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The
Daily Telegraph |
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How
Charlotte Should Invest Her Fortune
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CHARLOTTE CHURCH, the 13-year-old with the "Voice of an
Angel",
earns £6 million a year
and keeps nearly all her money in the bank, it was reported this
week.
But deposits have a rotten record of providing lower returns than
real assets, such as property, shares and funds holding them, and
Thursday's quarter-point rise in base rates
is unlikely to change that.
Telegraph Money asked the experts where
Miss Church's money could be made to work harder so that it will
really sing for her. Wai Man
Cheung of the Dorset-based independent financial adviser WMC Investment Managers said: "Showbusiness can be a funny world
and we all know of many stars who have fallen for one reason or
another. It is, therefore, important that her finances are managed
prudently to provide financial security. "If
the money is invested solely in her name, my recommendation would be
that when she reaches 14 she invests in a portfolio of unit trusts.
Depending on her capital needs over the next five years, I would
look initially to invest between 30pc and 40pc of her capital and
then drip feed her money into a global portfolio. "The
types of fund that I would be recommending for such a young investor
would be the HSBC Indexed Managed Service, which uses HSBC's global
expertise to manage a spread of leading indices.
Certainly its
formula over the longer term has proven to be extremely successful
and is a lower cost way of getting exposure to global markets."
Warren Perry of the independent
financial adviser Whitechurch Securities recommended technology
funds as a suitable investment. He said: "Charlotte may well
have a lengthy and exciting career ahead, so she cannot start
planning too soon for her future. I notice that Charlotte has a web
site and I would encourage her to invest further in
technology." Tim Cockerill
of the independent financial adviser CCK took an alternative
approach. He said: "She should put in an order for the proposed
F-type Jaguar which is going to replace the legendary E-type. I know
Charlotte is only 13 but it won't be available for two or three
years by which time she will nearly be old enough to drive, so she
can always sell it at a profit, because I imagine the waiting list
will be huge. "If it is
true she is only getting £50 a month in pocket money then I think
this should be upped. Why shouldn't she spend some of it? I'm sure
there must be tons of stuff she would like: what about some Boyzone
CDs? "More seriously, an
equity portfolio will grow her capital and income and secure her
future for the rest of her life. She could in due course look at
some of this being set up through a pension scheme because of the
tax advantages." Andy Cowan
of the Aitchison & Colegrave Group, another independent
financial adviser, said: "If the earnings are held in a trust,
the trust may have wide powers to invest in stocks and shares, unit
trusts and so on. A balanced portfolio of assets is likely to
provide better returns than a bank deposit over the medium to long
term. The trust may be a 'bare trust' where the assets are nominally
held by trustees, probably her parents, for the benefit of
Charlotte." Philippa Gee,
of the independent financial adviser Gee & Company, recommended
that Charlotte should invest some of her money in National Savings
Children's Bonds. These are plans that run for five years and at the
end of that term they are invested again. This can be done until the
age of 21. Ms Gee said:
"The advantage of this type of bond is that it gives a
guaranteed return, currently 5.5pc, and that it is viewed as a low
risk, secure investment as well as being free of tax. The minimum
investment per issue is £25 and the maximum is £1,000. Therefore,
while this will be a useful feature, it will take up only a small
portion of Charlotte's money." Several
of the advisers suggested that property would be a good investment.
Mr Cockerill said: "Holding property and renting it out can be
very lucrative, although it comes with headaches, so she would need
an agency to sort it out. Finally, she may want to set up charitable
trusts in due course to help up-and-coming musicians." James
Dalby of Bates Investment Services said: "I would suggest £1
million be invested directly into residential property. This will
provide a good level of income and opportunity for long-term gains.
"A further £2 million could be
placed with a private client stockbroker, such as BWD Rensburg, to
manage on a discretionary basis. This would enable the stockbroker
to tailor a portfolio to fit Charlotte's individual circumstances in
conjunction with any trustees or advisers. Another £1.5 million
could be invested in a portfolio of collective investments such as
unit trusts, investment trusts and open ended investment companies.
"The final £1.5 million could be
placed on deposit in a competitive children's savings account, such
as the Nationwide Smart account currently paying 6.4pc gross
interest. She would get a cash card but the welcome pack does not
contain a music compact disc. However, I don't suppose that would
worry her too much." Should
Charlotte wish to share her good fortune with friends and family,
Rebekah Kearey of Roundhill Financial Management suggested:
"The income that can be generated from £6 million is high and
therefore Charlotte can afford to give some capital away. "She
should make sure she uses her inheritance tax limits to the full £3,000
each year as a gift, any number of £250 gifts per year to
individual people. Larger gifts, maybe to her parents to secure
their old age, could be regarded as potentially exempt transfers,
especially as the chances of her outliving the gift by at least
seven years is extremely high." Gifts made more than seven
years before the donor's death are entirely free of inheritance tax.
Clive Scott-Hopkins of the independent
financial adviser Towry Law also took a long view. He said that,
despite her tender age, Charlotte should start thinking about a
pension. "She seems destined to be a top earner for many years.
Nevertheless, she should be investing her after-tax earnings rather
than letting them slowly accrue at current rates of interest in a
bank or building society account. "As
an earner she should be setting aside 17.5pc of 'net relevant
earnings' into a personal pension, but there are two snags here;
first, there is a maximum earnings cap of £90,600 for this tax
year. Second, although there is no minimum age as such, unlike 18
for an Isa, in contractual terms it is difficult to arrange with
most insurers but not impossible, provided a parent signs on her
behalf. Currently the income tax saving would be at 40pc. "However,
out of the approximate £3.5 million income net of 40pc tax, she, or
more accurately her advisers, should be accessing both the equity
and property market for long-term growth of assets. For equity
investment, she should look to acquire portfolios of blue chips and
technology shares."
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