Investing 101 Questions – Q&A with Tom Stevenson – Fidelity [ad]

This article was sponsored by Fidelity, but all opinions are my own.

Important Information:. Please be aware that the value of investments can go down as well as up, and so you may get back less than you invest. The information in this article is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. Tax treatment depends on individual circumstances and all tax rules may change in the future. Investors should note that the views expressed may no longer be current and may have already been acted upon.

Thursday 21st May marked a first for me in the wonderful Mrs Mummypenny world. I hosted an Instagram Live with Fidelity talking investing 101, questions for current challenging and unprecedented times. The positive side of 2020 is that companies are harnessing technology in hugely different ways to reach their customers, many of whom might be you my readers and Instagram followers!

Tom Stevenson, Personal Investment Director at Fidelity, and I spent 30 minutes answering your many questions that had been sent over to me earlier in May.

It was a brilliant 30 minutes of content, funny in places (where I read out comments from live viewers!), very down to earth and relatable. We discussed everything from short-term savings through to mid-term investments and longer-term pensions. We talked risk and volatility and investing for children and JISAs.  And we talked about the future of investing and what industries to watch out for. You can watch the video here on my IGTV

Tom Stevenson really knows his stuff. I also know a lot but learnt so much from this discussion. It made for a brilliant sharing of information that I know you will want to watch, listen to, or read. We had so many questions to go through and were not able to cover everything in the live video so here is the full list of questions with answers from Tom and I for completeness.

Moving into semi-retirement

Q – I am moving into semi-retirement and want to keep my SIPP (private pension) investment safe from market turbulence. I am happy to give up gains and would forego some inflation loss. Is there anything better than cash but that’s not too risky in these uncertain times?

A – Semi-retirement is understandably a time when one is more risk averse. Traditionally one would have moved into less risky assets closer to retirement. This is not necessarily the right approach with a long retirement ahead of you.

You need to think about inflation. And need to understand the difference between risk and volatility. Volatility does not matter unless you need to access your money right now. When the market is volatile it can be a good time to remain exposed because prices may be cheaper.

But having said all of that, there are less volatile and maybe less risky assets. Cash obviously. Safer bonds (i.e. government not high yield corporate). Gold is a safe haven that is doing well at the moment. Plus, multi asset funds (spread across lots of companies and different assets like shares, bonds, cash) with balanced portfolios.

Job insecurity, investing long-term vs. savings mid-term

Q – I am on a fixed term contract until summer 2021 so am wary about investing too much on a long-term basis. What are my best options for mid-term savings?

A – There is a need to keep enough cash aside to cover short term needs. What if there is a gap between this contract and the next one? Then this person might need that money to tide them over. I would (Tom) say, have at least 6 months’ essential expenses covered before thinking about longer term investing in the stock market.

If you can tie money up for a period of say one year, then you could get a better interest rate with fixed term savings accounts.

Lynn – I recently had an emergency where I had to drain my emergency cash fund in January. I had three months stashed away and it was not enough. My only option was to borrow money from two friends to meet the gap (helpfully I was in the middle of a re-mortgage so credit was not an option). I am now of the view that six months’ expenses are what we should aim to have in an emergency fund.

How can I start investing wisely as a full-time working mum?

Q – As a busy, full time working mum with not a great deal of disposable income (because of the children) how can I start investing wisely? Especially in the current climate. We do already save into ISAs, pensions etc but want to see some returns.

A – It is great that you are managing to save into ISAs and pensions at this stage of your life. I remember this as being a very tight time financially. The best way to invest is little and often. Set up a regular savings plan, which can be from as little as £50 a month. But soon builds up. Regular savings also takes emotion out of it so that you will be able to stick at it through difficult periods in the market like this.

Lynn – I started saving £25 a month into a stocks and shares ISA when I was 22! I wrote about it here for Fidelity in a post a while back. It was fascinating to watch the money grow over time, I carried on paying in the £25 over 14 years. Although past performance is not a reflection of future performance I was happy with how my ISA grew in value with returns from the fund growing. I withdrew the money after 14 years when it was needed to part-fund a house extension.

Lynn – My goals are slightly different now and I am investing £250 a month (or more if I can afford it) into a stocks and shares ISA with the goal of providing a chunk of money for each of my boys when they reach 18. This is 6 years away for DJ, 8 years for Josh and 11 years for Jack.

Good books for beginner investors?

Q – Are there any good investing books out there for those not really in the know like me? I would really like to do more reading on it.

A – Loads of good investing books. Jim Slater’s The Zulu Principle. Lee Freeman-Shor The Art of Execution. Jason Zweig Your Money and Your Brain.

Lynn – I would also recommend Meaningful Money from Pete Matthew. I have read this one; brilliantly simple to digest. And you can hear his soothing podcast voice throughout the book! The audio version would be a great idea!

Also my book The Money Guide to Transform your life is released 1st Sept 2020. There is a whole chapter dedicated to investing. 

My investments have taken a hit, what should I do?

Q – I have been with Fidelity for years now and as it is a tracker fund then it is minimum effort as it just looks after itself. However, the value has taken a hit due to current situation. Is it worth looking at other options or just hanging in there and waiting for the market to recover and hope my investments follow suit?

A – Good to hear that you have been with Fidelity for years. Thank you. Tracker funds (or robo funds, managed by algorithms and computers) are nice and simple to understand and cheap. The disadvantage is that they track markets lower in a falling market.

Active managers who pick stocks can outperform by picking winners and avoiding losers, but also have the disadvantage of having higher fees. The best approach is to drop money in over time. That way you would have picked up units when they were cheap in March and April after the fall. Yes, hang in there and wait for recovery. History suggests that this kind of event driven bear market can be quick to recover.

Investing for children with Junior ISAs

Q – Lots of friends are asking me if they should stop investing in their kid’s equity JISA. Thoughts?

A – Investing for children is a long-term commitment. It is great that they are doing this as it provides a great foundation for them, whether university fees or house deposit etc. Historically, the best results have come to those who stick at it through the ups and downs of the markets, where long-term investing in shares has been the best home for savings. JISA is a great tax efficient way to do this, anyone can pay into a JISA too. It is good to teach children about the power of saving.

Lynn – Just beware that as soon as the little angels turn 18 that money is theirs and they can do whatever they want with it. If you want to exercise a level of control, keep it in your name. Each UK adult has a £20k annual ISA allowance – this is MORE than enough for most people!

Personally, I have done a bit of both, my two elder boys have JISAs as they got the £250 bonus from the government when they were born. I added to this, so they have a few thousand each building (mental note must move these old accounts to a lower fee platform). I have made the boys promise to split this money 3 ways when it matures when they reach 18 so Jack the youngest does not miss out. As mentioned, I also have a stocks and shares ISA in my name that is building for each boy as they turn 18-21 to help with house deposits etc.

Invest using adult allowance or children. For a risk-averse person.

Q – From a person who is risk averse what should they do now regarding investing? Are they better off investing as them (an adult) or through their children?

A – The best investment for a risk averse person, assuming they are prepared to take some risk, is diversification. Different assets, geographies and using balanced funds. Adult or children – use all your tax allowances. For yourself first. Then your children.

Is now a good time to buy shares?

A – It may be. Markets tend to bounce back from corrections, only the timing is unpredictable. The best determinant of long-term returns is the price you pay at the outset, so doing so after a fall in the market stacks the odds in your favour. Valuations are cheaper now. One must bear in mind that the earnings outlook of companies is also worse. But stock markets look forward and investors are currently looking forward to recovery.

Changing stocks and shares ISA providers

Q – Is now a good time move a stocks and shares ISA to a different provider? How long will I be out of market for? E.g. moving funds between providers?

A – You do not have to be out of the market if you transfer shares across. You do not have to sell first and repurchase. Make sure you are clear that this is what you want to do. Only problem is if the share/funds you own are not available on the new platform. This is unlikely.

Market recovery to pre-Covid levels

Q – How long do you think it will take for the markets to recover to pre-Covid levels? Do you think there will be any impact on pensions / further deficits?

A – The $64k question. Markets fell by a third but have clawed back more than half of that. Everything depends on how deep the recession is, unemployment, business failures etc. The government are suggesting they expect a V shape recovery, (as in a V shape on a graph over time). But other economy experts are suggesting more of a U shape recovery with a bit of time moving along the bottom of the U, hopefully not for too long.

History points to recovery in due course. Meanwhile there is an opportunity to top up investments at cheaper prices. There is a short-term impact on pensions, yes. But longer term should not matter. Look at corrections in the past (1987), these are now almost invisible on a chart.

S&P500 Index; 5 -year performance as of 31/05
S&P 5002015-162016-172017-182018-192019-20

Source: Fidelity and Datastream as at 25.06.2020 with income reinvested in GBP. Copyright 2020 Datastream, Inc. All rights reserved.

Impact on taxes from Covid-19

Q – How much will tax go up  once we are out of this mess and what taxes are most likely to increase (I am guessing we will all have to pay for the furloughs eventually in some way)? What other business sectors will be in the strongest positions post Covid-19? What is the expected mid/long-term impact on the housing markets?

A – This is hard to predict. There will probably be no return to austerity as there is no appetite for it. So, no spending cuts. Maybe tax rises are needed, or maybe we just accept higher government debts than we did in the past.

Some sectors do seem to be obvious beneficiaries. Technology (working from home), healthcare, online shopping, streaming services. Some are obviously suffering – retail, leisure, travel.

The housing market could take a short-term hit. Good for first time buyers. Longer-term might see less focus on mega cities. People may prefer to live in suburbs or the countryside.

Mitigation of risk within a portfolio

Q – Some industries at the moment are doing very well. I.e. Consumer electronics, PPE providers, brewers… As the pandemic passes some of these will continue to succeed whilst others will revert. Considering this, how to I mitigate my risk in building a Covid-19 portfolio?

A – Be diversified. We have no crystal ball. But some longer-term trends are clear. Lives are moving online. There is more focus on sustainability and growth of emerging market middle class); but most likely more inflation.

cash flow management strategy

Environmental impacts on the market

Q – Will oil companies bounce back or will a combination of societal/behavioural changes plus a political desire to ‘build-back-better’ limit their potential?

A – There is a big focus on ethical investing now and it’s growing hugely in popularity. Doing the right thing. Oil companies may suffer from that trend. But we will need oil for some time to come. Oil price is low so much of the bad news priced in now.

Lynn – I am considering switching my entire pension pot into an ethical fund. I choose ethical brands with my everyday purchases, my bank, my energy provider, my car. Surely, I should do the same with my investments?

BRIC and MINT economies and build back better thoughts

Q – How will the pandemic effect investment in emerging BRIC and MINT economies? Will these groupings still be relevant? If there is genuine political will to ‘build-back-better’ once this has passed how should I invest now to maximize my prospects?

A – Asia was the first into crisis and is maybe the first out, with China as the stimulus. Brazil and South America are right now having problems with Covid-19. Russia depends on oil price. India has lots of potential but has a poor infrastructure. MINTs are frontier markets. Some will do well. These groups are not that helpful, however. They are too varied.

Do you have any products for non-UK residents? (Reader lives in Switzerland).

A – No, our customers must be living in UK to be a Fidelity Personal Investing customer. Fidelity’s products are available all around the world, however, through our wholesale partners, banks etc.

WOW, what a list of questions. A huge thank you to my readers and followers who sent these in. A wide range of questions from men and women, covering a broad spectrum of issues. If you have any more questions, please do leave them in the comments below!


More to explore


Lynn Beattie

Aka Mrs MummyPenny

Personal Finance Expert

I write about personal finance made simple, lifestyle choices that will save you time and money, as well as products and services that offer great value.

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