The Investment Doctor helps a reader with two substantial lump sums to invest.
In early 2018, I have two substantial lump sum investments maturing. I have £35,000 in a fixedrate Cash Isa with the Post Office. I also have £21,000 in ‘granny bonds’, the 65+ Guaranteed Growth Bonds from NS&I, which are no longer available. I am 80 years old and investing for my grandchildren’s future. Where should I reinvest the money for growth?
This is a regular dilemma for savers who have relied on cash-based products for future growth and have maturing investments, according to Mark Stone, financial planning director at Whitechurch Financial Consultants.
“The first question to ask is when will your grandchildren be gifted the investments? This will provide an idea of the timescale over which you’re looking to invest,” he says.
You also need to consider the level of risk you’re willing to take and whether you have indicated in your will how much – and when – your grandchildren will benefit.
“If you are prepared to take some risk, then the investment universe will be wider,” he adds.
If you keep your money in cash, it can’t fall in value and will be fully covered by the Financial Services Compensation Scheme (FSCS), although it can be eroded by high inflation.
But Justin Modray, founder of Candid Financial Advice, warns: “If you invest, you must be prepared for fluctuations, while losses due to poor performance will not be covered by the FSCS,” he says. “However, if you invest sensibly and are prepared to be invested for five to 10 years, you’ll likely do well versus remaining in cash.”
Mr Modray suggests that one way to invest would be to transfer your Post Office Cash Isa into a Stocks & Shares Isa, meaning you retain Isa tax benefits and can transfer back to a cash Isa in future.
“A simple and low-cost provider is Vanguard, which offers a wide range of index-tracking funds, and charges 0.15% a year for the Isa ‘wrapper’, with annual fees starting at 0.08%,” he says.
Mr Modray suggests combining the Vanguard UK FTSE All Share Index fund with the Vanguard Developed World ex UK Index* fund would give you decent global exposure.
“If you want a wider choice of investments, Cavendish Online offers the Fidelity Isa for a discounted 0.25% a year with over 1,000 funds from multiple fund managers,” he adds.
When investing for grandchildren, the time horizon is usually long so you can take a bit more risk, according to Darius McDermott, managing director of Chelsea Financial Services.
There is also the option of investing away from the UK. “You could look at global funds such as Rathbone Global Opportunities and Scottish Mortgage Investment Trust*, or even an emerging market fund,” Mr McDermott adds.
Alternative treatment plan
If your grandchildren are in their 20s or 30s, one option is to give them the money now, suggests Carl Melvin, managing director of Affluent Financial Planning. “This provides them with capital they can use rather than waiting,” he says.
Mr Melvin also points out that if the funds are for your grandchildren, it’s their risk profile that matters more than your approach. “In summary, give the grandchildren the money now (if they’re old enough) and let them decide how to invest for their future,” he says.
It’s also worth bearing in mind the tax implications.
“You can gift up to £3,000 a year, free from inheritance tax liabilities,” says Mr Modray. “If you didn’t use this in the last tax year it can be backdated, meaning you can gift up to £6,000.”
Mr McDermott also points out that small amounts of £250 can also be gifted to as many people as you like each tax year.
*Denotes Moneywise First 50 Fund for beginners. For more fund ideas, visit www.moneywise.co.uk/first50-funds.
Rob Griffin writes for The Independent, Sunday Telegraph and Daily Express