How do I invest for growth with a 5-year timeframe?

This is a complex question that is best suited to a financial adviser who can consider your personal circumstances, income and assets.

Tax comes in many different guises so you need to identify which tax you are trying to mitigate. Your objective for growth suggests you might be in the accumulation phase (saving up pre-retirement). If so, for most people it will be managing Income Tax and Capital Gains Tax, with a lookout for tax on interest if you have substantial cash savings. For older folk post-retirement, it might be Income Tax, your tax-free lump sum from a pension, or even Inheritance Tax.

Although I can’t answer this for you in specific detail, I can give you some pointers on what to consider.

First – which tax are you worried about? This helps point you to the right course of action.

Second – how complex are your affairs? If you are a higher-rate taxpayer, have substantial cash savings or an inheritance, or a complicated final salary scheme (sometimes called a defined benefit pension scheme), then it can be well worth getting financial advice. Tax will be part of the planning conversation.

If at this point you are screaming “Holly, I’m just an average Joe who reads about the tax take getting higher and I want to be sensible with the small amounts I save… I have nothing fancy and I’m not a billionaire!” then pensions and ISAs are your friends.

Investments in an ISA are largely free from tax and flexible – get them when you want. Investments in a pension bag you a very nice Government top-up which boosts the total – but you have to wait until you’re at least 55 to get them. Pensions are even more appealing for higher-rate taxpayers and you can read more here. Both allow you to build up a very efficient stash from a tax perspective and it’s important to remember you can pay into both – it’s not an either/or decision. I pay into both.

Finally you mention a 5-year horizon. There is no firm rule and this is a tricky timeframe – it’s long enough to mean you arguably shouldn’t sit in cash (particularly if rates come down a lot) but it’s not AGES, so if we had a global meltdown this could impact the value of any shares you have and you may get a little burned (although over 5 years I really think most things would have a chance to recover).

The logical PhD response would probably be to have a mix of shares (the majority) and bonds (the minority) for this timeframe. But you have to be able to sleep at night. On the other hand, make sure you are taking enough ‘risk’ (i.e. have enough in shares). Because the evidence suggests that over the longer term, they will do better than cash.

Is it really for 5 years? Or did you just say that because you can't think about anything longer? It’s an important question – the more time up your sleeve, the more you can ‘risk up’ in shares.

Tax is very complex and tricky. But as a rule of thumb, ISAs and pensions are very good places to start. If you’re at retirement or have complicated stuff or large sums of money are involved, I would get financial advice.