ABN            Why I am comfortable for money                            11 Sept 2005

The present government is trying to get people to save for their retirement as there is going to be a big hole in the finances of the country in about twenty years.  Put another way, as a country we are spending more than we earn.  There are all sorts of alternatives to what is being suggested, but none of them is without problems for the future.

I'm not going to say what I am worth, but I recently spent about ten grand on a cruise and shortly after bought a new car for cash.  And I am still comfortable.  I certainly am not wealthy, you need to have more than a million to fall into that category, and I am a long way below that.  But a million is not a lot of money these days!

The purpose of this essay is to try and advise young people how to build up a nice nest egg.  I am lucky in that I bought my first house for four hundred and fifty pounds and spent about fifteen hundred on getting the freehold.  But in 1952, that was REAL money.  This is what I did:

Quite fortuitously I learnt about Unit Trusts.  I was an amateur then and I am an amateur now.  I don't profess to know much about banking or high finance, but I do know a bit about Unit Trusts, as that is the way I started saving.  The idea was started before the war to allow the working man to get into stocks and shares.  And it is a good scheme.  The principle is that a finance company such as a bank (and I will only talk about 'a bank' although other institutions also work in Unit Trusts) buys stock and sells it to small investors in units.  The units have two prices, the BID price and the OFFER price.  I forget which is which, but you buy a unit at a slightly higher price than you sell the same unit back to the company.  The difference pays the costs and profit of the company.

I don't think that there is any limit on what you can own (except perhaps laid down by the bank).  When I decided to start saving that way I wrote a letter to my bank asking them to recommend a company.  They wrote back and told me that they were not allowed to recommend any particular company.  That may be part of the legislation that covers Unit Trusts; there are a lot of laws that control the business.  The government that set up the idea had the interests of the small saver at heart, and put a lot of rules on what the bank may and may not do.  My bank told me that they were allowed to tell me of their own scheme and they were permitted to tell me the name of the largest company in the field.  That was "Save & Prosper".  I started to have thirty pound a month paid straight from my salary into Save and Prosper.  I chose them for the same reason that I chose AOL as my ISP.  If you don't know much about what you are buying, the biggest will be the safest.  It is highly unlikely that the biggest will be a fraudster.   When you know the subject, you can start to be picky.

At every opportunity I bought more units.  When I came home from Syria I had saved some money.  We had a holiday in the USA with some of it and the rest bought more units.  In Unit Trusts there is a huge number of choices.  Most banks have their own set, but as I said I went for S&P.  And S&P have a lot of choices.  The choice you have to make will come from a selection similar to the list below.  It is for you to choose which type you fancy the most;
Far East Industrials
American industrial
European Industrials
Maximum capital gain
Maximum income
and a host of other categories
I chose "Maximum Income" AND I reinvested all of the income.  S&P will do that automatically if you ask them

You get a statement of what you are worth every six months and it is surprising how it mounts up.  If you look in the financial pages of any broadsheet newspaper, you can find the price of every unit trust   They go up and down with the general stock market, but if you put your money in, say, a building society, it will not keep up with inflation.

As regards taxation, I cannot advise as the rules keep changing, but if you fill in your tax return honestly the Inland Revenue will not cheat you.  They want their pound of flesh, but there is no reason why they should con you.

If you have a teenage son or daughter, let them see this essay.  It might just tip them in the right direction.  Using this method, their savings will in the longer term keep up with inflation plus a little more.  But you won't make short-term money this way, it has to be for the long term.

Any questions, drop me a line on CDCNottm@AOL.com