Making plans for drooping investments

Steve Edwards
Age: 40
Lives: in Merseyside
Occupation: Local government officer
Earns: About ?25,000
Mortgage: ?16,000
Debts: None
Investments: Deposit accounts, Tessa, Isa, unit trusts
Pensions: Preserved civil service and current local government schemes
Aims: To improve retirement income and invest securely

Steve Edwards does not like taking risks: 'I give the impression of being self-assured and confident, but I am a naturally cautious person. I studied law, and in the back of my mind is the need for evidence before making decisions.'

So watching his stock-market-linked investments lose value over the past two years has upset him: 'Looking at the paperwork, they seemed to be good at the time. I went for low- to medium-risk investments, and all had been in the top band over the years. But with the passage of time, they have slipped.'

The £7,000 he put in an Invesco Maxi Isa in September 1999 was worth £6,072 at the end of last year. His £25,490 in the Royal & Sun Alliance Portfolio unit trust had fallen to £20,416 by last August, and his Threadneedle Maxi Isa fell from £7,000 in December 2000 to £5,200 last October. 'I am too frightened to check their value today,' he says. 'Needless to say I am very disappointed. If I performed as badly in my job I am sure I would be disciplined.'

He recently closed his Egg and Abbey National deposit accounts because of low interest rates. He wants to put the money into another deposit account or a safe Isa, but is finding it difficult to make up his mind: 'My problem is that I do not know the best decision to make. I know I should use my Isa allowance this year, but where? In the long run, shares are the best thing to do, but I hope I will be given some assurance that it is sensible.'

He adds: 'Because of this risk aversion, I have allowed procrastination to become the thief of interest as well as time.'

Even his pension requires him to make a decision: 'I have nine years as preserved benefits in the principal civil service pension scheme, which I really need to arrange as a transfer value to my local authority scheme, if they will allow this.'

Looking for the facts, he asks: 'Does it make sense to get a transfer value and move it into the local authority scheme?'

He is thinking about moving house because, although he lives alone, his two-up two-down is too small for visitors to stay: 'My spare room is a junk room.'

He says he wants to do it probably this year but finds it difficult to maintain momentum: 'It is something I ought to do but whenever I see a property I like, someone else has got there before me.'

He is also thinking about buying a house to rent out: 'There are a lot of vacant properties on Merseyside.'

While losing so much money has unsettled him, he still feels comfortably well off: 'I have a simple life with no expensive tastes. Four days a week I go to the gym. I am not a victim of fashion. I have no car and Moseley is one of the lowest council tax areas in Merseyside.'

Adviser 1: Ken Stewart

Steve's various investments provide a decent spread around different global equity markets, but perhaps there is overexposure to Europe. World stock markets have been extremely volatile over the past two years and, unfortunately, Steve's purchases coincided with a decline.

Although the returns have been disappointing, he should hold equities for a minimum of five years. He should not consider selling at such a loss, but allow them more time to recover.

For future investment, Steve should think about additional voluntary contributions (AVCs) or stakeholder pensions for the significant tax benefits. He may be able to transfer his deferred civil service pension into the local government scheme without penalty under the 'transfer club' arrangement between public sector schemes, but this is a complex transaction and he needs good advice.

For this year's Isa, Steve could balance his equity portfolio and cash holdings by investing in a fixed interest-based fund, which is lower-risk than equity-based funds. He could invest in a cash or money market fund through a maxi Isa, but some people believe that the market is now low enough to buy equity-based funds.

Purchasing a property to let is risky, as money is tied up in one house. An alternative is a property fund investing directly in commercial property or property company shares. Steve should consider critical illness cover as he depends on his ability to earn.

Ken Stewart is a financial planner with Horwath Clark Whitehill Financial Services.

Adviser 2: Anna Bowes

The civil service and local government pensions are both final salary schemes, so there may be no benefit in transferring, but he should contact the local government scheme to see what it can offer.

As one of his objectives is to improve retirement income, he must review his pension contributions sooner rather than later. He can invest another 9 per cent a year through buying added years, which tends to be the more expensive option as it provides an additional guaranteed pension, or by making additional voluntary contributions (AVCs). This is a money purchase route so, on retirement, the lump sum buys an annuity to provide an income for life.

Cahoot currently offers the best rate for deposits on its internet-only account at 4.55 per cent, but leading rates rarely remain at the top for long, so he could keep his eyes open. His Nottingham building society account is competitive, so he should keep it, certainly until the bonus falls away.

He should use his Isa allowance this year. If he does not wish to put any more money into stock market-linked investments, he can use his mini cash Isa allowance.

Currently, the best variable rate is with Northern Rock, which is paying 4.80 per cent including a 0.55 per cent bonus for the first six months. Julian Hodge bank has a two-year fixed rate of 5.10 per cent.

As he is planning to move, he should keep cash in an easy access account, such as a building society.

Anna Bowes works for Bath-based Chase de Vere.

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