The Daily Telegraph - Saturday - Money
‘I want to be able to build our dream home’
Having bought a greater share in his company, a reader tells Ruby Hinchliffe he would like to divert extra cash into stocks
Daniel Garside, 39, has invested before, but he has not really taken it seriously – until now. Having bought out a greater share in one of his two companies, he is now keen to divert the extra income he has accrued into stocks and shares.
The automotive businessman, who lives in West Sussex, previously sold some shares given to him by a former employer and also holds around £50,000 of gold, having built up his position over the past five years.
One of Mr Garside’s businesses, which helps people who put the wrong fuel in their car, has been running for 12 years. The other, a far more recent venture, specialises in exhaust systems. The father of three thinks he will have an extra £20,000 to £40,000 to invest each year, after all his outgoings – which include three sets of private school fees, a car on finance and a mortgage. “I’m thinking maybe two thirds stocks, one third gold as an annual investment strategy. This would give me decent returns and a bit of a cash buffer, he says.
“In an ideal world, I’d want to make between 5pc and 10pc returns a year – but I have a moderate risk appetite so I want a good spread.
“I don’t have the bandwidth to manage investments and make decisions on a regular basis. I want to set investments now and hope that in 10 years they have paid off.”
As for pensions, he has £16,000 in the pot and his wife – who is also on the payroll – has £ 21,000. Both are putting in the statutory minimum, which is 5pc for employees. Mr Garside’s worry is that while his cashflow has now risen, he has very little in the way of assets to one day pass on to his children. To solve this, he was thinking about buying some flats in West Sussex over the next few years. The dream, however, is to one day build their own house once all their children fly the nest.
Chris Allen Director of wealth planning at private bank Arbuthnot Latham
Mr Garside should be able to achieve his main goal, but I would suggest reordering his priorities. Pensions are a clear area that Mr Garside and his wife should explore. If he is driven to build up his asset base, buffering their pension provisions is a place to start. I would assess what scope there is to make company pension contributions, as this can be a beneficial way of extracting cash from the business. The annual allowance (ignoring any potential taper) each tax year is £ 60,000, which could allow him and his wife to increase their pension pots quite significantly in a tax efficient way.
Of course, they would not be able to touch their pensions until the age of 57, so that is a consideration.
Isas would be another area to consider if their plan to self- build is an objective for the next 10 to 15 years.
The plan to purchase additional properties should not be the priority as Mr Garside would probably need to take out more debt to fund them, which may not be the most appropriate route to take.
Relative to his expectation for returns of 5pc-10pc per annum, I would anticipate long-term annualised growth for a moderate risk portfolio to achieve approximately 6pc-7pc. As Mr Garside is looking to have little involvement with the investments once he makes them, I wouldn’t suggest buying stocks directly.
To diversify his portfolio, he should invest across a range of global equities, bonds and alternatives such as commodities or gold. I would discourage an allocation to gold representing more than 10pc of his investments and ideally less.
Without the ongoing support of a professional investment manager, Mr Garside may want to consider a passive approach to gain exposure to the right asset classes at a cost-effective price.
For his risk profile, he may wish to split about 40pc of his investments between the iShares Global Government Bond ETF and HSBC Global Corporate Credit Fund, which will provide a good mix of bond exposure. He should then allocate about 50pc to Lyxor Core MSCI World ETF for his equity exposure, leaving 10pc for alternatives.
Craig Rickman Personal finance expert at Interactive Investor and qualified financial planner
The investment strategy that is right for Mr Garside must centre on his core financial goal, which is to accrue sufficient savings to build his own home within the next 10 to 20 years. There are several things to factor in: his personal appetite for risk, affordability, investment time frame and access requirements.
Mr Garside’s preferred asset weighting is two thirds stocks and one third gold. However, while gold is a useful addition to any portfolio, allocating a third of his portfolio to this asset might not be the best approach. Aiming for somewhere between 10pc and 15pc would be more suitable.
Mr Garside may be better served by spreading his portfolio across a more balanced range of assets, diversified across different sectors and regions.
The Vanguard Lifestrategy 80 fund – which invests 80pc in global equities and the rest in global bonds and fixed interest – could do the trick. Not only does the fund charge low fees, but it will enable him to take a hands-off approach with portfolio management.
Returns of 5pc a year after charges are certainly achievable, but 10pc might be ambitious. That’s unless Mr Garside is prepared to be more speculative. Upping equity allocations and watering down bonds and fixed interest could be one way to boost growth potential. It goes without saying that he will want to pay as little tax as possible, which brings us on to which products to choose to hold his investments. As always, tax efficiency must be complemented with suitability.
It’s worth exploring pensions first given the upfront tax advantages, which could give his savings an immediate boost of at least 25pc. The problem here is that, under current rules, the earliest he will be able to access the money is likely to be age 57. If he needed to get his hands on his investments before this point, which is possible given his time frame is somewhere between 10 and 20 years, it could throw his house-building goal into jeopardy.
Therefore, it could be more suitable for Mr Garside and his spouse to each funnel up to £20,000 of their annual savings into stocks and shares Isas.
Although there is no upfront tax relief, they will have the flexibility to sell their investments at any point in the future to fund their home-building goal without worrying about HMRC grabbing a slice.