Money news, advice and predictions for savers and spenders.
By Jeremy Gates
Although evidence of genuine economic recovery remains patchy, especially in Britain, small investors are turning their backs on poor savings rates and moving back into shares.
Three new surveys all confirm that small investors have played their part in the bounce in London's FTSE-100 from 3,460 points in March to more than 5,000 now. In total, they have over £150 billion in shares, against the peak of £283b in 1999.
Virgin Money says 45% of independent financial advisors think shares now provide the best return on clients' money, against only 29% a year ago.
"Cash is the big loser as investors have started to shirk the relative safety of cash in favour of capitalising on the long but consistent curve of recovery in the stock market," says spokesman Grant Bather.
This view is confirmed by Rebecca O'Keefe, head of investment at Interactive Investor, where online trades cost £10 each.
"Trading figures have returned to levels we have not seen since the peak of the dot.com bubble in 2001," she says.
"As the FTSE hovers around 5,000, investors clearly remain confident the market will continue to perform well. August saw record UK trading on our platform, with trading again dominated by big banks and companies involved in mineral production."
More than 140,000 small investors trade with Interactive Investor, and some have seen a 70% jump in the value of their portfolios in 2009, often because they backed stricken banks.
Barclays is up seven-fold, while Royal Bank of Scotland has seen a five-fold rise.
A third survey, from Prudential, says share buying by small investors is rarely based on expert knowledge.
The Pru thinks more than 17 million small investors have held shares at some time over the past decade, and two-thirds of them (65%) bought without any professional advice.
Mostly, they rely on internet searches or media reports when selecting shares to buy. Only 16% are guided by a financial advisor, 4% consult a stockbroker, while 10% are guided by bank or building society staff.
"Not everybody is fortunate enough to have spare funds to save or invest, but many people do," says Trevor Cheal, Prudential retirement savings business director.
"It is staggering how few are seeking financial advice or looking to capitalise on the growth potential that the stock market has historically offered."
Shares, therefore, may be driven by the 'herd instinct'. What happens next is anybody's guess.
"Those who have underestimated this rate of recovery have been hurt badly," says Jeremy Smith, head of UK equities for fund manager Neptune Investment Management.
"We believe that, with continued positive momentum, the FTSE-100 can reach 5,500 in short order."
But Derek Stuart, manager of the highly-rated Artemis UK Special Situations Fund, warns that markets have moved far beyond fundamentals.
With rising oil prices, rising unemployment and the biggest decline in US consumer credit since 1944, he wonders how long the rally can last.
Talk of resurgent shares poses a big dilemma for Britain's over-50s.
From October 6, they can invest a maximum £10,200 each in equity ISAs (Individual Savings Accounts) under new limits allowed by Chancellor Alistair Darling. The new limit applies to everybody else from April 2010.
The ISA wrapper means all capital gains on shares is tax free. Dividend income is taxed at 10%. For higher-rate taxpayers, the attractions are obvious.
But if markets lose their nerve, or Britain's economy enters the widely-feared 'double-dip recession', buying shares now could soon incur hefty losses.
In these uncertain times, here are the key rules for investors to follow:
:: After London shares have risen so far so fast, the chances of further capital gains from here are inevitably reduced, in the short term at least.
With commentators predicting falls in the next 18 months, equity investment must be for a minimum five years, preferably for 10.
One of the most successful managed funds, Jupiter Financial Opportunities, has produced a total return of 815% since its launch in June 1997, a compound annual growth rate of 19.8%.
Fund manager Philip Gibbs parked a big slice of his fund in cash through last year's turmoil, so his supporters, including Mick Gilligan at brokers Killik & Co, are keen to see what he does next.
:: Older investors, closer to retirement, need the protection of a widely-diversified portfolio to ensure their income stream is not slashed by the sort of market turmoil we saw in autumn 2008.
"A portfolio should include equities, bond funds, cash and property, reflecting your own attitude to risk," says Ben Yearsley at IFA Hargreaves Lansdown.
:: Make sure any equity investment is global, because Britain faces a turbulent 18 months while other parts of the world are likely to recover more quickly.
Yearsley, for instance, likes the Neptune Balanced Growth Fund, with nearly half invested in the UK, 5% in Japan, 5% in Russia and the rest spread around countries and sectors which look interesting.
Another well-regarded fund is First State Asia Pacific Leaders, a £2.9 billion fund invested in large and mid-cap companies in Asia Pacific, excluding Japan.
:: In rockier economic times, steady income may be more important than capital growth - so look to invest in funds which invest in companies which pay good dividends.
Andy Parsons at The Share Centre, tips BlackRock UK Income Fund, where the dividend has been raised every year since its launch in 1984.
:: Look to drip-feed an investment, paying in perhaps £100 per month to a managed fund. It means that if the share price falls, you get more units - and a bigger uplift when share prices eventually recover.
"By drip-feeding funds into the market over the longer term, investors take advantage of pound cost averaging, buying in peaks and troughs but buying disproportionately more on dips," says Dr Stephen Barber, who advises Selftrade, an execution-only stockbroker.
Above all, whatever Prudential might suggest, the global economy is really too risky these days for investors to rely on rumours and online discussion boards.
They really should check the views of professionals - fund managers and financial advisors - before they commit cash. The old days of easy profits on equities may be gone for ever.
:: Information: Hargreaves Lansdown (0117 317 1690); Share Centre (01296 414 141); Killik & Co (020 7337 0520)
Keep fraudsters from your bank account
Despite official attempts to crack down, card fraud and identity theft are a growing menace because our money management is too lax, says identity theft expert Michael Lynch.
New research from his life assistance company CPP shows that one in 20 bank account holders has been a victim of ID theft when one of their accounts has been hacked into.
According to APACS, the UK's payment association, online banking fraud losses rose 132% in the past year, while GetSafeOnline reported that one in seven internet users had been a victim of identity theft.
Worryingly, the most significant rise has been in account takeover, where criminals fraudulently steal personal banking details. But simple money-management measures reduce these dangers.
For example, a third of us are still not taking time to take stock of our day-to-day banking. Some 17% admit checking their statements less than once a month. One in five checks statements less frequently, because they can't be bothered or are worried about their bank balance.
"This head-in-the-sand attitude puts people at the mercy of criminals," Lynch says.
"A lax attitude to checking statements can leave card holders exposed, particularly to Card-Not-Present fraud, where fraudsters use stolen card details to make a purchase on the internet, by phone or mail order.
"Always check bank statements carefully to be sure that fraudulent transactions are not overlooked.
"You may never actually know you are being targeted, as fraudsters are becoming more sophisticated at disguising illegal transactions using names and amounts that many of us don't notice.
"One popular technique that fraudsters use is to make small transactions to 'test the water', before going on to purchase more expensive items."
CPP research found that many people admit they can't identify an average £15 a month spent on their statements, because they couldn't recognise a trading name, can't identify a cheque number without a recipient name, or simply forget what they spent.
"These monthly unidentified transactions amount to an average £180 a year per person, which means millions of pounds of hard-earned cash could disappear into fraudsters' hands every year," says Lynch.
Around 50% of bank customers say they wouldn't bother to investigate an unusual transaction under £20. Many cardholders are equally lax.
"It's all too easy to become complacent with card security as we use credit and debit cards more and more. But it's essential to regularly, and thoroughly, check our statements to not only stay on top of our finances, but to ensure early detection of fraud," says Lynch.
Identity thieves and card fraudsters are expert at spotting an opportunity to steal an identity with a few personal details: name, date of birth, address.
Here's the CPP checklist to beat the fraudsters:
:: Monitor bank statements as frequently as possible.
:: In online transactions, make sure there is the padlock sign on the screen to guarantee the website is secure.
:: Install anti-virus and anti-phishing tools on your PC to protect private information. An active firewall should be installed.
:: Never write down PIN numbers, passwords or user names which could be seen by others.
:: Keep personal information safe. If anyone asks for personal details, ask yourself why they would need them - particularly for online enquiries.
:: Sign up to Verified By Visa and MasterCard SecureCode as it will help to prevent unauthorised online spending.
:: When making purchases, never let your debit or credit card out of your sight, even for a second.
:: After shopping trips, check receipts against statements.
:: Never let anyone else withdraw money on your behalf.
:: Never carry debit or credit cards loose in a bag or a pocket.
:: Consider an identity protection product that alerts you to any changes to your credit report.
Poundnotes
:: More than half of homebuyers with tracker mortgages (53%) have failed to take advantage of low mortgage rates to overpay each month on their home loan, says professional advice website Unbiased.co.uk - even though it could slash thousands off their interest bill.
"Overpayment would allow thousands of borrowers to take years off their mortgage repayment term, or enjoy a greater level of repayment comfort down the line, should the economy take longer to recover," says Unbiased chief executive David Elms.
Unbiased.co.uk is a UK-wide search service which matches consumers with professional financial advisors in their area.
:: That secondhand car you bought last year might have been a rather good investment. While dealers worry about the end of the Government's car scrappage scheme, the value of secondhand models is booming, says leading vehicle auction company British Car Auctions.
BCA says used car values jumped 3% in August and a staggering 30.68% year on year. Year-on-year values are £1,458 up on August 2008.
"The bounce-back by used cars from the economic downturn last year has been exceptional. Although there is a relative shortage of cars, there is still plenty of demand, and as a result prices have rallied," says BCA's Tim Naylor.
"Prices in the last few months have been completely unprecedented, going up by between 25% and 30%, and even more, depending on model."
:: Homebuyers with a 10% deposit have seen a 0.12% drop in the average mortgage rate in the past two years, although the cost of funding to lenders has fallen by 4.35%, says Michelle Slade at Moneyfacts.co.uk.
Buyers with a 10% deposit taking out a new two-year deal on a £150,000 loan will see their monthly repayment fall by only £11 from £988 to £977. Those with a 40% deposit will get a reduction of £165, from £998 to £833.
"Sub-2% rates are advertised by lenders, but we have no way of knowing how many borrowers actually qualify for these rates. Having been tempted through the door, many are likely to be offered much higher rates," says Slade.
Two years ago, fierce competition meant that 90% loan-to-value deals offered some of the best rates on the market.
:: With energy giants refusing to cut prices and possibly poised to push them up, Mark Todd, director at energyhelpline, urges consumers to look closely at new tariffs from smaller suppliers such as Ovo Energy and First Utility.
By switching suppliers, many households could still save £297 a year, reckons Todd.
:: High-five savers:
Phone No Rate Account Period Deposit Interest paid
Aldermore 01372 736700 5.40% (F) Fixed Rate Bond Five Year Bond (P) £10,000 Qly
Yorkshire BS www.ybs.c.uk 5.30% (F) eBond 31/12/14 £100 Yly
First Save www.firstsave.co.uk 3.25% 90 Day Notice 90 Days £5,000 Yly
Chelsea BS 0800 678 3885 3.10% Call Direct 120 120 Days £1 Yly
Manchester BS 0161 923 8015 3.01% Premier ISA 35 Issue 1 35 Days £1,000 Yly
:: Top-five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 1.99% discounted for two years 60% £1,199 Yes
First Direct (Rem) 0845 610 0100 3.14% variable for term 75% £699 Yes
Co-operative Bank 0800 633 5286 3.24% to 30/09/12 75% £995 Yes
ING Direct (UK) 0845 603 8888 3.29% for term 75% £595 Yes
Leek United BS 01538 380047 3.59% to 30/11/11 75% £799 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
