who live in Chelmsford, Essex, with their children Harriet, eight, and Finley, four, have managed to increase the amount they save each month, thanks to Sophie's new job.

Sophie, 39, has been working as a university development manager for the past few months, having left her job as a charity project manager. Her salary in this role was higher – meaning she was able to save a little more – but in the last month she has left the university and gone back to work in the charity sector.

She says: "The salary isn't that much more but my new job is more flexible and closer to home. I used to have to drive 60 miles a day but that's now dropped to just 20 miles, cutting my petrol bills by a third. "The flexible working hours also mean that I can pick Harriet up from school and cut out after-school club costs."

Sophie and Adrian, 39, a paramedic, are invested in the M&G Global Dividend fund. The manager focuses on companies that can consistently grow their dividend yield rather than those that simply pay a high yield.

Recently, manager Stuart Rhodes has moved into US technology firms. These make up 17% of the portfolio against 4% three years ago. Since the beginning of the year the fund has returned 3.37%.

Sophie says: "We are happy with the performance of the fund and will continue to pay in monthly amounts. With the savings on fuel, we could afford to increase payments further." In September the pair will free up £600 a month in childcare costs when Finley goes to school.

Sophie says: "We have a lot to think about in terms of doing the best thing with the money. Our mortgage is interest-only, so we might switch to a capital repayment.

"Alternatively, we could leave the mortgage as it is and continue to build up our investments to repay the capital at the end of the term. In this case, we will be able to increase our regular investment payments substantially."

Interest-only mortgages are few and far between these days, so the pair are keen to protect it. They are also aware that interest rate rises are on the horizon, and these will increase their tracker mortgage repayments.

Sophie and Adrian want to keep their current deal as long as they can to avoid remortgaging – new mortgage rules born out of the mortgage market review mean that affordability criteria is getting tougher. Borrowers will have to provide more evidence of their income and are grilled about their spending habits.

"We don't want to have to go through that if we can avoid it. Plus we are on a great deal now. We just hope interest rates don't climb too quickly."

Adjusting your strategy

David Messiter and his wife Tui have been adjusting their investment portfolio after discovering some funds were underperforming.

The couple are replenishing their reserves after moving to Norfolk from their Essex home last year - which meant emptying their savings accounts.

David watches their investments closely, reviewing his holdings frequently. He has recently sold out of a south Asia fund and plans to buy into star manager Neil Woodford's new fund, Woodford Equity Income, which launched at the beginning of June.

David, 40, says: "I did very well out of Neil's Invesco Perpetual equity income funds and hope he can grow my money again at his new firm. His 25-year track record is remarkable. I have held on to the Invesco funds, which I still believe will work well for me."

Woodford often holds companies for 10-years plus, and has a high conviction, contrarian approach. He says that through a mixture of attractive yields and capital growth, investors will see good returns over the next few years from his portfolio.

David, who runs an IT company, and Tui, who stays at home to look after their daughters Lila, five, and Amelia, two, are renovating the house they bought, which means they are spending some of the cash they would otherwise save.

David is paid quarterly bonuses and last time invested the full sum straight into equities.

This time, he plans to use half to top up his Isa investments now the new limit of £15,000 has kicked in, and the rest to spend on the house.

He says the new pension rules announced in the Budget spurred him to review his pension arrangements, too.

"The fact that I will be able to access my money – rather than be forced to buy an annuity – means I feel far more inclined to save larger amounts in a pension. In fact, I have increased my monthly contributions by around £300 a month."

David previously worked for Vodafone and so as part of his employee package holds shares. He decided not to sell the shares he gained from the company (or from Verizon) after the firm offloaded its stake.

"I believe both businesses will continue to strive. I used the cash payment to pay for new guttering."

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