Investor Clinic – I've a young family, I need to start saving but where do I begin?


#1

Welcome to our third investor clinic. The aim of the clinic is to allow ordinary investors to get feedback from peers on their investments. To comment
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Investor Clinic – I've a young family, I need to start saving but where do I begin?
#2

Your needs are in three parts as far as I can see.

Firstly should you get a SIPP? Yes I would because it allows greater flexibility. You said you want investment trusts and maybe open ended funds too then tend to have a wider range to chose form with a SIPP.

I couldn’t say I know who is the best SIPP provider I just know who I use and that i quite like them. I use ATS, or Alliance Trust Savings. They’re low cost, you can do all you need to do online, and you can access any investment trust, fund, ETF or direct shares you like.

Hargreaves Lansdown/ Charles Stanley Direct are all good too I’m sure. I don’t sue them.

I would transfer all your old pension plans to your new SIPP. It’s free to do but you need to call up your various pension scheme’s and ask them to send you something called ‘Transfer Discharge Forms’, then you complete them and send them back to your SIPP provider.

Where to invest? Well I’ll come back to you on this. Do you have any queries or comments on what I’ve suggested?


#3

Thanks Sam. I check on a couple of my pensions and they only allow me to invest in a small number of funds none of which are investment trusts.

I requested Discharge forms from Scottish Life and they’re sending it by post.

Happy to consider Alliance Trust Savings. I don’t particularly care who does the very best SIPP I just would want one that works pretty well and is good value.


#4

Let’s start with the easy part. Yes, I agree with @SamSmith in that a SIPP is the best kind of pension vehicle. Pensions are also now far more promising thanks to the last budget so I would kindly accept the regular payments from your employers! I have not yet found a pension with a life office worth leaving with them so it would most likely be the case here and you can transfer them over to the SIPP. However you need to make sure that there is no guarenteed benefit that you may lose or any penalty in moving. Once all in one place it should be easier to actively manage and I would recommend Investment Trusts since they are great over the long term.
ISAs are great too, I would probably still prefer them to SIPPs becasue a) SIPPs suffer double taxation on income (dividend and then withdrawal) and if you live long this can errode the 25% tax free amount and b) the Government keep changing the goalposts so I would trust it a little less than an ISA where, of course, they could tinker too but haven’t to date.
So now you have a SIPP with £30k and £800 per month and an ISA with £500 per month so which stocks to get?
The SIPP first - you could have about 6-10 trusts from the off and then buy various trusts every two months or so, or you could see if your SIPP provider offers a template or a regular buy option in which case you could set it up with your prefered final spread of trusts and slowly each month the £800 would be spread among them. It is up to you as to how active you want to be. The same options are also possible for the ISA.
I think that to really make a good return you need to use quality trusts at good value (cheap). Now this equates to ones on a discount normally but beware some discounts are there for a reason! If you buy a trust on a 10% premium, even if it has held it for months, and it comes off the boil you can lose 10% or more of your money rather fast. Having a temple helps with falls since you will then be buying at a lower price thus the overall price is lower (look up Pound cost averaging).
So you need quality trusts that are cheap, low risk, and don’t specifically provide income (yet income is very important in a portfolio since it pays fees and provides cash to be reinvested). I think pure income stocks are now overpriced so here is a list of some you could check out:

Finsbury Growth & Income FGT (mainly UK brands)
Capital Gearing CGT (defensive, could be offering value since its first fall from grace since 1982)
Henderson Diversified Income HDIV (gross income payer on debt)
City of London CTY (great FTSE 100 trust)
Murray International MYI (global, when it is at par or small premium)
Scottish Mortage SMT (little bit more risky global stock)
Premier Energy & Water Ords PEW (global utilities, high income, riskier due to structural gearing - split)
Perpetual Income & Growth PLI (cautiously managed UK)
Temple Bar TMPL (value investor in large cap UK)
Caledonia CLDN (still a large discount, global)
Lowland LWI (wait for discount)
Rights & Issues Inc or Cap RIII/RIIC (UK smaller exposure but higher risk)
Aberdeen Asian Smaller Cos AAS for Far East high risk if you want some or
Scottish Oriental Smaller Cos SST too
Jupiter European Opps JEO (Good European trust)

I could go on, and have, so over to you with any further questions!


#5

It’s hard to better what @james-pigott has said.

You might find some of the platforms might offer low cost regular savings arrangements. I think Alliance Trust Savings charge £5 instead of £12.50 but best to check that in case they’ve changed it.

James’ trust suggestions look good too though I don’t know much about Capital Gearing or Premier Energy & Water.


#6

If it were me I’d pay particular attention to the time-value-of-money concept @james-pigott’s is talking about. Markets have risen so fast, I don’t know if they will go down or go higher but if you’re paying in in regular amounts then you kind of smooth out the peaks and the troughs.

Not sure about the Capital Gearing trust but I like everything else James has suggested.


#7

I feel I need to explain Capital Gearing Trust! Unlike its name it is a very cautiously run trust that has its main objective as preserving capital. Until very recently it has performed very well indeed. I included it since you were low risk and this should be one trust that can float across, or even rise above, a downturn on the charts.
Its portfolio includes other Investment trusts and most of this is ZDPs (Zero Dividend Preference shares) which are a steady form of return, normally. It also has a fair amount of fixed interest and some TIPS due to the fund manager’s belief that inflation will bite soon. I think the manager was a little early here and this is why the trust has lost money over that last 12 months, the first time since 1982 apparently.
Because of this dip which seems to mainly be a move in premium from 15% to 2% and not really a dive in the NAV I think now is a good time to stock up. Over the long term £100 invested would have produced total returns of: £216 in 10 years, £142 in 5 years and this is after the recent underperformance. FTSE All-Share for comparison was £227 and £197. In the chart below please note how it behaved in 2000 and 2008 and that it is far ahead of the All-share. There are moments of no movement such as 2006 to 2009 and again here I would add to a position. It yields 0.5% p.a.

Premier Energy & Water is a global utility stock that under a new fund manager has really outperformed the sector and if continued should do very well. Although utilities are generally seen as defensive, with a little political risk, this stock is a split capital trust (something I am hoping to blog about next) and has structural gearing of about 220% so it is more volatile than straight vanilla utility stocks and the gearing enables it to pay a huge yield of about 7%.


#8

Great explanation @james-pigott. Can’t ask for better than that. I had wondered about it too but that chart alone says a lot.


#9

I’m overseas with my family right now that’s why I haven’t responded until now. I’m at the airport to come home. I applied for this weeks ago, I’d no idea it would come up when I was away (didn’t think to check).

Thanks to you all though and I promise to get on to this when I’m up and alive on Monday.


#10

Can I just thank you all for your help, and thanks to WhichInvestmenttrust too for allowing me to take part here.

It’s so much to think about but I have started on it.

I took @james-pigott’s advice and I called round my pension companies to check I’ve no defined benefits (even kind of know what they are now).
It took a while for me to call round them and I asked them for the discharge forms . I’ve also got Alliance Trust forms from them all.

Next is the investment trusts that various of you have suggested. I’ll read up on these a little and see if I can even begin to understand what they are about.

I’ll come back here as soon as I have. Hopefully tomorrow.

Thank you again :slight_smile:


#11

Have a look over them @RonMac and come back if you have any questions.

@james-pigott has come up with some good suggestions there that are really worth considering.


#12

Are you struggling with this a little bit @RonMac? It is hard when you first have a look at it.

You might feel you just have to go along with what has been suggested and learn more about it over time because it’s a lot to take in.

@james-pigott has come up with good suggestions for trusts. Let us all know if you need more help.


#13

Originally published at: http://whichinvestmenttrust.com/investor-clinic-ive-young-family-need-start-saving-begin/
Welcome to our third investor clinic. The aim of the clinic is to allow ordinary investors to get feedback from peers on their investments. To comment and get involved there is a comment box at the foot of the article. You need to register to participate. If you haven’t done so already you can register…