Q&A – In Conversation

 

Angry Granny Turns DIY Investor to Fight Back Against ‘Rip-off’ Savings Rates

 

 

With three children, nine grandchildren and two great-grandchildren Joan, 83, turned to DIY investing relatively late in life when she tired of opening letters announcing that yet again the rates offered by her savings accounts were being slashed; despite having ‘done the right thing’ by providing for herself in retirement she was gradually getting poorer by virtue of having cash in the bank or in underperforming Cash ISAs.

‘My husband bought into as many of the privatisations as he could back in the 1980s; far from ‘telling Sid’ he built us an investment portfolio that has delivered valuable income over the years’

Unfortunately Fred died more than twenty years ago and over the years Joan has been sold a range of savings and investment products in branch that have simply failed to deliver.

‘I think they used to think ‘that old stick’s got some cash squirreled away’, she says, ‘and over the years I have had ‘high income’ this and ‘with profits’ that, but have never really understood the way in which the various investments worked.

I knew that the return I was getting was poor, but didn’t really know what to do about it and if I ever raised it with my bank or building society they would always find a better deal or a special offer to reward me as a ‘valued customer’.

Then, I showed my eldest son a letter telling me that interest on my Cash ISA was being cut to 0.01% and we decided it was time to make a change.

Without spending ages getting to grips with investing or fretting over being exposed to the risk of losing all of my money we have managed to make investments over the last few years that have delivered far better returns than I have had in the past, and I have been pleasantly surprised how easy the whole thing has been.

I know that I can see the value of my investments at any time, and I even discuss them with my friends on Facebook’

DIY Investor asks Joan about her attitude towards savings and investments and wonders if she would have done anything differently if she ‘knew then what she knows now’.
 

HOW LONG HAVE YOU BEEN A DIY INVESTOR?

 

‘I’ve only had an account with an online stockbroker for around five years, but I have had a wide range of investments in my name for the last twenty years.

However, in the past I have done little other than decide whether to subscribe to rights issues, or sell my holding.

When I opened an account (with Selftrade) I was pleasantly surprised at how simple they made the whole process and it made me wish that I had done so much sooner.

It was only then that I realised that the investment ‘bonds’ I had been sold in branch were not like the bonds that we started to buy and I liked the fact that I could see the value of my investments all in one place; I certainly didn’t obsess about it, but I enjoyed the fact that I could access my account at any time to see how it was performing.’

 

WHAT TYPE OF INVESTOR ARE YOU?

 

‘Growing up, my father was a gambler and it made me realise the true value of money; I feel that I’ve worked too hard for it to fritter it away, so I would never invest in anything that comes with a high risk of losing my money.

Having said that, I do recognise that every investment comes with some risk, I just try to spread it around.

Because of my time of life, I am not looking at a long term investment strategy, I am looking to earn a better return on my money than I can get with the banks and, touch wood, so far that has worked well.

I do not want to be constantly buying and selling stocks and shares, or having to worry about prices rapidly rising and falling; I usually sit down with my son every few months and if there is any spare cash we find an investment that we can buy and hold.’
 

WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT?

 

‘Because I am looking for income I tend to look for, what I now know are called, ‘fixed income’ investments – mainly retail bonds when they are available.

I currently own six different retail bonds, and as well as paying me more than 6% p.a. they are all worth more than I paid for them.’

I have also learned the benefit of keeping fees and charges as low as possible, so I have also bought some very simple trackers – called exchange traded funds – which allow me to own a little piece of every company in the FTSE 100.’

 

ISA OR PENSION?

 

‘I have been lucky in that I have a pension in my own right having worked in education, and I also get a widow’s pension which means that my day to day living expenses are covered.

Times were different then, but we paid our mortgage off quite quickly and although I enjoy travelling and have a good social life, I have always lived within my means.

Although I had been persuaded to save into Cash ISAs in the past, I’d not really considered transferring the shares that we owned into an ISA, even though I’d been paying tax on my investments for many years.

Selftrade made it really simple for me to do so and I was so grateful to Sarah there who was very kind and patient with me and always went the extra mile.’

 

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?


 

‘Because I’ve never chased big returns by making risky investments, there have been few ‘bests’ or ‘worsts’; what I like about retail bonds is the fact that even if the price falls, I can still get my money back at the end of the loan.

Five years ago, I could not have written that answer because no one had ever explained to me in layman’s terms that a bond is just an IOU and that I can get paid guaranteed interest for lending to a company or a government; I don’t think the City wanted people like me to understand that.

The individual shares that I still hold are as a result of privatisations, although many companies have changed names or ownership; even though they are probably still worth much more than when we bought them, I can see that many have lost a lot of value since I transferred them into Selftrade, so perhaps they would be my ‘worst’ investments – I should have sold them and invested where I could get guaranteed returns.’
 

WHAT ADVICE WOULD YOU
GIVE TO ANYONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME?

 
‘The hardest thing for me was getting started; I used to bundle up the dozens of letters and statements that I’d receive and then when I saw him, my son would agree that I was not getting very good returns, and then we’d agree to do something about it.

We used to joke about making a start when we got ‘a round tuit’; however, once we did, it was surprisingly simple.

We researched the main investment types that were available and weighed up the potential returns that I could achieve whilst agreeing that I am by nature very cautious about losing money; we found that most investments were relatively straightforward, and those that weren’t are not for me.

Because of my caution, maybe even fear, of losing money, I would never invest in anything that I am offered by telephone callers that I don’t know, but sadly some friends of mine lost money they could ill afford on a property development in Spain.

When I look at the financial stresses and strains faced by my grandchildren it makes me very worried and concerned for their future – student loans, low wages and unaffordable housing; if there is one thing I wish I’d known then is the difference it can make to start investing early for children – even small sums invested over a long period of time can make a big difference.

My advice would be to find someone you can talk to and then give DIY investing a try – its nowhere near as scary as I’d expected and it can actually be rather fun’

 

 

 

Artisan Baker Invests as he Kneads the Dough

 

Richard Hutley, 52, worked for many years in the Oil Industry. Just recently he gave it all up to follow his passion and become a baker. His new artisan business Lazy Bakery, based in Rye, East Sussex, has already gained a great reputation with frequent media coverage.

DIY Investor Magazine asks him about his attitude towards savings and investments and if the launch of www.lazybakery.com has impacted on his investing.

HOW LONG HAVE YOU BEEN A DIY INVESTOR?

In various ways, off and on for quite some time; when ISAs were first introduced I mixed and matched with Cash and Unit Trust ISAs and as my disposable income increased in recent years expanded into individual shares and funds.

WHAT TYPE OF INVESTOR ARE YOU?

I’ve definitely moved into cautious territory. I’ve recently given up my job in the Oil Industry to become a self employed baker so with my drop in income I can’t afford to be quite so buccaneer with my savings! My investments are now spread across various funds, with a fairly even mix veering to the conservative end. I’ve also moved some of my money out of the market into peer to peer lending to give me a balanced risk approach.

WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT?

Don’t lose money! Given my change in situation I can’t afford to be too cavalier, baking does not bring in as much as The Oil Industry so my investments now are pretty much it, they have to make themselves pay without much chance of topping them up in case of losses.

ISA OR PENSION?

Always been both, I have been lucky in that all the companies I have worked for over the years have contributed to pensions for me, I was a little late in adding my own contributions but have been catching up in recent years – especially as my last company had a salary sacrifice scheme which maximised the value of my contributions by taking it before tax or NI had been taken. I’ve also made a point of not combining the various schemes in order to spread the risk between the various investment companies and avoid putting all my eggs in one basket! Re ISAs, be it cash or investment ISAs they have been the cornerstone of my non-pension saving.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?

My best investment was not an investment as such but moving companies to one with a final salary pension scheme for a good few years! So as well as my other investments I now have an index linked pension waiting for me when I’m ready!

As to worst investment that’s a difficult one; there’s been a few shares that have badly underperformed against their peers and which I was convinced would spring back so bought more thus increasing my loss – I’ve tried to erase their names from my memory but it has given me a good maxim – don’t go chasing your losses!

WHAT ADVICE WOULD YOU
GIVE TO ANYONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME?

Firstly, make sure you can afford it. Squirrel away some cash (check out current accounts for some of the best savings rates, bizarrely) then do your homework. If you’re investing in funds, check the league tables and the fee schedules, if you’re investing in individual companies know what you’re looking for and how to read a balance sheet!

 

 

Tony 68, was a disc jockey and radio presenter for most of his working life starting on commercial radio and finishing at the BBC.

 

Semi-retired in the late nineties, he now divides his time between running the famous Britcher & Rivers sweetshop in Rye, East Sussex and looking after his property and stockmarket investments.

Tony is also immortalised as ‘Humbug’ – DIY Investor’s very own small cap investor – follow his roller coaster ride only on DIY Investor.

HOW LONG HAVE YOU BEEN A DIY INVESTOR?

I’ve invested in the markets for 14 years, I first got interested listening to a good friend telling me about all the money he was making in shares that doubled in value in a week (the dotcom bubble).

I almost lost interest shortly after when most of his halved in value week after week until they were worth nothing.

WHAT TYPE OF INVESTOR ARE YOU?

To begin with I was an ‘uneducated’ investor, there are long lists of mistakes that most new investors make, and I made them all.

Things like buying penny shares, you think that if a 5p share goes to £5 you’ll be rich, trouble is the ones you buy never do.

In my opinion buying the ‘next great idea’ is not a good idea, buying small mining companies, you might as well go to Africa and throw your money down the mine shaft at least that way you get a holiday out of doing the money.

Doubling down, if it was good value at £1 now it’s halved in a week to 50p it must be twice as good value.

As it then goes to 25p in short order you think ‘er no’.

The list of mistakes I made is endless and when I read Robbie Burns’ superb Naked Trader book about investing that, among much else, lists the common mistakes………………………….

I’d made them all and some. I’m now a very calm, calculating investor with neither pride nor shame.

However I still make plenty of mistakes.

WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT?


I only invest in things that I understand, so no indices or FX.

I like small cap shares that make real profits that don’t have large debt and trade on sensible earnings multiples.

I use level 2 to try and work out where the price is going in the very short term to get a good entry point and I use charts to see what has happened in the past and to take a view on what might happen.

I am happy to be either long or short and depending on my ‘current’ view of the market adjust the ratio of long to short.

ISA OR PENSION?

Both, in the past more ISA than pension, however the recent budget now makes SIPPs a much better proposition for someone like me.

GEORGE OSBORNE’S BUDGET DELIVERED A REAL SHOT IN THE ARM FOR SAVERS AND INVESTORS, WHAT ELSE WOULD YOU LIKE TO SEE THE GOVERNMENT DO?

The pension reform was a good start as was the increase in the ISA allowance.

Since 2008 it’s been all about staving off an almighty financial collapse.

This has been done by in effect taking money from prudent savers and giving it to feckless borrowers………………………

This has got to change, the population is aging in front of our eyes, people have to be given a reasonable chance to make provision for their own old age.

The tax raid that Gordon Brown inflicted on pensions (the abolition of basic rate tax relief on dividends) should be reversed, the ‘life time’ cap should be revised upwards, the ISA allowance should be increased at a rate above inflation each year from now on.

Oh, and don’t even think about taxing large ISA pots if you ever want to be re-elected again. If people have been clever enough to turn the relatively small amounts they have been allowed in invest in ISAs into million pound pots…………………………. Good for them.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?

Jarvis was my worst ever. The price collapsed and I doubled up not once, not twice, not thrice but yes, four times.

Cost me £8000.

The best has been sticking at it through thick and thin, spending thousands of hours trading, investing, learning and slowly getting better at it.

WHAT ADVICE WOULD YOU
GIVE TO ANYONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME?

Not sure I’m qualified to give advice to be honest.

I think the most important lesson I’ve learnt is to make money slowly.

Take small positions that you can afford to lose if all goes wrong, that takes all the stress and emotion away, only enter trades with a good risk reward ratio, cut losses very quickly and move on when you call it wrong, and don’t snatch profits too soon when you call it right.

Finally, markets are a mind game.

Never forget, you’re not a punter, you’re in business running your own investment fund.

Kalpana Fitzpatrick is a financial journalist and founder of personal finance website mummymoneymatters.com – which provides financial information, news and tips to parents.

 

She is also a money expert and regularly appears on TV and radio as an expert commentator. She’s also mum to two blue-eyed monsters – boys aged one and five. You can follow Kalpana on Twitter @kalpanafitz

 

HOW LONG HAVE YOU BEEN A DIY INVESTOR?

If I’m honest, I haven’t been an investor for very long. I’ve always, ever since I was a child, been a saver, and I have, until recent years, benefited from reasonably good interest rates. But this changed when there was an economic downturn and the UK entered a period of low interest rates.

This was all good for my mortgage payment, but when I saw my savings were suffering, I realised something had to be done.

But it was only really when I had my first child in 2009, I decided that saving for his future was going to take a lot more than just putting money into an average bank account, and I really had to start looking deeper into investing.

WHAT TYPE OF INVESTOR ARE YOU?

I think of myself as a sensible investor. I like to play it safe, as I don’t like the idea of losing all my money because greed overcame sense.

However, my children are age five and one, and I am a bit more ambitious with their money as I know they have a good few years ahead of them to make the money work for them and there is room for mistakes (not too many though, I hope).

WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT?

For me, investing has to be easy and ethical; these are the two things that matter to me when making an investment.

I say easy because I don’t think it should be difficult and like many financial products, things are often made to look more difficult than they actually are.

It should also be easy if it is to be accessible to mums – not because I think mums are incapable of dealing with complex financial matters, but because they have so little time and trying to run a household along with a complicated investment portfolio doesn’t go hand in hand.

As for ethical, I say this because I like to see that my money is being invested in companies that are doing something good for the future – as a mum, the desire to be ethical is obvious.

ISA OR PENSION?

Both. I am a great believer in not putting all your eggs in one basket. The government allows you to invest a whopping £15,000 into an ISA, tax free, all of which can be put into an investment ISA if you like – you’d be mad not to take up that opportunity.

And don’t forget, there are also junior ISAs, so you can put your children’s money into that – currently, you can invest £4,000 this tax year into a junior ISA.

But saving for old age is important too – this also comes with tax advantages and if you’re working, you’re employer pays into it too – so essentially, you would be saying no to free money by not taking up a pension scheme.

People naively believe the state will provide – but ask yourself if around £148.00 a week will be enough to live on before you decide not to bother with a private pension. SIPPs (self-invested personal pensions) are a great way to save for retirement – so if you haven’t already, look into these.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?

The worst investment I made, in fact it was my very first, was Lastminute.com. I got caught up in the dot.com bubble.

The company’s share price dropped rapidly in less than a month of trading – I really didn’t make any money. It wasn’t a lot, but at the time it did feel like a lot. I was very naive; my brother told me it would make me rich. I tend not to listen to him anymore when it comes to money. My best investment has been gold. It’s a commodity that often hits record highs. My Mum started me off with this one, and let’s faces it, mums are always right!

WHAT ADVICE WOULD YOU GIVE TO ANYONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME?

As a financial journalist, I really can’t give out ‘advice’ as such, but let’s say my tips are: check the fees – many investment portfolios come with charges, but some are higher than others, so make sure you know what these are and shop around, as high fees can eat into your investment.

As a DIY investor it’s also important to only invest in something you understand. Also, don’t be fooled into ‘get rich quick’ schemes – they could leave you in a lot of trouble.

Finally, don’t go investing if you want to access your money in a year or three years time.

Investing is worthwhile if you can invest for a minimum of five years, but ideally 10 years.

This is great if you have young children – put their money into investments now and it could be worth a fair bit when they are age 18.

Richard, 43, Resides SE; married, two children

 

HOW LONG HAVE YOU BEEN A DIY INVESTOR?

Twenty plus years(15 years as an online share trader)

WHAT TYPE OF INVESTOR ARE YOU?

Mostly long term buy and hold on decently yielding stocks (most of my investments are via my SIPP), I would say that I have become a
more cautious investor, but I am still prepared to take reasonable risks.

In the last few years I have looked to get a far better balance to my portfolio, so not just straight equities, but also Exchange Traded Funds (ETF) and Exchange Traded Commodities (ETC) and
bonds.

In particular, I have looked to invest in new issues of retail bonds, with yields between 5 and 6% typically and found it easy to do so (at nil commission) via my broker, Selftrade.

I tend to pick up information on retail bonds via Selftrade, the LSE website and also Retail Bond Expert (www.retailbondexpert.com)

Similarly, ETFs/ETCs are simple to trade online and provide greater diversity and balance in my portfolio.

Over the years I have purchased various ETFs/ETCs including tracking of a basket of Australian stocks, index trackers of the FTSE250 (which I still do via a monthly regular investment), DJIA and Nikkei.

I have also invested in ETCs for Gold, a combination of Gold/Silver/Platinum, Copper and even Water Companies.

WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT?

Good yield, sound investment with (hopefully) a potential of decent capital uplift.

I will generally not look outside the FTSE 350 for equities with my SIPP, but do occasionally invest in AIM listed stocks in my ISA.

Within my SIPP, my employer pays in a set amount each month and I have eight regular investments that, after 4 or 5 years, are now a significant value and pay a good dividend.

ISA OR PENSION?

Both, as the ISA will allow instant access in case of that ‘rainy day’ and recent changes in ISA rules (allowing bonds with less than 5 years to maturity, allowing AIM listed stocks and an increase in the annual subscription to £15000) make it a better vehicle to invest in.

As with most investments, I think it is important to have a spread of products/risk etc. 

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?

Equities have generally figured in my highs and lows: Marconi, RBS (all FTSE100 that had a massive fall from grace) as well as a couple of stupid AIM plays.

I console myself with the bad decisions hoping that I have learnt my lesson and will make a better decision in the future (which I believe I generally do).

Some of my better investments include ITV and the original Orange listing.

WHAT ADVICE WOULD YOU GIVE TO SOMEONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME?

Have a balanced portfolio which includes a combination of equities, bonds and ETFs/ETCs and be very clear on your goals (i.e. retire at 55, save for school fees etc.), concentrate on keeping your costs to a minimum and don’t be too greedy!

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