The Sunday Times May 1, 2022 13
depending on the Retail Price Index plus
up to 3 per cent. University fees are
capped at £9,250 a year.
Rising interest rates do not affect
repayments, however, because they are
set at 9 per cent of any salary earned over
the £27,295. But it will mean that your
debt grows faster.
Loans are written off if not cleared
after 30 years and only 25 per cent of
graduates pay back their loan — which is
why changes are afoot.
Those enrolling at university from
2023 will have to start paying their loans
back when they earn £25,000 and the
loans will only be written off after 40
years. The IFS predicts that this will mean
70 per cent of graduates pay back the full
amount that they owe.
Hursit, now 22, is living in her family
home in Redbridge, east London, and has
just started a social media job with a PR
agency. She earns £19,000, which will
increase to £23,000 once she passes her
three-month probation. “I’m thankfulOxbury have a more
manageable minimum
deposit of £1,000 and Atom’s
is £50.
Rates are rising because
the Bank of England has
increased its base rate three
times in the past four months,
from 0.1 per cent in
December to 0.75 per cent
today.
The base rate is expected
to continue rising as the
Bank’s monetary policy
committee tries to combat
rising inflation. It is expected
to reach 2.25 per cent by the
end of the year and 3 per cent
in 2023, according to the
financial research firm
Capital Economics.
The smaller banks and
building societies are offering
the best rates as they strive to
stand out in an ever more
crowded market. The bigger
banks, with their large pools
of existing customers , have
no need to tempt us to
deposit our cash with them,
so their rates continue to
languish behind.that my family lives in London because of
the job opportunities, and realistically,
I’m going to be living at home for a very
long time.
“I started saving last month and I’m
aiming to put away half of my salary —
more if I can. That’s about £600 a
month.”Banking on Mum and Dad
Many graduates have found themselves
back in the family home. Unless you can
afford to give your children a substantial
cash handout then allowing them to
move back in is the best way to protect
them from rising food and energy costs.
Parents may also want to consider
handing down some inheritance early —
you can give away up to £3,000 a year
without any fears of an inheritance tax
(IHT) bill and anything you give away
seven or more years before you die is also
IHT-free.
Anyone who thinks their child will go
to university could take advantage of theU Marcus McCabe
had his graduation
online. He took
an impromptu gap
year when he
couldn’t find a jobX Hanife Hursit
applied for 90
jobs in 9 months
without successUkraine. Higher inflation and
interest rates will be bad for
most businesses but I note
that the gross yields on NESN,
ULVR, DGE, GIVN and RKT
are 2.2 per cent, 4 per cent,
1.9 per cent, 1.7 per cent and
2.8 per cent.
Those numbers are small
but when you are investing
your life savings, it all adds
up. Also, while the main aim
of my Isa is to generate tax-
efficient income, my Sipp
strategy seeks to maximise
total returns and accepting
lower initial yields can
sometimes lead to higher
capital growth.
Here and now, it’s been a
bad week for the ”forever
fund” with a capital loss so
large that I have avoided
mentioning it to Sue, my wife.
No wonder she doesn’t trust
stock markets or their
denizens. But, because I
know that some of you enjoy
this sort of thing, I will ’fess
up to suffering a five-figure
reduction in the fund’s paper
value — although, as I haven’t
sold anything, I haven’t
turned it into a real loss.
More positively, I
continue to believe that
stock market shocks are
when investors really earn
our returns in excess of the
pitiful interest on risk-free
savings. Diversification and
dividends diminish the pain
of falling prices and pay meto be patient.
You don’t get that kind of
comfort from bitcoin or the
sort of stocks favoured by day
traders. However, nobody
knows what will happen to
share prices next, so I
wouldn’t want to get my
head bitten off for celebrating
too soon — unlike the
early worm with which this
column began.Up with the trends
Nothing looks as out of date
as yesterday’s fashion, and
this applies to financial
markets, just as much as
clothes or music. It’s bad
enough being the last man in
the room who still wears
braces and believes Rod
Stewart never really
recovered from leaving the
Faces (can it really be 50
years since they released Stay
with Me?).
But it’s much worse if your
pension is still kicking around
in the equivalent of flares and
a kaftan. Money markets
move quicker than the rag
trade, as the dramatic decline
in many technology shares
demonstrates.
For example, last summer
just five tech stocks
accounted for a fifth of the
entire stock market value of
the Standard & Poor’s 500
index, a broad measure of the
biggest economy in the
world. These so-called Faang
stocks were Facebook, now
known as Meta Platforms
(FB); Apple (AAPL); Amazon
(AMZN) Netflix (NFLX); and
Google, now called Alphabet
(GOOGL).
Low inflation and interest
rates made it easy to believe
growth stories about
businesses that paid low or
no dividends and buy into
these “jam tomorrow”
shares. What a long time ago
that seems now.
Netflix has lost two thirds
of its value since the start of
this year and Facebook’s
share price halved before
staging a partial recovery at
the end of Awful April. Folk
who used to mock me for
banging on about dividends
seem to have fallen silent.
Meanwhile, Apple remains
exceptional, reporting higher
sales and profits on Thursday,
enabling it to buy back $90
billion of shares and raise its
dividend. The most valuable
constituent of my “forever
fund” saw its shares trade at
$161 on Friday, more than six
times what I originally paid.
Fashion is ephemeral but
quality is eternal.67%
The fall in Netflix’s
share price since
January 1investment trust Tufton
Oceanic Assets (SHIP), sails
on serenely at precisely the
same price I paid most
recently and 12 per cent
higher than when I originally
invested last August. BHP is
yielding 10.1 per cent, while
SHIP’s dividends equal 5.75
per cent of its share price.
It is important to be aware
that dividends are not
guaranteed and can be cut or
cancelled without notice. Nor
is there anything theoretical
about that: most of Britain’s
biggest companies slashed
FTSE 100 shareholders’
income when the Covid crisis
began, although, as if to
demonstrate the importance
of diversification, only a
minority of investment
trusts did.
On a brighter note, even on
Manic Monday some of the
shares in my Sipp portfolio
actually went up. These
included the world’s biggest
food company, Nestlé
(NESN); the Magnum ice
cream and Marmite maker,
Unilever (ULVR); the brewer
and distiller Diageo (DGE);
the flavours and fragrance-
maker Givaudan (GIVN); and
the consumer brand giant,
Reckitt Benckiser (RKT).
What they all have in
common is that they sell
goods and services that
people are willing to pay for,
whatever happens in China or10.1%
The dividend yield
on BHP Holdings,
the world’s biggest
mining companyI
t’s the early worm that
gets eaten. Investing my
Isa allowance at the
start of the tax year —
rather than at the end,
as most folk do — wasn’t
looking too clever on
“Manic Monday”, when
global stock markets
slumped.
A toxic cocktail of fears
about Covid making a
comeback in China, higher
inflation and interest rates
closer to home, plus the
tragedy of war in Ukraine,
sent share prices lower
around the world. So this
looks like a good week for
those of you who enjoy this
DIY investor’s failure more
than my success, those of you
who would much rather
watch me fall off the wire
than wobble safely to the
other side.
Now here’s the funny
thing; I am not too bothered
— yet. At the risk of sounding
like someone who is cruising
for a bruising, I would say
that share prices are only part
of the return from stock
markets, and maybe not even
the most important part. The
explanation is that I am not
investing for next week, next
month or even next year.
So, while I am sad to see
that last month’s Isa
investment is currently worth
less than I paid for it, that
doesn’t matter much to me.
The purpose of my “forever
fund” is to pay for an
enjoyable retirement and, at
the time of writing, it remains
on course to do so.
Rather than run around
with my hair on fire about a
few percentage points falling
off the Isa’s capital value, I
cheered myself up by
considering its income
history. This shows that I
have received eight dividends
since the start of this year,
with an average total monthly
cash value in low four figures.
I wouldn’t want to live on
that but, as there is no further
tax to pay on income from an
Isa, I think I could, if I had to.
Better still, my self-invested
personal pension (Sipp) is
worth six times more than my
Isa and is generating twice as
much monthly income,
although any withdrawals are
subject to tax.
It’s early days yet, but
holding a wide variety of
shares means that the current
crisis hasn’t hurt too much so
far; with there being winners
as well as losers. Take my two
Isa top-ups for 2022. One, the
world’s biggest miner BHP
Group (stock market ticker:
BHP), fell 13 per cent before
recovering to £27.25 on
Friday, ending the week 7 per
cent below what I paid a
fortnight ago. Ouch!
However, the other
existing Isa holding I topped
up this spring, the cargo fleetIan Cowie Personal Account
I took a beating on
Manic Monday, but
I’m not panicking
tax benefits of a Junior Isa, which allows
you to save up to £9,000 a year on behalf
of a child in cash or stock and shares.
Friends and grandparents can also con-
tribute and the account management can
be handed over to the child when they
turn 16, although they cannot withdraw
money until they turn 18.
You can also help a child on to the
property ladder through loans such as
the joint borrower sole proprietor ( JBSP)
mortgages, where you act as a guarantor
and help with payments but won’t be
named on the deeds of the house, so you
will not have to pay stamp duty sur-
charge. You can also act as a mortgage
guarantor, where the bank can come to
you if your child defaults on payments.No room for emergencies
Laura Suter at the investment platform AJ
Bell said that graduates should aim to
save an emergency fund as soon as they
can, to cover “essential expenses. It
doesn’t need to be three to six months of
your income. Start with three months of
costs and figure out how long that will
take you to save. A fund of £4,500 would
take three years to build up, saving £125 a
month. Work out what’s realistic and
don’t set your goal too high — it’s demoti-
vating if you can’t reach it.”
Consider taking out a Lifetime Isa
because you will get a 25 per cent bonus
on your savings of up to £1,000 a year. If
you use the money for anything other
than a deposit on a first home or after the
age of 60, however, you will have to a pay
a penalty that will wipe out the bonus.
All new workers aged 22 and over and
earning more than £10,000 are automati-
cally enrolled into a pension where 5 per
cent of your pay is deducted. Suter
advises against opting out of this because
it comes with an additional 3 per cent
contribution from the employer.
She said: “You’re effectively getting a
free 3 per cent pay rise from your
employer by opting in, and the benefit of
tax relief means that your contribution
won’t actually cost as much as you think.”
Some employers will match higher
contributions, so it is worth finding out if
it is worth your while to pay in more.
Someone on a salary of £25,000 a year
who stopped their auto-enrolment would
have £4,000 less in their pension after
two years. Over 40 years that £4,000
would have grown to almost £19,000,
assuming 4 per cent growth a year.
McCabe is now back with his parents in
Sussex, working for Fethr, a start-up app
for making friends. He describes his sal-
ary as “entry level” — he hasn’t had to
start paying off his student loan yet
because he doesn’t earn enough. He pays
a modest rent to his parents and saves
£400 to £500 a month in the hope that he
will one day be able to move to London.
He said: “I’d love to buy a house one
day, but that is on the distant horizon. I
just can’t afford the cost of living.”For the biggest
savings rates look to
the smallest names
Savers with £50,000 to spare
can now get the highest rate
in three years on a one-year
bond.
Flagstone Investment
Management, a cash savings
platform, has a deal with
Allica Bank that will pay
2.1 per cent if you tie up your
money for a year. However,
you can only access the
Flagstone platform if you
have £50,000 to save.
A year ago, the best
one-year fixed bond rate was
0.63 per cent. The best buy
has not been at 2.1 per cent
since February 2019.
Several other smaller
banks and building societies
are also offering bonds with
rates over 2 per cent, though.
The Raisin savings
platform pays 2.06 per cent
on its one-year bond (via
Paragon Bank), and Kent
Reliance, Atom and Oxbury,
a bank for farmers, all pay
2.05 per cent.
Raisin, Kent Reliance andDavid BrenchleyHow to take advantage of the falling yen
The yen, long viewed as a
safe-haven currency in times
of political and economic
turbulence, may be having its
reputation dented. Despite a
war raging in Ukraine, the
yen hit a 20-year low against
the US dollar last week.
On Thursday one dollar
bought 131 yen, up from 127
on Tuesday and about 121.4
a month ago. The yen has
fallen 13 per cent since the
war in Ukraine began, and
more than 20 per cent over
the past 12 months. The fall
is due to the difference
between the yields on
Japanese government bonds
and those of other countries.
The Bank of Japan has
limited the return on its
10-year government bond
to 0.25 per cent. The US
Treasury’s equivalent yield
is 2.82 per cent.What does this
mean for investors?
It’s typically large institutionsDavid Brenchley that shelter in the safety of
the yen, but private investors
hold Japanese companies
whose share prices tend to do
well as the yen falls.
There are two reasons for
this. First, when the currency
falls, shares in Japan’s
business may be perceived as
better value, boosting the
stock market. Second,
Japan’s largest firms are
multinationals that earn
profits in foreign currencies
that will buy more when
converted as the yen falls.
Between September 2012
and June 2015 the yen fell
60 per cent, while the Nikkei
225 index of large Japanese
companies rose 120 per cent.
Japan is a net importer of
energy, so high oil prices are
hitting the world’s third
largest economy hard. Also its
population is ageing rapidly,
so it has a shortage of young
and mobile workers.
This can present
investment opportunities:
some are looking to Japanese
healthcare companies, forbanks Mitsubishi UFJ and
Sumitomo Mitsui.
Smaller companies have
the potential to offer better
growth over longer periods,
but most Japanese small
company funds have seen
big share price falls.
One that has bucked this
trend is the AVI Japan
Opportunity Trust, which
invests in companies with lots
of cash or surplus businesses
they can sell and turn into
cash, which can then be
returned to shareholders as
dividends or share buybacks.
The trust’s share price has
fallen just 3 per cent over
12 months. It has a 1.56 per
cent fee.
T Rowe Price, the
American fund house, thinks
Japanese stocks could be one
of the best-performing asset
classes, forecasting annual
returns of about 7 per cent
for the next five years. It said
that Japan’s long-lasting
underperformance has left
valuations looking “more
and more tempting”.example. Another positive
has been the economic
reforms made by Shinzo Abe
when he was prime minister.
Companies listed on Japan’s
main stock market are now
paying higher dividends and
doing more share buybacks
(when a company buys its
own shares, which helps to
boost its share price) than
ever before.
Less positively Japan has
struggled with deflation for
decades, causing wages to
stall and curbing consumer
spending, which has had
knock-on effects on
manufacturing and
ecommerce. Its stock market
is often seen as “old world” —
dominated by banks andcarmakers — lacking the
dynamism of the US stock
market.How much should
I invest in Japan?
Japan may be the world’s
third largest economy, but its
companies make up just
5.5 per cent of global equity.
This should be your starting
point for how much of your
portfolio to invest.
Lower-risk investors may
wish to have slightly less, but
Emma Wall from the
investment platform
Hargreaves Lansdown
suggested that up to 10 per
cent could be appropriate for
more aggressive investors.
The easiest and cheapest
way to invest in Japan is
through a fund that passively
tracks the share prices of
Japanese companies.
Josef Licsauer from
Hargreaves Lansdown
suggested the iShares Japan
Equity Index Fund, which
counts the electronics firm
Sony and the automationcompany Keyence as top
holdings.
For an actively managed
fund, Licsauer suggested
the Man GLG Japan
CoreAlpha Equity fund,
which invests in companies
with cheap valuations, such
as the carmakers Toyota and
Honda.
Licsauer and Darius
McDermott from Chelsea
Financial Services both like
the FSSA Japan Focus Fund,
which looks to own faster-
growing firms such as the
human resources firm Recruit
and the chipmaker Tokyo
Electron.
McDermott also suggested
the AXA Framlington Japan
(which has a 0.84 per cent
fee), Baillie Gifford
Japanese and Comgest
Growth Japan funds. For
investors seeking income,
Philip Matthews from Wise
Funds, the investment
manager, suggested CC Japan
Income & Growth Trust,
which yields 3.3 per cent. Its
biggest holdings are the