‘I

The Daily Telegraph - Your Money - - INVESTING -

’ve spent months do­ing re­search but still feel like I’m twist­ing in the wind,” Robert Dodsworth told Tele­graph Money. The 38-year-old is one of mil­lions across Bri­tain in search of the holy trin­ity: pay off the mort­gage, save for a pen­sion and re­tire early.

A change in cir­cum­stances prompted Mr Dodsworth to look at his fi­nances. “I re­cently left my job with a lo­cal author­ity to be­come a free­lance pho­tog­ra­pher. Now I’m self-em­ployed my in­come can vary.”

En­trepreneurs get to fol­low their dreams but in­con­sis­tent cash flow can make manag­ing money more dif­fi­cult. With two chil­dren, aged seven and three, Mr Dodsworth and his wife Tanya, 40, who works part­time, want a plan for the fu­ture.

He said: “I’m pretty con­fused with all the in­for­ma­tion out there on where to put my sav­ings and how much I should squir­rel away. I’m a fairly ad­ven­tur­ous in­vestor – I need to be since the pots I have are small – but equally I have chil­dren and am self-em­ployed so need a bal­ance.”

Mr Dodsworth’s debt is a £10,000 loan for home ren­o­va­tions and £4,000 on an in­ter­est-free credit card. The fam­ily home has a £144,000 re­pay­ment mort­gage, which he over­pays on oc­ca­sion.

He asked: “Should I pay down my mort­gage or am I bet­ter off in­vest­ing any spare cash? I don’t know, though I’m 40 next year and would love to pay off my mort­gage be­fore I’m 60.”

When Mr Dodsworth left his pub­lic sec­tor job he also walked away from its gen­er­ous de­fined ben­e­fit pen­sion scheme. He had ac­crued a pot worth £50,000, too lit­tle to sup­port his re­tire­ment plans. “I’ve just opened a self-in­vested per­sonal pen­sion (Sipp) with £2,000, which I want to in­crease but I’m not Be­com­ing self-em­ployed puts ad­di­tional onus on Mr Dodsworth to gen­er­ate reg­u­lar work and be fit to do it. He will have lost a num­ber of lo­cal author­ity em­ployee ben­e­fits: death in ser­vice, pen­sion, hol­i­day and sick pay.

So in­sur­ance must be a pri­or­ity – be­fore mort­gage and re­tire­ment goals he needs to pro­tect his fam­ily. They should com­plete a short­fall anal­y­sis to see how much life cover they need.

As Mr Dodsworth’s long-term goals rely on him work­ing he should get in­come pro­tec­tion and crit­i­cal ill­ness cover, though in­come pro­tec­tion may be hard to get as a new free­lancer.

A sen­si­ble saver, Mr Dodsworth is us­ing tax-ef­fi­cient pen­sions over the long-term along­side a short­term rainy day fund. To be safe he should in­crease the lat­ter to cover six months’ ex­pen­di­ture.

Laura Miller

Pay­ing down debt is good, although a mort­gage is typ­i­cally the cheap­est form of bor­row­ing and other debts should be re­paid first. It could help to switch to an “off­set” mort­gage, when sav­ings are put with the same lender as the mort­gage and used to re­duce the mort­gage in­ter­est payable.

His mort­gage is £144,000 and he has £47,000 in sav­ings. An off­set mort­gage would charge in­ter­est on £97,000 in­stead of £144,000, al­low­ing him to use the spare cash to in­crease his emer­gency sav­ings, or in­vest. Mr Dodsworth has an in­ter­est­ing port­fo­lio which has de­liv­ered ter­rific per­for­mance us­ing some highly rated funds. Em­pha­sis has been on look­ing for stel­lar per­for­mance and growth. My reser­va­tion is: what is in the port­fo­lio to pro­vide de­fen­sive cover? Fail­ing to ad­dress this could be a costly mis­take. Mr Dodsworth should con­sider some di­rect prop­erty, fixed in­come, in­fra­struc­ture and pos­si­bly an ab­so­lute re­turn fund. These as­sets

should pro­vide a de­fen­sive buf­fer if the stock mar­ket falls fur­ther. Around 25-30pc in de­fen­sive as­sets would be worth con­sid­er­ing.

At 30pc, his port­fo­lio has too strong a tilt to­wards the UK and should be re­duced to un­der 20pc; sin­gle digit ex­po­sure would be suf­fi­cient. His heavy Asian ex­po­sure should be re­warded in the long term, but this area tends to be volatile. He could trim this ex­po­sure and broaden it to in­clude other emerg­ing mar­kets.

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