THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. MONEY BOX LIVE Presenter: VINCENT DUGGLEBY TRANSMISSION: 3rd SEPTEMBER 2007 3.00-3.30 RADIO 4 DUGGLEBY: Good afternoon and welcome to Money Box Live going into its eighteenth year responding to your questions on how to manage your savings and get to grips with other aspects of personal finance. I know only a small proportion of callers get on air, but often we can use your first hand experience for features on Saturday’s Money Box, so a call isn’t wasted and of course your emails are welcome any time. As soon as we set up the programme, the details will be on the website, bbc.co.uk/moneybox. As usual for the first programme of a new series, we’re covering investment. Stock markets around the world had a very bumpy ride in August, triggered by worries over US mortgage debt - so-called sub prime mortgages - and the impact on financial institutions, which stand to lose a great deal of money. It’s a moot point how far they should be propped up, but markets run scared at the merest hint of recession and a fall in consumer spending. And in the UK of course there’s still concern about inflation and the question will interest rates have to go up again? The Bank of England Monetary Policy Committee are meeting in a couple of days time, but no-one expects a change this soon. There’s no doubt that investors have been very jittery with three figure rises and falls in the 100 share index. It briefly fell below 5900 and is now hovering around the 6300 mark, around the same level as it ended last year. But even if you don’t feel like committing yourself now, it would pay to have a shopping list ready of funds which have established good long- term records or maybe shares which have temporarily been oversold. There are also some tempting fixed rate bonds available from banks and building societies, some 1 yielding more than 6%. What you choose depends on your attitude to risk, how long you can tie the money up and whether you’re a basic or higher rate taxpayer. Remember Individual Savings Accounts are tax free, pension contributions are tax deductible. With me in the studio to answer your questions, I have Amanda Davidson, Director of Baigrie Davies and Alan Warner from Duncan Lawrie. 08700 100 444 is the Money Box Live number. And David in Heaton Moor, you’ve got the first question. DAVID: Hello. DUGGLEBY: Hello. DAVID: I’m a small investor. I hold shares in various banks and utility stocks. I was wondering after the recent turbulence, is it alright to think about going back into the market and buying some more shares or not? DUGGLEBY: I would hope you’d got a bit more of a spread in shares than just those two sectors. Is that really all you’ve got? DAVID: (over) I have, yeah. I’ve got other things too. DUGGLEBY: Oh right, I mean because it would be a very narrow based portofolio. But I take your point. I mean bank shares, Alan Warner, were pretty hard hit. DAVID: They were, yes. WARNER: They have indeed been very hard hit and some are down 20% so far this year. HBOS down 20%. But I think that after the fall we’ve seen, there’s now some very good value to be had amongst bank shares. We’re talking about forward price earnings multiples of no more than 7 or 8. The overseas banks rather more expensive - HSBC and Standard Chartered - but they look attractive. And I think for those who have had to take the view that the sub prime problems are discounted in share prices, which I think they are to a large extent, I would suggest the 2 Royal Bank of Scotland looks a good bet - 5% yield, 7½% forward price earnings ratio. So we’re talking about price earnings multiples that we haven’t seen for a long time, very low multiples. DUGGLEBY: It doesn’t seem very clear I think to many people as to why we should have got bound up with this sub prime. Was it people saying that British banks were just as exposed to some of the American lending institutions? WARNER: Well I think the answer to that is that British banks have lent on a large scale to third parties, principally hedge funds … DUGGLEBY: And bought packages of them? WARNER: … and bought packages. And of course they’re left with some of those packages on their books now, they can’t get rid of them; but they’ve got big loans to hedge funds who have bought this kind of product - sub prime mortgages, packaged sub prime mortgages - that have turned into something toxic. DUGGLEBY: Amanda, I’ve noticed the newspapers have been recently tipping some of the financial funds. Presumably they are specialists in bank shares and other financial shares exclusively, so they would be focused on that sector? DAVIDSON: That’s right. If you are thinking of going back into the market, it might be wiser to go into a fund rather than individual shares, obviously depending on how much you’ve got to invest, because at least then you’ve got a spread of investments. And, as Vincent was saying earlier, make sure that you have got a portfolio that’s well spread. I think now could be a good time to go back into the market generally, and if you’re cautious about it you might like to invest some money now and perhaps a little bit of money later. DUGGLEBY: Shirley, I think you’re on a similar tack looking at bank shares? SHIRLEY: Yes I am. Am I allowed to say which bank? 3 DUGGLEBY: I don’t see why not. SHIRLEY: Lloyds TSB. I sold them about a year ago and the stock market has dropped considerably now, so I was wondering if it’s a good time to buy them back? DUGGLEBY: Lloyds TSB of course have traditionally had a very high yield which has remained intact, Alan. WARNER: That’s right, Vincent. The market was always wondering when Lloyds was going to cut its dividend, but it never did, confounded the analysts. I think that for anybody wanting income, a premium yield, then Lloyds is a good bet at current prices. Bear in mind though that the dividend is not particularly well covered. Other banks with lower yields have better dividend cover. DUGGLEBY: Yes, I mean you say you sold them a year ago. What did you sell them for? SHIRLEY: I think nearly 600. They were at the top of the market. DUGGLEBY: They are below that now, I think. WARNER: They’re well below, so you timed your exit extremely well. No, I think now would be a good moment to go back in. SHIRLEY: Thank you very much. DUGGLEBY: Okay. And we were just talking about the funds, Amanda. Any particular funds that catch your fancy? SHIRLEY: Well Jupiter Financial is one to be looking at in terms of financial markets, and Jupiter’s a good house so you could look at that particular fund. 4 DUGGLEBY: Okay. We’ll move on now to another subject. Premium bonds are being raised by Eileen in Aberdeen. EILEEN: Hi, good afternoon. DUGGLEBY: Hello. EILEEN: I have acquired over the years £3,500 worth of premium bonds in mine and my children’s names. I was kind of partially hooked with the five £1 million wins in June and I just feel at the moment is it a poor investment? It’s a rainy day fund and I can’t really go for high returns if it’s going to be risky. DUGGLEBY: Okay. Well before we take your specific point, Jean in Farnborough’s also concerned about her premium portfolio. JEAN: Yes, thank you. Well I only really put my money, which was a totally unexpected amount of money, £30,000, into premium bonds as equal to putting it under the bed, but at least I was earning some interest on it, which if I put it anywhere else where could I put it to earn a little bit more because £30,000 is not going to earn that much amount of money for me? DUGGLEBY: Well you say that, but actually the world’s just changed in the last year, Amanda, because we used to sort of say oh well you know you get 3%, or after tax maybe only 2%. But it’s a little different now. I wonder whether the premium bond prizes have kept up with the sort of returns available in building societies? DAVIDSON: Well, yes, if you’re averagely lucky you should get a 4% return on your premium bonds. DUGGLEBY: But you could get 6½% in a building society. DAVIDSON: Exactly. 5 DUGGLEBY: And you will get that. DAVIDSON: Yes, exactly, and I mean the 4% return is if you’re averagely lucky and you may be below averagely lucky. DUGGLEBY: Jean, have you been lucky? JEAN: Well I’ve won £50 every month since Christmas. DAVIDSON: So that’s £600, isn’t it? DUGGLEBY: That’s not very good. DAVIDSON: It’s not as much as you should have been winning on the basis of the 4% being if you like an average return.