The Daily Telegraph - Saturday - Money
‘My buy-to-let dream is over. What shall I do?’
A reader has £103,000 to invest but needs a new plan after house prices rose too much. Rachel Mortimer reports
Almost two years into the pandemic-fuelled property boom, house prices are still breaking records. They have climbed by 21pc in the past two years, hitting an average of £265,312 last month, according to Nationwide Building Society.
For 41-year- old Alfred Calland, the red-hot market has derailed his buy-tolet retirement dream. He lives in Plymouth, where demand has boomed since buyers flocked there in search of more space and a slower pace of life.
“The plan was to eventually invest in two or three houses and retire on that, but that has been completely blown out of the water. I need another plan to invest my cash,” he said.
Mr Calland has £20,000 in a cash Isa and £ 10,100 worth of Premium Bonds, which he is keen to sell. He has £15,000 in other savings accounts as a rainy day fund.
The part- time pharmacist earns £ 27,500 a year and has paid off his mortgage. He invested £60,000 in a pension with Hargreaves Lansdown, but this is losing money. The pension is now worth £37,000, alongside another £7,000 in cash. It is mainly invested in financial services giant Legal & General, pubs operator Marstons and Lloyds Banking Group. Mr Calland also has smaller holdings in Barclays and NatWest banks, the insurer Aviva, energy provider Centrica and oil and gas company Tullow Oil.
He said: “I would like to hold on to the shares in the banks and insurers as I bought them cheaply a few years ago. I also have around £29,000 in a pension with the National Employment Savings Trust ( Nest), but I’m not sure if that’s the best place ace for it.” it.
Mr Calland has s no intention of touching his investments estments until at least state pension on age and so is willing to take a little bit of risk with the money. ey. “I know of people getting up to 9pc annual returns, but appreciate this is on the e high side and would be happy appy with around 5pc,” he added. dded.
Nick Onslow Chartered financial planner at Progeny
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Mr Calland should d get a state pension forecast to ensure he is on track to gain the required 35 years of National nal Insurance
Alfred Calland had planned to buy two or three properties in Plymouth, right contributions. The pension is currently worth £185.15 a week or £9,628 a year. As he is 41 now, he can expect to start receiving the state pension when he is 68 in 2049.
Mr Calland has a moderate attitude to risk but he needs to look at his pensions slightly differently. While the earliest he could access these funds is in 16 years’ time, as the minimum age for withdrawals from pensions will rise to 57 in 2028, his intended access isn’t until he is 68.
He therefore has a high capacity to tolerate falls in share prices over this time and could increase how much risk he takes to maximise returns. He is also making further investments while he is working and can reduce risk nearer his intended retirement date, should he wish to.
While Mr Calland has a range of individual company shares he wishes to retain in his pension portfolio, they do lack diversification and are considered higher risk. He needs to consider the overall risk he is prepared to take and the range of asset types he wants to invest in.
Getting the right mix of stocks, managing costs and maintaining a welldiversified globally spread portfolio should give him the outcome he is looking for. He could also consider a more ethical approach as this is where the market is moving.
With regard to the Nest pension, these have a range of investment risk levels, although 99pc of members are in one of its default “retirement date” funds. However, Mr Calland can invest at a higher level of risk should he wish to. If he transfers other savings into the scheme he won’t pay anything, but monthly contributions contrib are subject to a 1.8pc initial charge. c The ongoing annual fees of 0.3pc are considered low by industry standards.
Nest is i very transparent on its website we with regard to investment investm performance and over the longer term taking a higher level l of risk has delivered higher hig returns.
He should sho be aware that he is unable to transfer this pension to another an provider while he is still making ma contributions.
If he is able ab to find an investment strategy strate within his Nest scheme that tha meets his requirements, he may be better off transferring transferrin his Hargreaves
Lee Smythe Chartered wealth manager at Kingswood
As Mr Calland sees no need to access his funds until state pension age, he should consider longer-term investment into a stocks and shares Isa. Cash savings rates remain low with little prospect of them increasing significantly even as the Bank of England starts to increase the Bank Rate.
Even with his Premium Bonds, while he may get lucky and win one of the larger prizes, the current prize fund rate is only 1pc, although prizes are tax-free.
His Nationwide cash Isa should be transferred to a stocks and shares Isa so as not to use any of his current year’s allowance. Then he can add another £20,000 using the proceeds of his Premium Bonds plus other cash.
Mr Calland should consider how much he might need to cover emergencies and any planned spending before deciding on the total amount invested, as ideally he wouldn’t sell these investments for some time.
He is prepared to take a medium level of risk with these funds and in broad terms this would typically be represented by a portfolio which is around 60pc invested in shares alongside other assets such as government bonds, corporate bonds and commercial property. Over the longer term a portfolio of this nature should have the potential to achieve the 4pc-5pc returns he would be happy with, although this would not be guaranteed of course.
In terms of investment options, for low- cost exposure to a broadly based portfolio Mr Calland could consider HSBC’s Global Strategy range of funds. The Balanced portfolio would suit his medium risk tolerance; for slightly more risk, given his long time scale, the Dynamic portfolio would suit.
The ongoing charges of just 0.18pc and 0.19pc a year are very low and, while past performance is no guide to the future, they have provided an average annual return of 6.5pc and 8.4pc respectively over the past five years.