‘Should I invest in a buy-to-let property or the stock market?’

How should a soon-to-be married man in his mid-30s invest?

Frustrated by the 1pc returns he receives on his savings, Mike Hall is ready for a change. Aged 35, he is a senior engineering manager at travel booking website Skyscanner earning more than £70,000 a year. Every six months he also receives a bonus worth around 5pc of his yearly salary – usually around £3,500.

“This has helped me to save up a reasonable amount in my bank account,” Mr Hall said. Soon he will be withdrawing 20pc of his savings, around £15,000, to pay for his wedding. After that he plans to put some of the rest into investments but is unsure how much to invest and where.

“I was considering putting some of it into some early-stage start-ups but I don’t have enough to make a meaningful investment. Now I am weighing up between buying a property to rent out or investing in the stock market,” he said.

He said he did not know much about investing so would prefer to put his money into index funds, which track stock markets as a whole, rather than picking stocks himself.

Mr Hall currently spends around £1,100 a month on the mortgage for his flat in Edinburgh and is able to save £1,000 a month out of his remaining pay. He also spends £600 a month on flights to visit his fiancée, who lives in Stockholm.

“She has a great job over there and isn’t planning on leaving soon so this is an expense we have to factor in for the future,” he said. He added that his ideal scenario would be to create a passive income stream from his investments that would give him more flexibility with his life and work.

Felix Milton, of financial planner Philip J Milton & Co, said:

Mr Hall’s monthly take-home pay as a Scottish taxpayer is approximately £4,000. This takes into account his income tax, National Insurance contributions and assumes he is saving 5pc into his workplace pension in line with auto-enrolment. He should aim to save as much of his salary into his workplace pension that his employer is prepared to match. With the rest, Mr Hall should invest at least £1,000 per month.

He is taking £15,000 from savings, leaving around £60,000. I recommend he sets aside six months worth of regular expenditure. Assuming he is spending everything he isn’t saving, this would be around £18,000. This would leave Mr Hall £42,000 to invest. He could of course also invest his bonuses. To secure longterm steady returns, I recommend Mr Hall invests in the stock market over property. He already owns his own home so has exposure to the property market there and a portfolio of stocks and shares would diversify his investments. I also believe the property market is expensive at the moment. If Mr Hall prefers not to invest directly in companies himself, he could do so through Mike Hall wants to invest his savings, leaving enough money to visit his fiancée in Stockholm a fund or investment trust, where a professional manager would choose companies for him. He could put 70pc of his money into global investment trusts then 30pc into less risky investments such as gold and bonds. In order for Mr Hall to cover his current living expenses of £36,000 a year in 10 years, he’d need a large investment pot of at least £900,000. Based on the amount he’s currently saving he’d need a return of 26pc a year to achieve this, which is very ambitious.

James Higton, of wealth manager Quilter, said:

When deciding whether to invest in property or stocks, it comes down to two things: time and tax. In recent years we have seen many tax increases on buy-to-let properties, from cuts to the relief on mortgage interest to stamp duty surcharges on second homes. Investing using a stocks and shares Isa would allow Mr Hall’s investment to grow free of capital gains tax and any withdrawals would not be taxed as income.

He also needs to consider the time commitment involved with buy-to-let. The initial process involves conveyancing, raising a mortgage and dealing with estate agents. After this, even if he uses a managing agent, there will still be the burden of repairs, administration and accountancy.

If he is nervous about investing he could take a relatively low-risk approach. This would usually mean investing around 45pc of the money in shares via funds, with around 20pc invested in Britain, 10pc in America, 10pc in Europe and 5pc in emerging markets. The remaining 55pc of his £60,000 he could invest in property, cash, and bonds to give a more steady rate of return. From this he could expect returns of around 4pc a year, after fees. If he were to invest his £60,000 as a lump sum, this could give him a natural income of around £2,400 a year.

If Mr Hall were to add the £1,000 per month he currently saves to his investments as well, he could be looking at an investment total of around £120,000 after five years, even without taking into account any growth. He would then see a passive income stream of £4,800 per year – which would make a big difference to his flexibility with work.

To cover his £36,000-a-year living expenses in 10 years’ time, he’d need an investment pot of at least £900,000