My name’s Harriet. Thanks for the UK-focused personal finance podcast. I feel slightly worried that I don’t have a will because of the covid-19 pandemic. I have children and some assets and I want to go about getting a will in place in the right way, please tell me what I need to think about so I get my will done correctly from the get-go.
Thanks a mil.
When covid-19 hit, I started getting quite a few questions on wills and as luck would have it, I got a brochure through my door from Julia Fleetwood of the Will Writing Partnership so I invited her to the podcast. In our discussion, we covered the following questions:
My key takeaway from the discussion were:
If you would like to get in touch with Julia to learn more about wills, estate planning and getting your affairs in order, these are her details:
Phone: 0121 472 0644
m.me/Juliathewillwriter (Facebook messenger)
I learnt a lot from Julia, I hope you did too.
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
Happy new year!
I’m a big fan of yours and have been following you for a while. I bought all your three books.
I would like to open a stocks and shares ISA for myself and two children aged 16 & 14 but I don’t know where to start due to fear of risk. I want to invest 15% of my income in stocks and also considering real estate.
I have seen some recommendations like Vanguard or Hargreaves Lansdowne but I’m clueless on what to go for. I am a nurse and the only debt I have is a repayment mortgage. I just finished paying off credit card debt.
I saw your post on Malawi Queens.
My name’s Angela by the way.
Angela – congratulations on getting rid of all your credit card debt, you must be super proud of yourself.
And a massive thank you for supporting me by buying my books. Book sales are helping to pay for the production of “The Money Spot” podcast so I don’t take your purchase for granted – it’s really appreciated.
Stocks and shares ISA
When it comes to investing in stocks and shares ISAs, target a minimum investment period of 5 years and ideally your should invest for much longer than that.
Is the money that you want to save for your children for university or for something else?
I will assume it’s to contribute towards the cost of university. One important thing that you need to keep in mind is that although tuition fees are given to students as long as they apply for them, the maintenance loan is assessed according to household wealth; basically, children that come from wealthier households are eligible for a smaller maintenance allowance. Only children from households with a total income of less than £25,000 qualify for the full maintenance loan.
In addition, students that live at home get a smaller maintenance allowance and those that attend universities outside of London qualify for a lower maintenance loan.
In my opinion, the less debt children can get themselves into by the time they graduate, the more disposable income they’ll have when they land their first jobs and the faster they can save for a deposit on a mortgage.
If you want to read a little more about what you might need to contribute towards university costs, have a look at the moneysavingexpert.com website. The site has a ready-made calculator that will tell you exactly how much you need to save for each child to contribute towards university. Or, for parents that don’t want to contribute then it’s how much their children will need to earn from a uni job to fill the gap.
The calculator will also tell you exactly how much you need to save every month from now to make sure you have enough by the time your child starts university.
Child aged 16
For your 16 year old, saving into a stocks and shares ISA is too risky because university is just around the corner – the stock market generally doesn’t offer good returns for periods of less than 5 years.
The safest option for the 16 year old is probably to save into a high interest account, this might not be a cash ISA so shop around. The best rate you will find at the moment is between 1.45% to 1.65%.
Child aged 14
As you could put money away for five years for your 14 year old, a stocks and shares ISA makes sense here. Again, use the calculator on money saving expert for an idea of how much you will need to contribute each month if you don’t want your children to have to work through university.
For your own ISA, you have a limit of £20,000 per year. If you prefer, you can save all the money into your own ISA rather than into junior ISAs so that you have more control over it.
Money saved into a Junior ISA is legally belongs to the child named on the account when they turn 18 and you would have no control over how they choose to spend it.
Before I tackle where you should save I will say that you have every right to fear taking risk with your money, you’ve worked hard to earn it so you should rightfully want to preserve what you have earned.
The safest path if you are investing in shares is to avoid single stocks and to invest in diversified index funds. There are two main types of fund to choose between, actively managed funds and passively managed funds.
Passively managed funds track a whole market such as the S&P500 for the USA or the FTSE100 for the UK; alternatively, instead of tracking the whole market in a given country you can choose to invest in a specific sector such as utilities or technology or retail.
Actively managed funds have a an actual person choosing what shares will outperform the market and investing exclusively in those. The objective of an active manager is to beat the index, while the objective of a passive fund is to match the return on an index.
Now, you would think the funds managed by clever fund managers are the ones to go for, right? Wrong! History suggests that over 95% of the time fund managers do not beat the index. Not only that, fees on actively managed funds are higher. The cheapest are about 0.5% nowadays and the most expensive charge in the region of 2%. Many passive funds now charge less 0.2% or what industry professionals call 20 basis points or bps.
How can you improve your risk appetite?
Improve your understanding of how stock markets work. I would recommend two investment books, if you can, get the audio versions:
Charlie Munger: The Complete Investor by Tren Griffin and
Common Sense Investing By John Bogle (the inventor of passive investing)
Which platform should you use for investing?
I personally use iWeb for share dealing because they are the cheapest but I wouldn’t recommend iWeb for most people because you can’t automate your investing. That said, iWeb have good fund centre that helps you sort through the different indices and allows you to order them in different ways, for example, you can sort funds or shares from those with the lowest fees or starting from those that are enjoying the highest return down, you can also exclusively analyse the different sectors that you might want to invest in – technology is enjoying pretty good returns at the moment but I don’t put too much into tech because it’s volatile it goes up fast and can also come down fast.
Even if you ultimately choose to invest using a different platform you might want to use iWeb for stock selection if their analysis tools are better than where you end up.
iWeb’s fund centre is actually easier for discovery than HL – HL seem to have a vested interest in people selecting actively managed funds so those show up more prominently on their site. They don’t seem, for example, to have a tool that allows you to just look at absolutely every fund they offer ordered by fees. If I just haven’t found this function, someone please help a sister out and send me the link.
So, what platform should you use?
The two options you have suggested (HL and vanguard) are very different.
The likes of Vanguard only offer their own funds. This isn’t a bad thing necessarily but it would mean you need to be sure you won’t want to invest any other fund manager’s products and that is a hard position for a beginner to take.
The likes of Hargreaves Lansdown offer you access to a large universe of fund managers. HL don’t create funds, they are essentially a supermarket for other fund managers. It’s the difference between shopping at Aldi and Sainsbury’s. If you want choice, you go to Sainsbury’s; if you’re not too bothered about choice and want to save money, you go to Aldi, but you’re mostly only going to find Aldi’s own-brand products at Aldi – this is not a perfect analogy but it’s not a bad one.
Vanguard’s passively managed index funds are known for being very cost effective but they’re platform charges are not the cheapest. At least not in the UK.
The likes of Fidelity have a hybrid model: they offer their own funds and other fund managers’ products BUT if you use their tools for selecting funds, which I did to write this piece, the resulting suggestion is one of their own funds.
The biggest driver for where you invest should be fees, customer service and ease of use of the platform.
Platform fees are the fees you get charged for using a given platform.
HL 0.45% (if less than £250k and 0 if > £2m)
Either way, if you have less than £50,000 invested the differences in fees aren’t that dramatic but as you start approaching £250,000 in investments you will feel the difference. Once you have £250k invested, and trust me you will get there, on iWeb you would be paying £60/year (if you trade once a month) and on HL you would be paying £1,125 for the same assets invested.
Little tip, because I invest for both my husband and I, instead of splitting monthly investments in half, so half goes to his account and half to me, each month I do one trade for either me or for him so that the net result is that we do 6 trades each. This saves £60 in dealing costs every year. Obviously I could save even more by doing one trade a year but as our incomes are paid monthly it’s better to invest monthly rather than just keep the money in a savings account for one trade at the end of the year. I’d lose all the gains I make within the year.
Transaction fees are the fees you pay for buying an investment product – these can be a fixed sum or a percentage. Some platforms will have one charge for buying and selling shares and another for funds.
Vanguard depends on the product – 0.02% to close to 2%
HL 0 for funds, £12/share falling to £6 a share for 20 trades +
Halifax £12.50/share or £2/month for scheduled investment
Fidelity £10/share or £1.50/month for scheduled investment
Because Fidelity’s platform fees are cheaper than HL, I am tempted to recommend them but I think you should make the decision. Why don’t you spend an hour a day on each of the following three site: HL, Fidelity and Halifax. Download their apps and see what you think of them. If by the end of that analysis you’re not sure then I will suggest you use HL as a beginner and as you figure out how things work move platforms, it’s very easy to do that.
Also, it’s worth mentioning that I pulled a couple of funds that I invest in on Fidelity and you pay more for them via Fidelity because HL negotiates discounts with actively managed funds due to the volume of business they direct their way.
NOW – I have spoken a lot about investing as I felt that that’s what you wanted me to focus on but I think this discussion would not be complete without me saying that, ultimately, if the stock market scares you, then you can go the property route.
There are many strategies you can follow with property. You can rent to families, or students or even another subset of people. One of my friends specialises in letting property to truck drivers. Letting to students or a migrant group like truck drivers has high turnover which means you need a lot of time to manage the property. And if you went down the AirBnB route that’s like managing a hotel because you have to think about changing sheets and cleaning literally week-on-week – as involving as it sounds, I have a friend who has a full time job as a professor and has also grown a good property portfolio on the side with a mix of AirBnB and family lets.
The key is to start with your first property.
Have you heard of the 3 for 1 property strategy?
With this strategy you set a goal of investing in 3 buy to let properties and you work to have all mortgages paid off by the time you retire.
This would mean that you live in one fully paid off house and you would live off the rent of the three properties – this reduces the risk somewhat. For each buy-to-let property you would target a given amount of rental earnings that you can choose yourself . For example if each property earned £800 per month, then you would retire on £2,400 / month. This would be linked to inflation because as prices rise, rents also tend to rise and sometimes rental increases rise far faster [example].
If this feels safer for you and you have at least 20 years until retirement then think about either just going for the 3 for 1 property strategy with a good lump-sum saved in a savings account for emergencies might feel less risky OR follow a combination of investing small amount in the stock market with property as your security blanket.
Massively enjoyed answering this question, Angela, especially from a fellow Malawian. It’s nice to know other people are investing and getting wealth focused.
Let’s summarise what you need to do:
I hope this helps!
Have a money question for me?
Once you have decided on an investment strategy for yourself or for your children you need to decide where to invest and what to invest in.
WHICH PLATFORM TO USE FOR INVESTING
Choose a platform that has the lowest fees for the highest convenience. Fees change over time but when I was deciding on a platform I found these articles:
In the end, I chose iWeb for myself and Hargreaves Lansdown for the children’s investments.
I chose iWeb because annual fees are zero (after a £25 account opening fee) and you only pay £5 per transaction.
As I only transact once a month (on pay day), our annual household fees are £60 and if you consider that I only transact on either my account or my husband’s account in any given month, then we are only paying £30/year per account. More than fair.
The main problem with iWeb is that they don’t do junior ISA and you can’t automate investing. I don’t mind manually investing for my and my husband’s ISAs because we invest different amounts in different funds each month.
Why Hargreaves Lansdown?
They do junior ISAs, they have a good app and you can fully automate all your investing – their customer service is also pretty good; if you call you will get through to a human pretty quickly.
Ultimately, I don’t expect the children’s ISAs or pensions to have a value greater than £100,000 before they’re adults so a platform with a percentage fee will tend to be cheaper than one with a fixed fee.
When they’re older I’ll advise them to move to a cheaper platform.
Which platform will work best for you?
Unless you’re an investment buff that actually enjoys making monthly investment decisions, I recommend you choose a platform that allows automation, possibly Halifax share dealing or Cavendish; one of my friends recommends Fidelity.
For children, transact within a junior ISA. For yourself or partner, an adult ISA. If you can invest more than the annual limit then use the ISAs first before transacting via a taxable account.
WHAT SHOULD YOU INVEST IN?
Unless you have a lot of time to research different companies, I would only invest in low-cost (passive), well-diversified mutual funds such as an S&P500 tracker or a FTSE100 tracker. Passive means the fund is not actively managed, it just follows the stock market so your return is essentially the average market return.
Research suggests that actively managed funds (ones where a ‘clever’ manager stock picks) generally underperform the market in the long-run.
My long-run strategy is to have 70-80% of my money in (safe) passive funds and 20-30% in actively managed funds. ETFs? I don’t do ETFs – I think funds make more sense.
Over to you.
Have a question?
If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.
I just had my first baby. I'm 31 and married. Do you have any tips for how I can think about saving and investing for my baby?
This is an awesome time to be asking me this question. I also started planning for my first baby as soon as he was born.
You will be at an advantage if you start saving and investing for your children as soon as they are born. You will need to balance what you can afford with what you want to achieve for them. Firstly, what’s the goal? What are you saving for?
University costs c.£60,000 in tuition and living costs for a 3 year course at the moment - £10,000 for tuition and books, £10,000 for living – living costs can be higher or lower depending on whether you live at home, etc..
£60,000 is a huge amount of money and this cost is likely to rise in the future but it makes the maths too complicated to think about possible cost increases.
Option 1 for university savings
If you can save £20,000 in a tax-free account like a stocks and shares ISA by the time your child is 5 years old, then you can stop putting money aside and this money will have a reasonable chance of growing to £60,000 by the time your child is 18 years old.
How could you save this £4,000 per year? Perhaps you could target saving a round amount like £250 per month (equivalent to just over £30/week each for a two-income family) and because this sums to £3,000 a year, at the end of the financial year you’d hustle to throw that extra £1,000 into the ISA before the financial year closes on 5 April. Or, if you can afford it, you could just save £335/month and you would save just over £4,000/year.
Option 2 for university savings
£4,000 is likely more than most can afford. The alternative is to save £100/month until age 18 which most people can afford even on the median household disposable income of £29,400 (2019). It’s equivalent to about £12.50/week each for a two-income family).
Which option is better?
I would say option 1 trumps option 2 because you give the money the best chance of growing. Equity markets are volatile in the short-run so by saving the money early you give the money a better chance of reaching your goal. That said, something is a lot better than nothing: small savings add up to large amounts over time. Your savings may be lower than you would like to target but you will still help your children avoid the full scourge of student debt.
These are the results under each option:
Caveats on saving through a Junior ISA:
When you save the money through a Junior ISA, that money will be theirs when they hit 18 and you might not be able to control how they spend it.
However, putting it into the Junior ISA means you won’t be tempted to spend it yourself because once the money goes in, it can’t be withdrawn until your child is 18.
How can you avoid the Junior ISA so you have more control over the money?
Plan b. is a good option because you could end up not having to pay tax anyway:
The capital gains tax allowance in 2019-20 is £12,000. That is, you have to make a capital gain (the profit on your investment) bigger than this to pay the tax. If you save the £4,000 across two investment accounts - £2,000 in an investment account with your name and £2,000 in an investment account with your spouse’s name then when your child is 18 you can sell enough stock each year to keep the capital gain below the capital gains tax allowance.
The risk however is that this threshold could fall or be completely removed in which case you would end up paying more capital gains tax on the sale. It’s still a sensible option, despite this risk.
If you followed option 1 for university savings, at age 5 you’ll have stopped doing that and might find that you have some spare money to open a retirement account.
Your children will not have access to this money until they are 57 to 60 but if life hasn’t worked this will be a great cushion for them.
The beauty of investing in a retirement account is that for every £1 you put in the government puts in an extra 100/80. That is, if you want to save £100/month you only need to put £80 into the account. If you do invest £100 it will be £125/month with the government top up. For kids you can put a maximum of £2,880/year (£240/month) which equals £3,600/year.
This is the result if you choose to save £100/month indefinitely into your child’s Self-Invested Pension Plan or SIPP starting from when they are 5-years old:
You notice that the extra £25 from the government makes a real difference. By saving through the pension, based on a 7% return, on 7-Jan-2025 the investments are worth £9,269 rather than only £7,444 without the government top-up.
Don’t save into a child’s retirement account unless you have the cash flow and are meeting your own goals, e.g. paying enough into your own retirement, paying off your mortgage early and ideally, are debt free yourself (apart from the mortgage).
Some will be able to afford the full £240/month from birth, the rest of us have to work out what is realistic, that is why I personally opted for the £100/month from age 5. This decision will change with a change in your fortunes.
3. HELPING YOUR KIDS BUY A HOME
This is where the decisions get a little tricky. Some people will be able to afford funding university, helping their children get ahead with retirement savings and help with a deposit on a home without compromising their lifestyle at all but the rest of us need to make choices.
Private school vs. saving for a home
What will make the biggest difference to your children: a private education or getting onto the property ladder?
If you can afford one or the other but not both, then you might follow the route of private primary school followed by state secondary school (grammar/comprehensive). In this case you’d direct all the money you would have spent on a private secondary school education on saving for a home. In some cases this might mean your child starts life with a mortgage free home.
If you save £15,000/year (£1,250/month) from age 11 until age 21 (10 years of saving) and it grows at an average rate of 7%, how much money would your child have at 21? About £220,00 – increasing to £260,000 if the average return over that period is 10%.
This is not small money to most of us.
You could use every last cent on a private education when at the end of the day the thing that helps your child follow a life of fulfilment is being relatively debt free.
If you decide to go for a state education throughout and save £1,000/month (£12,000/year) from age 5 (when you are done with university saving) until age 21 (16 years of saving) and it grows at an average rate of 7%, how much money would your child have at 21? About £355,000 – increasing to £475,000 if the average return over that period is 10%, wow. Forget the children, you could be doing this for yourself!
If you have already made the decision to send your children to a private primary school and they are thriving, you are unlikely to reverse that decision. If I you are seeing these numbers before making a decision, you might well make a very different decision…
Not thinking about private education, anyway?
If private school is not a consideration for you, then the best choice might be to save as much as you can towards your own ISA allowance of £20,000/year (£40,000/year in a two parent home), in addition to whatever you save towards your pension (I recommend 10-15%) and when the time comes you can decide whether you can contribute towards university or a first home or both.
The best gift you can give your kids is possibly to be independent in old age so they don’t have to worry about taking care of you. You can boot strap them onto the property ladder by letting them live at home rent free – so that they can save more for their deposit. Even without cash gifts, you will be giving your children a competitive advantage by teaching them how to handle money at an early age.
Starting to invest
Next, you need to consider what platform to use for investing and what to investing in?
If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.
Heather on Wealth
I enjoy helping people think through their personal finances and blog about that here. Join my personal finance community at The Money Spot™.