“Should I switch funds, so I’ll have more income to help my daughter?”

13 February 2018

A reader wants to boost her investment income, but is she risking her long-term financial health?

I’m a 58-year-old woman who hasn’t worked since my early 20s. I have a £26,000 Stocks and Shares Isa invested in the Premier Global Alpha Growth fund and £1,000 in premium bonds but no other savings.

Some income would be useful as I have a 17-year-old daughter whose educational needs are a future problem. I am considering switching to LF Woodford Equity Income fund and I’ve also been approached by STG SWP portal. Is it best to continue with my current fund?

Also, I gather parents can gift each year. If this was possible could I use it to my advantage?

Initial diagnosis

Premier Global Alpha Growth is a good fund, but not one for your entire life savings, according to Scott Gallacher, director of Rowley Turton Private Wealth Management.

“LF Woodford Equity Income is slightly lower risk than the Premier fund, but would still be regarded as high,” he points out.

He also believes you should be cautious about spending money, given your age and lack of significant financial resources, because you’re likely to need it when you retire.

“As you’ve not worked for some time, it’s important to check whether your existing savings and investments would affect any benefits to which you may be entitled,” he adds.

Treatment plan

Income is limited with Premier Global Alpha Growth, so LF Woodford Equity Income* is worth considering, according to Danny Cox, a chartered financial planner with Hargreaves Lansdown.

“It’s also worth spreading your investments over more than one fund,” he says. “Others in this area worth looking at are Marlborough Multi Cap Income and Newton Global Income.”

Mr Cox suggests switching your Isa to an investment platform. “You can then easily put money into a number of funds and spread the risk,” he explains.

However, make sure your new provider arranges the transfer rather than withdrawing the money as you’ll lose the Isa wrapper tax benefits. As money is tight, Mr Cox warns it’s important to prioritise your own investment needs.

“Your daughter will be able to get student loans to help cover the cost of her education,” he says. “Unless she’s a high earner after graduation, there’s every chance much of these loans will be written off.”

Alternative treatment plan

Martin Bamford, managing director of financial planning firm Informed Choice, doesn’t believe you should continue investing this money.

“You have no cash savings and little investment knowledge or experience,” he says. “For these reasons alone, I would usually recommend moving from investments to cash.”

He suggests this can be done within the Isa tax wrapper, so your assets will remain free of income tax and you don’t need to report them to HM Revenue & Customs.

Interest rates across all cash savings products are very low, although you can get 1.16% tax-free from both Leeds Building Society and Paragon, with their online cash Isas accepting transfers.

Mr Bamford insists it’s vital to have solid financial foundations in place.

“This includes clearing short-term, unsecured debt and building a cash savings emergency fund,” he adds.

He also suggests that the fact global equity markets have enjoyed a good run needs to be considered.

“For someone in your position, it seems sensible to bank the substantial profi t from this investment now and sleep more easily at night,” he adds.

When it comes to making an annual gift to your daughter, Mr Cox points out: “Anyone can gift up to £3,000 a year, something that you may want to consider as this has the added bonus of potentially reducing a future inheritance tax bill.”

*A member of the Moneywise First 50 Funds for Beginners.

Rob Griffin writes for The Independent, Sunday Telegraph and Daily Express 

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