Fergus mulls investment dilemmas

Fergus answers money questions on Reporting Scotland and online

I'm Fergus Muirhead and I'm trying to answer any money or consumer problems you may be facing at the moment.

You can contact me by e-mail at [e-mail]

I will deal with a selection of your e-mails every second Monday on lunchtime Reporting Scotland, Scotland Live and on the BBC Scotland news website.

Q. We invested our life savings in two investment bonds last spring. We were assured they were low risk and well spread. However they have now dropped about 28% in value. Our financial advisor assures us they will eventually start to recover; we don't need the money at present and accepted they would have to be invested for at least 5 years. We feel very insecure and worry as to how long they will take to even get back what we put in. What is your opinion? We are early retirees and this is very stressful. Beatrice McNeil

A. You haven't actually said which funds your money is invested in but a fall of 28% is about right for the market in the last 12 months or so. The first part of your question relates to 'risk' and it depends on what you mean when you were told that the bonds were 'low risk'.

Low risk can mean different things to different people and you should have some paperwork from your advisor confirming what analysis he or she had carried out as to your risk profile and to confirm that the funds chosen for you were suitable for the amount of risk you were prepared to take with your investment. If you feel that is not the case then you should go back to your advisor and ask him or her to confirm the reason for choosing the particular funds.

Having said that you also say that you don't need the money at the moment and so the worst thing you could do is to cash in the bonds since all you will be doing is 'crystallising' any losses. It may be better to sit things out and hope that the market recovery starts sooner rather than later.

Q. I recently retired from employment. Because of the occupational pension I receive, I am still regarded as a taxpayer. My wife is not regarded as a taxpayer because her only income is her State Pension, and her total income in a Tax Year is less than the HMRC Personal Allowance for her age-range.

We plan to move some of our savings by opening up a joint account or accounts, choosing options which will provide the best deal in these difficult times. Can you please confirm R85 procedure as it relates to our circumstances as described above?

1. In the case of a joint account am I correct to advise my wife to complete a form R85, while I do NOT complete a form R85?

2. Am I also correct in my conclusions that, in the circumstances as described, only 50% of the interest gained from the account will be subject to Income Tax? Kenneth W Galloway

A . Bank interest is taxed at source unless you complete an R85 form so in the circumstances you describe you are absolutely correct. Your wife can elect to have her interest paid with no deduction for tax since she is a non-taxpayer and in the case of the joint account, the 50% that is allocated to you will be taxable while her element will not.

Q. For the last three years I have been making AVCs into my company (HBOS) pension fund, in anticipation of retiring in a couple of years' time and taking a lump sum. The AVCs are in a cash fund, so haven't been too affected by the events of last year, and I have benefited from the tax break. The time has now come to decide whether to make a contribution for this tax year, but I am hesitating as I would hate to lose these investments. How safe are these AVCs? Andrew Mann

A. This question is really important. Far too many commentators have been talking pension down recently and telling investors that they must be losing money because they have invested in a pension. Your comment highlights the nonsense of that stance. The decision to invest in a pension is primarily a tax decision since, for higher rate taxpayers, every £1,000 invested can cost as little as £600 after tax relief. Once the money has been invested, a decision has to be made as to where it will be invested and, as you have already said, it can, in many cases, be left on deposit. This means that you will still be making money from your pension fund and you can choose to invest in a more volatile area when you think the time is right.

Q. My husband and I have around £25,000 to invest. Having spoken to a financial advisor about possible investment options he has suggested investing in a STOCKS AND SHARES ISA. Whilst we are keen to make our money work for us, we are anxious that investing in stocks and shares is a sound piece of advice in the present climate. Can you help ease our worries?

We have additional ISAs, PEPs, have no mortgage (it's paid off), have no outstanding credit card/debit card liabilities (we pay these off every month) nor any HP worries to consider. We are both still working - my husband is an Emergency NHS Consultant and I am a supply teacher - and have other sources of immediate cash should we require money at short notice. Nina Gordon

A. If you don't need the money in the short term and you have access to an emergency fund should something go wrong then I see no problem in a Stocks and Shares ISA as long as you understand that in the short term the value of your investment could fall before markets start to recover. There is no guarantee that we are at the bottom of the market at the moment and you could see a further fall before any recovery commences.

It may be that if you understand these concerns then now is a good time for you to buy into the market at near to the bottom, hopefully, and watch as the value of your investment rises over the coming years. But remember the caveat that the value of your investment can fall as well as rise!

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.