I am keen to invest my Isa stocks and shares allowance in a FTSE 100 tracker fund. Is this recommendable or would non-tracker funds be better? Any thoughts about M&G funds?
MG, Manchester
Tracker funds or their equivalent, such as ETFs (exchange-traded funds) are generally better value than their actively managed rivals. Costs are lower and most fund managers fail to beat the main indexes. However, those that do consistently outperform, such as Neil Woodford at Invesco Perpetual, are worth the extra expense.
You are right to be keen on a FTSE 100 tracker. With rare exceptions, such as the past turbulent decade, it should grow your capital over several years. It gives global exposure as most of its constituents operate mainly overseas. However, you will suffer the vagaries of the UK stock market, which broadly tracks Wall Street.
Depending on your age and time horizon, you should also think about emerging markets such as Brazil, Russia, India, China, and the relentless growth of Asia.
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Jason Butler at Bloomsbury Financial Planning said: "I suggest that you use the FTSE All-Share index for your UK exposure as this is slightly more diversified and less volatile. Put half there and half in the MSCI World index to give you exposure to emerging markets."
M&G's UK index tracker fund is a respectable choice but Vanguard, the US index fund group, recently launched a UK All-Share index fund with a 0.15% annual management charge, the lowest in the market. The minimum investment is £100,000, but as little as £50 on an investment platform such as Alliance Trust Savings, which then levies its own charges. Although this fund has not been in the UK long enough to measure its tracking error or total return, Vanguard's 35 years in America has featured ruthless cost control.
Otherwise, consider Liontrust Top 100 fund (0.295% a year) for the FTSE 100 index and the Fidelity Moneybuilder UK index (0.1% a year) for the FTSE All-Share. An ETF with good global reach is the iShares MSCI World. All these funds are available via Alliance Trust Savings.
Against the advice of our financial adviser, I transferred our Skandia self-select pension fund from equities to a cash fund in the autumn of 2007. Thankfully we were able to sit out the financial devastation. Although we reinvested into mostly fixed-interest funds in the intervening period, we still have £500,000 in a sterling deposit account. In view of the falling value of sterling, can we move this into dollars?
KR, by email
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Once upon a time pensions were handed out from on high. One result of the public's calls for more control has been to land us all with the sort of conundrum in which you find yourself.
You certainly can move your pension into dollars with a little effort, but do be aware of the scale of the currency bet you are taking.
Sterling has been wobbling against the dollar for the past 18 months, since it suddenly toppled from its overblown $2 bracket. But foreign exchange rates can turn back overnight - perhaps not the best recipe for a reliable pension.
The funds in Skandia's UK self-select pension range are sterling-denominated, so it is not possible to switch directly into US dollars within that framework.
However, the Skandia range includes 28 US-based managed equity funds, which will gain if the dollar strengthens against the pound, so you could benefit indirectly by putting some of your £500,000 deposit into a cross-section of those funds.
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The really radical path is to take your money away from Skandia and transfer it to a US-based qualifying recognised overseas pension scheme (Qrops) under HM Revenue & Customs rules. However, these are suitable only if you plan to retire abroad and you would need to take highly specialised advice.
A simpler tactic is to start a Sipp - a self-invested personal pension. That will give you the freedom to invest in whichever region or currency catches your fancy.
Tom McPhail at Hargreaves Lansdown, the adviser, said: "The younger you are and the larger the margin you have to work with, in terms of surplus capital above your income requirements, the more viable such a currency position might be."
Much also depends on where you expect to live when you draw your pension. Assuming you will be in Britain and spending mainly in pounds, the pension money will have to be converted back into sterling at some point. So your dollar plan would be a huge bet on sterling weakening well below its current $1.60 or so.
However, if sterling rises only as far as, say, $1.76, and stays there, you would lose more than £45,000 of that £500,000. It has risen 3 cents in the past month to $1.62.
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Naturally, the bet changes if you follow the well-worn pensioner trail to France or Spain, when the calculation becomes all about the future movement of the dollar against the euro. Many experts predict the euro gaining, making your dollar-based pension money worth less.
Florida is also a popular retirement destination. Moving there would remove the worst of the currency risk, though if sterling appreciates against the dollar then the regular pension payments to you from the UK would be worth more.
In this connected world, you will be making a bet whatever you do - even by staying put.
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