Saturday, 10 December 2011

The Best Ways to Give a Financial Gift to Children


Help the kids establish a solid financial foundation with these four strategies.

Question: I'm not rich, but I'd like to set my grandchildren on the right path to saving, investing, and understanding their money. Do you have any tips for giving financial gifts this holiday season?
About the Author
Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.
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Answer: Wealthy individuals often go to great lengths to pass assets to their heirs, setting up trusts and using other elaborate mechanisms to ensure an efficient transfer of assets. But don't think you need to be a Rockefeller to have a meaningful impact on the financial futures of your children and grandchildren. You can fund various types of financial accounts with as little as $25 to start.
Here are some of the key strategies to consider when giving children and grandchildren a financial boost. There's no one-size-fits-all answer: The right choice for your situation will depend on how much you intend to give as well as your grandchild's life stage and the goal of financial assistance.
Strategy: Set up a UGMA/UTMA account.
Best for: General savings and investing, particularly for relatively small dollar amounts.
Overview: UGMA/UTMA accounts provide a way to save on behalf of a minor child without setting up trust funds or hiring attorneys. As a donor, you'd appoint yourself or other adults (such as the child's parents) to look after the account. One of the key advantages with UGMA/UTMA accounts is flexibility: You can put a huge range of investment options inside a UGMA/UTMA wrapper, including stocks and mutual funds.
If you're saving fairly small sums, these accounts can be a decent way to go, but there are two major hitches. The first is that the assets become the child's property when he or she reaches the age of the majority--18 or 21, depending on state of residence--leaving the donor with no real control over where the money is spent. The second is that for college-bound children, substantial UGMA/UTMA assets will tend to work against them in financial-aid calculations. (This Investing Classroom unit discusses UGMA/UTMA accounts.)
If you're setting up a UGMA/UTMA account, my advice is to keep it simple and choose a plain-vanilla, well-diversified fund. Total market stock market index funds can make sturdy anchor holdings for UGMA/UTMA accounts.
Strategy: Contribute to a 529 Plan
Best for: Building college savings while possibly obtaining a tax break at the same time.
Overview: If you're saving for a college-bound child or grandchild, section 529 college-savings plans help you avoid the two key pitfalls of UGMA/UTMA accounts. First, the assets are the property of the account owner (in this case, you), not the child. So if your grandchild doesn't end up going to college, you can use the 529 assets for another grandchild. Second, because 529 plan assets are considered to be the property of the account owner, they have a relatively limited impact on financial-aid eligibility. In addition, you won't owe taxes on 529 plan investment earnings from year to year, and withdrawals from a 529 plan account will be tax-free provided you use them to pay for qualified higher-education expenses such as tuition and room and board. Finally, you may be eligible for a state tax break on your contribution; this article discusses the value of those tax advantages on a state-by-state basis.
Even though 529s have generally improved over the years, their quality is still uneven and some plans are costly. Morningstar's 529 Plan Center helps you assess the pros and cons of your state's plan; the 529 plans from Maryland, Ohio, and Nevada are among our favorites.
Strategy: Fund a Roth IRA
Best for: Saving for the long haul, especially for older children.
Overview: If your grandchild is older and working, you can contribute an amount equal to his or her earned income, up to $5,000, to a Roth IRA. As with a UGMA/UTMA account, you can put a huge range of investments inside a Roth wrapper; there are no investment minimums or age limits on contributions. The money inside the Roth can grow tax-free until retirement, and the vehicle also offers some flexibility for withdrawals before that time. Specifically, contributions to a Roth IRA can be withdrawn at any time and for any reason, to pay for college or anything else. (Those who need to tap the investment-earnings piece of an IRA will owe income tax on that portion of the withdrawal, but they'll circumvent the 10% penalty on early withdrawals if they use the money for qualified college or certain other expenses.)

Despite the big tax benefits, Roth IRAs for children carry one of the key drawbacks that also accompany UGMA/UTMA accounts: The child maintains control over the assets and can use the money for whatever he or she wants at the age of majority (18 or 21, depending on the state.)
Strategy: Give a gift of financial knowledge.
Best for: Gift-givers at all income levels.
Overview: Even if you're not in a position to make a financial gift to a child or grandchild, you can still take time to impart financial wisdom. Even for very young children, it's not too early to start discussing big-picture concepts such as the benefits of delaying gratification today for a greater payoff down the line. And if a child is slightly older, you can share some specifics of your own approach to investing; it's amazing how many great investors say they got their starts by reading the stock tables with their grandparents. You might also share a good basic book about investing: The Wall Street Journal Guide to Starting Your Financial Life is a fine entry-level book for new investors; The Bogleheads' Guide to Investing is another great basic tome for entry-level investors.



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Friday, 9 December 2011

Questor share tip: Tesco is solid not spectacular

Questor share tip: Tesco is solid not spectacular
Many of the retailers in the UK are having a tumultuous time – and Tesco is no exception. Short-term challenges remain, but the long-term growth story is intact.


7:00AM GMT 09 Dec 2011



Tesco
397.2p+0.3
Questor says BUY
Tesco
UK same-store sales fell by 0.9pc in the third quarter of the year when petrol and VAT are excluded – the fourth consecutive quarter this has happened. Obviously, the recent “Price Drop” has had a deflationary effect, but Tesco says that this has resulted in stronger food volume growth – adding 1pc to volumes. Under the scheme, Tesco cut the price of 4,000 items to attract new customers.
In April, Tesco’s new boss Philip Clarke admitted that the company’s UK performance wasn’t good enough.
“We didn’t achieve our planned growth in the year and this was only partly attributable to the deterioration in the consumer environment during the second half. We can do better and we are taking action in key areas – for example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers,” Mr Clarke said.
These results have demonstrated that the turnaround has not yet happened in the company’s home market – but Questor feels confident that a turnaround will eventually come. Indeed, if inflation behaves how analysts predict next year, this could be a positive for the whole retail sector as the squeeze on household budgets eases.
RBS is forecasting that price rises as measured by the Retail Price Index (RPI) will fall from 5.4pc in October to 2.4pc by the end of 2012 and hit 1.9pc in 2013.
The group’s operations in Thailand were also impacted by the disastrous floods last month. Like-for-like sales growth in the Asian nation fell to 1.4pc in the quarter compared with growth of 7.5pc in the second quarter of the year. In total, 100 of its Tesco Lotus stores in the country are still not operating, although they are all expected to reopen by January.
Results for the group as a whole were in line with market expectations. In the 13 weeks to November 26, sales including petrol rose 7.2pc and 5.4pc when fuel sales were excluded.
The one thing that differentiates Tesco from its UK competition is international footprint. This is arguably why Warren Buffett, the world’s most famous investor, bought in to the company in 2007. Last month, Mr Buffett picked Tesco as his top European investment for the long-term investor.“If the price came down some on Tesco I’d buy some more of that,” he told CNBC.
Like-for-like sales in the US rose 11.9pc, which is a slowdown on the 12.4pc seen in the second quarter. The operation is still not profitable.
Same-store sales in the Czech Republic fell 0.3pc, with like-for-likes in Turkey down 2.6pc and in Malaysia 5pc lower. Tesco put the falls in Turkey and Malaysia down to the later timing of Ramadan this year.
Management is comfortable with consensus expectations, but there is obviously a great deal of caution heading into the key Christmas trading period. As one analyst said yesterday, the results were “solid rather than spectacular.”
The current–year earnings multiple is 11.2, falling to 10.1 and the prospective yield is a respectable 4.9pc, rising to 4.3pc in the year to February 2013.
The shares were tipped as a buy on December 14, 2008, at 329¾p and they are up 20pc, compared with a FTSE 100 up 29pc. They have been tipped as high as 421.85p. The shares remain a buy.

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Central banks top up gold reserves

Central banks have used gold's recent plunge to top up their holdings of the precious metal.

Central banks have used gold's recent plunge to top up their holdings of the precious metal.
The International Monetary Fund has been selling gold to boost its war chest for lending. Sales stopped in December last year. 
By , and Emma Rowley
7:15PM GMT 30 Oct 2011
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Bolivia, Kazakhstan, Tajikistan and Thailand spent a collective $1.52bn (£942m) buying 26.7 tons of gold. However, the Mexican central bank was a seller, reducing its holding by 0.1 ton, according to data compiled byBloomberg.
Thailand's gold reserves rose 11pc to 152.41 tons and Bolivia's bullion reserves increased 17pc to 49.34 tons. Bolivia increased its holdings by 5pc to tons and Tajikistan's bullion stockpile increased 26pc to 4.74 tons.
Over the past 20 years, central banks have been reducing their holdings of the precious metal, but concerns about paper money and global debt has turned them into net buyers. Also, the gold price has increased every year for the past 11 years. The price is up 23pc in the year to date, closing at $1,743.75 an ounce on Friday.
"Central banks, especially in emerging markets, have been diversifying their gold reserves," said Michael Widmer, head of metals research at Bank of America Merrill Lynch . "We would expect this to continue as gold can have a positive impact on smoothing the risk-return profile of reserve portfolios."
The International Monetary Fund has been selling gold to boost its war chest for lending. Sales stopped in December last year.

Copper enjoys biggest weekly gain on record

Ailing Copper has finally had some medicine, in the form of Europe agreeing a rescue package and positive data on the US economy.
The metal, a barometer of global economic health, had its biggest weekly gain on record, rallying 15pc in London. Goldman Sachs analysts said copper prices could be "unimaginably" high in three years on the back of Chinese growth. Still, the patient is not fully recovered at 20pc off its February peak, which signals a bear market.

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UK savers warned as interest rates plummet 96pc in a year


Many of the best rates pay out for just a year – so make sure you switch in time.



Savers are kept in the dark over interest rates Photo: Howard McWilliam
3:14PM GMT 25 Nov 2011
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Savers are being warned that best-buy savings rates can plummet by up to 96pc in the year after they open an account. The reason is bonus rates.
Bonus rates are one of the wheezes that banks and building societies use to get you to deposit your money in one of their accounts.
With Bank Rate at just 0.5pc and with little prospect of a rise soon, savers scratching around for a decent rate of return are easily tempted by interest rates of 3pc or more. But banks and building societies prey on savers' apathy, knowing full well that the majority won't switch again when any bonus rate disappears.
Such inertia will cost savers dear.
Take Bank of Scotland's Internet Saver account. It is currently paying 2.8pc, but this rate includes a whopping 2.7pc bonus. So at the end of 12 months the rate drops to just 0.1pc. A saver with £50,000 in this account would see their annual interest payment fall from £1,400 to a miserly £50.
Susan Hannums, a director of Savingschampion.co.uk, said: "Bank of Scotland is clearly banking on people's inertia, hoping that these savers will remain in the account receiving virtually nothing in interest after the 12-month bonus period. Savers simply don't need to stand for this, as not only can they get a better rate elsewhere, but they won't be left with such an appalling rate once the bonus period ends."
Research from Savingschampion.co.uk shows that two in three savings accounts today include a bonus in their headline rates. And these "teaser" rates are getting bigger: in January 2008 the average bonus was just 0.65pc, with the biggest at 1.24pc; today the market average stands at 1.66pc, while the biggest is the 2.7pc bonus offered by Bank of Scotland.
All the big high street players hook customers in with these bonus deals. For example, of the six variable-rate accounts offered by Halifax, five have a bonus or condition attached, while six out of nine such accounts from Santander do likewise.
But banks rarely make loyalty pay. Such practices show that they are more interested in attracting new money than paying a decent rate to customers who have banked with them for years.
Many of those who snapped up one of the best buys a year ago may be surprised to learn how little interest they are getting on their savings.
For instance, savers who opened the AA's Internet Extra (Issue 3) account in September last year would no doubt have been attracted by the competitive rate of 2.8pc. But one year on, these savers are getting just 0.5pc. Similarly, those who opened the BM Savings Telephone Extra account (Issue 3) will find the interest rate dropping from 2.6pc to just 0.5pc.
Ms Hannums said these examples should serve as a warning to income-starved savers currently scouring the best buy tables. By all means take advantage of these short-term deals, but make sure you switch your money again at the end of the term. She added: "Savers cannot afford to rest on their laurels. Once the bonus falls away, interest simply disappears."
Unfortunately, most savers do rest on their laurels. And not surprisingly banks and building societies aren't too forward when it comes to pointing out what dismal rates of interest customers are now being paid. Most banks still do not include interest rates on annual statements and neither are they displayed when the customer logs in to online banking.
Even searching online for a list of up-to-date rates can be tricky, particularly once the account is no longer on sale. David Black of statisticians Defaqto said providers should make it clear that an account has an introductory bonus when it is advertised and notify the customer when the bonus is about to end. Yet many savers remain uninformed.
"For the saver, this means they need to review their accounts on a regular basis if they want to secure the best returns," he said. "If you've had a variable-rate account for over a year it's a near certainty that you could get a better rate from a similar account elsewhere."
Savers have also been warned to check the small print and watch out for the early withdrawal trap. For example, Manchester Building Society pays 3.16pc on its Premier Notice account. But this allows just four withdrawals a year, and you must give 35 days' notice each time. This rate also includes a 1.5pc bonus.
Research from Moneysupermarket.com found that despite the disparity in interest rates between new accounts and older ones, only one in three people checks the interest rate on their savings account each month, while more than 10pc could not remember the last time they checked their rate. Almost 9pc admitted to never having checked.
But while it may be difficult to check what rate is paid on old accounts, finding the most competitive new deals could not be easier. The most straightforward way to compare savings products is through a comparison site such as Savingschampion.co.uk, Moneyfacts.co.uk or Moneynet.co.uk.
Current best buys include Coventry Building Society, which pays 3.15pc for easy-access savings, and Santander's eSaver Issue 4, which pays 3.1pc. These rates include bonuses of 1.15pc and 2.6pc respectively, paid for a year – so put that date in your diary.
For those who do not mind locking up their savings, Yorkshire Bank's two-year fixed-rate bond pays 4.01pc on minimum deposits of £2,000, while Bank of Ireland's Web Bond Issue 4 pays 3.9pc on deposits of more than £500. For longer-term savers, Kent Reliance Building Society's 5-year Fixed-Rate Bond Issue 5 pays 4.7pc on £1,000 or more.
Kevin Mountford of Moneysupermarket.com said: "Bonuses are a great way for consumers to maximise the return on their savings in this low-rate environment. However, the benefits can soon be wiped out if customers forget to switch once the promotional period has expired."
The message is clear: when it comes to our banks and building societies, you get scant reward for being loyal. Take the bonus by all means but get ready to run to another account when its time is up.


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UK housing sales surge but house prices remain ‘25pc too expensive’


By  Your Money Last updated: December 9th, 2011

The number of homes sold surged up by 4.5pc last month, helped by frozen interest rates and the "loosest mortgage lending conditions seen since the Lehman Brothers collapse" but Britain’s biggest building society warns that house prices remain 25pc more expensive than the historic norm.
First time buyers and buy-to-let landlords found it easier to obtain mortgages as loans for home purchases reached their highest number since December 2009 in November, according to the latest mortgage monitor from e.surv chartered surveyors.
Richard Sexton, director of e.surv, claimed the firm had completed more than 1m mortgage valuations over the last five years to compile its data. He said: “The market is thus far showing resilience in the face of the eurozone crisis. For the last few months, the banks have been focusing their lending on buy-to-let investors, but this is the first time they appear to have increased lending to first time buyers.
“This has resulted in the loosest mortgage lending conditions seen since the Lehman Brothers collapse. More first time buyers are rolling up their sleeves and piecing together the bigger deposits required to access high loan-to-value mortgages. No doubt they are sick of paying astronomically high rents.”
Estate agents LSL Property Services, owners of Your Move and Reeds Rains, claimed that sales surged by 4.5pc last month as frozen mortgage costs and house prices made property more affordable. Director David Newnes, said: “Static house prices don’t mean property values are standing still. Zero price growth means that in real terms property is becoming more affordable. With inflation running at 5pc, the real cost of property is getting smaller, which is good news for buyers.
“According to the Council of Mortgage Lenders, mortgage lending increased 9.8pc in the year to October and has risen for the last three consecutive months for the first time since the summer of 2007, which has contributed to the 4.5pc rise in transactions seen last month, as purchasing becomes a more affordable.”
Similarly, Paul Broadhead, of the Building Societies Association, said: “Mutual lenders saw the biggest increase in gross lending since January 2010 with £2.3 billion of mortgage lending last month, 20pc up on the same time last year. More than one in five mortgages is to a first time buyer.
“Lending responsibly has never been more important as the market remains challenging with household incomes ever more squeezed. Mutual lenders are actively trying to help consumers both by conventional means and through new options like the Government’s shared ownership and equity loan schemes.”
But Robert Gardner, chief economist at Nationwide Building Society, put seasonal good cheer in a sober long term perspective. He said: “House prices have remained surprisingly resilient over the past 12 months but housing still appears relatively expensive on a number of metrics. House prices are currently around five times average incomes, compared to the long-run average which is nearer four.”
So house prices remain 25pc higher than their long-term price/earnings average. That looks unsustainable until you consider the imbalance between supply and demand. Fewer than 108,000 new homes were built in England over the last year, while an estimated 240,000 new households were created.
As a result, if mortgage costs remain low and lending criteria continue to ease, house prices could remain expensive. But bears or pessimists should beware expecting a correction any time soon. To paraphrase John Maynard Keynes, the housing market might remain irrational for longer than sceptics can bear to remain in rented accommodation.
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EU pension rules could hit millions of pensioners


Workplace pension schemes with over 12 million members could be forced to close if “destructive” new EU rules come into force, the Pensions Minister has warned.

Elderly couple wlaking on a bridge
Workplace pension schemes with over 12 million members could be forced to close if “destructive” new EU rules come into force, the Pensions Minister has warned. 
James Hall
By , Consumer Affairs Editor
7:00AM GMT 09 Dec 2011
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The European Commission is considering introducing rules that will make the UK's 6,850 companies with final salary pension schemes pump billions of pounds into the schemes to reduce their deficits. The rules are designed to make pension schemes in EU member states more financially robust.
However Steve Webb, the Pensions Minister, warned that the guidelines from Brussels will land British companies with a “huge bill” of £100 billion. He said the high cost would force many employers to close their pension schemes for good.
“What is being done in the name of protection could mean the destruction of some of the best British pensions,” he said.
The minister also said that if companies spent money plugging their pension deficits they would have less money to invest in growing their own businesses. The rules would therefore damage Britain’s economic recovery.
“These costs could force many employers to close their pension schemes and would have a massive negative impact on growth and our economic recovery. This is a £100bn tax on growth,” Mr Webb said at a meeting in Brussels, where he is building a coalition of European countries to oppose the plan.
In defined benefit retirement schemes, an employee receives an annual payment on retirement based on his or her final salary. Although most final salary – or defined benefit – schemes are now closed to new members, an estimated 12.5 million of current and former employees still benefit from them. Most large companies - from Tesco to Unilever to Alliance Boots - have some kind of defined benefit scheme.
The EU rules under discussion are known in the industry as Solvency II. Under the EU’s thinking, reduced pension deficits would mean that pension schemes are safer and savers’ money is better protected. The combined pension deficits of final salary pension schemes run by the UK’s 350 largest private companies are currently estimated to stand at £80 billion.
However Mr Webb said that the UK already has pension protection in place through the Pension Protection Fund and the Pensions Regulator, which would effectively act as safety nets if UK pension funds ran out of money. He therefore said that the new rules “are not necessary”.
“I am determined to do all I can to ensure that this does not happen,” said Mr Webb.
Joanne Segars, the chief executive of the National Association of Pension Funds (NAPF), which represents 1,200 pension schemes, said that the EU plans are the “last thing that pension funds need”.
“These plans would ramp up costs dramatically. Businesses struggling with a flatlining economy would suddenly have to pump billions more into their pension scheme. This would mean less money for jobs and investment, at a time when the economy desperately needs both,” she said.
Ms Segars said that firms would be so badly hit by the new rules that they would “simply shut these pensions down altogether”.
“It would be a crippling blow for what is left of final salary pensions in the private sector,” she said.
The EU’s plans are currently in the discussion phase. It will set out draft legislation next autumn.
Business group the CBI has also spoken out against the proposals, branding them a “terrible idea”.

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