© Issei Kato
What you should buy
Mark Dampier, investment manager at independent financial advisers Hargreaves Lansdown, is not keen on equities and prefers bonds. “I have been buying gilt and corporate bond funds,” he says. “Fund managers are getting yields of up to 10 per cent on investment-grade bonds. Unless you believe we are in a slump as bad as the Thirties, corporate bond funds look underpriced.
Darius McDermott, managing director of IFA Chelsea Financial Services, agrees. “Corporate bond funds are currently offering outstanding value when compared with gilts. Their yields range from five per cent to as high as 15 per cent, depending on their composition and the amount of risk involved.”
Corporate bonds are issued by big companies such as Shell and BP and like gilts (government bonds) they pay a dividend at a fixed and pre-agreed rate for a fixed term. The bonds are traded on the stock market and when interest rates are going down, the value of the bonds rises, so that the yield comes into line with interest rates generally.
Richard Woolnough, who runs top-performing household name M&G Strategic Corporate Bond Fund and the M&G Corporate Bond Fund, is double-AA rated by Citywire, which ranks fund managers. He has a consistent track record of being top-performer in the corporate-bond sector over five years, and second and fourth over three and one year respectively.
The five best corporate bond funds for consistently good performance are Standard Life AAA Income, M&G Corporate Bond, Rensburg Corporate Bond Trust, Prudential Corporate Bond and Morgan Stanley Corporate Bond. Any of these could be a good buy for a regular savings scheme.
You can buy direct from the fund manager, via your bank or through a good independent adviser. Visit www.unbiased.co.uk to find an adviser in your area who specialises in investment advice. Many of them, like Hargreaves Lansdown (www.h-l.co.uk), offer discounts on the initial purchase price. They can also advise on the whole range of mutual funds if you are not keen on corporate bond funds.
If you, or the recipient of your gift, are totally risk-averse, the only answer is a simple savings account. Rates have been coming down to reflect falling Bank Base Rate but it is still possible to earn good returns on regular savings.
The top children’s account is from Halifax, which pays a generous fixed rate of 10 per cent on savings of up to £100 a month, with a minimum investment of £10 a month, which must be paid by standing order. You can change the amount you pay each month but if you miss a monthly payment the account will be closed.
It has the advantage that the child cannot spend the money because the account is held in trust by the adult opening the account. At the end of each year the capital and interest will be swept into one of the following accounts — Halifax Save4it, Halifax Saver Reward, Halifax Liquid Gold, Halifax Bonus Gold or Halifax 60 Day Gold. These pay lower rates, so at this point it will probably pay to shop around again.
Adults and children aged 16 or over are able to open cash ISA accounts in their own name, where they can save tax-free. Parents, grandparents and other family members can add up to £3,600 in any tax year. The best cash ISA at the moment for 16- to 24-year- olds is from the Kent Reliance Building Society, which is paying 6.26 per cent tax-free on sums of £1 or more. The rate is variable but there are no restrictions on withdrawals.
At the age of 25, the young person cannot add any further amounts, so for the over-25s the best cash ISA is from Market Harborough Building Society, which is paying 5.85 per cent tax-free and variable for sums up to £3,600 in any tax year — although you can transfer larger amounts if it comes from another ISA.
Bear in mind that these rates are variable and may well go down if Bank Base Rate is cut again, so you need to keep an eye on the competition.
Gold is always a welcome gift and could come into the category of a good investment. The World Gold Council says: “Demand for gold bullion is at a record high. Consumers bought 121 per cent more gold coins and bars in the third quarter of this year than they did during the same period in 2007.”
Whether or not gold turns out to be a good investment, gold jewellery is always a welcome Christmas gift. However, much of the price is in the manufacture, distribution and marketing of the item, which also includes the retailer’s mark-up.
There are some items that make glamorous gifts and sell at only a small premium over the price of gold: gold coins such as sovereigns, Canadian Maple Leafs and Krugerrands.
Long-established dealers such as ATS Bullion and Chard offer seven different one-ounce coins. You can also buy decorative miniature gold bars, which can be mounted on a gold chain or bracelet and worn as jewellery ranging in weight from 10 grams to one ounce.
The size of the premium over the spot price of gold will depend on the size of the coin or gold bar but is generally a minimum of eight per cent. If you are thinking of gold coins as an investment as well as a present, check whether the dealer buys them back. The high-street banks will sell you gold but won’t buy it back.
To be certain you are buying the real thing, make sure you go to a dealer who is a member of the British Numismatic Trade Association. If you are buying over the counter, you will need two forms of identity such as passport and driving licence. BNTA has a full list of members throughout the country on www.numis.co.uk, or you can call 01797 229988.
ATS Bullion Ltd: 69 Southampton Row, WC1 (020 7240 4041; www.atsbullion.com). Chard: 521 Lytham Road, Blackpool, Lancashire (01253 343081/316238; www.chards.co.uk).