Mo's question in full
I am 25 and starting to seriously financially plan out my future.
I would really welcome a 'sense check' on my thinking as well as some help on which investment choices to make.
My current position is:
Income = £100,000 (+15% annual growth)
Work Pension = value £20,000 - investing £1,100 per month (£800 me + £300 Co.).
Property = value £500,000 - with a £240,000 mortgage at 1.29% - 35 years (remortgage due 06/2019) + (illness & income protections in place).
Rental Income = £20,000 per annum.
Debt = £0 (other than mortgage)
I have a separate 'emergency' fund - which will cover my expenses for 12 months
Cash Lump Sum (Oct 2018) = £25,000
On-going (Sept 2019 - Sept 2024 ) annual lump sum = £40,000
On-going = £1,000 per month
My goals are: To invest for 15 years - my risk appetite is very high (i.e. I could afford to lose all my money).
Goal 1 - More Important: To have an investment pot of £1,500,000.
Goal 2 - Less Important: To be mortgage free.
My plan and questions are:
For the first 10 years I'll take higher risk investing opportunities (i.e. 80-100% equities), followed by 5 years of moderate risk investing (65% Equities: 35% Bonds)
1. Open an annual Stocks and Shares ISA each of the next 15 years:
Put £20,000 (of my Oct 2018 £25,00 lump sum) into the lowest cost, passive, diversified, tracker fund I can find. Vanguard seems to be the best. For example:
- "Vanguard Life-Strategy 100% Equity" or
- "50% Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares + 30% Vanguard Total International Stock Index Fund Institutional Select Shares + 10% Vanguard Total International Stock Index (VGTSX) + 5% Vanguard Explorer (VEXPX) Small-cap stocks + 5% Vanguard Health Care (VGHCX): Health sector"
Q: Would you recommend a different (cheaper/better performing, etc) platform, fund or range of funds?
Q: Should I drip-feed my £20,000 in between Oct 2018 and March 2019, or just put it in as a lump sum now?
2. Open Share trading/dealing account:
I am looking at Vanguard or iWeb as the lowest cost platforms.
Q: Would you recommend a different platform?
From Oct 2018 - I have a £5,000 lump sum (from the original £25,000 lump sum) + £1,000/month to invest.
From Oct 2019 onward I will have a £20,000 lump sum + £1,000 per month to invest.
Q: I have no clear idea what to do with it.
This is the area I feel I need most help with. Could you please offer any guidance as to how to structure/invest this portfolio? What products (i.e. ETF, stocks, etc).
2019 - reduce mortgage term to 25 years
2024 - reduce mortgage term to 15 years
2025 - reduce mortgage term to 6 years
Q: As being mortgage free is a second tier goal for me, would it be better to max out monthly payments into my other investments rather than pay higher monthly mortgage repayments?
I appreciate the above is a lot to go though, but I'd welcome any help and guidance.
Holly Mackay's Response
Yours is a very detailed question that would benefit from a thorough revision with a financial planner – there’s a lot to go through which suggests someone needs the full picture of your position and circumstances.
Some observations from me:
- Ask your employer if they would match any additional contributions from you? This could be turning your back on nice additional (free) contributions from your company and you can probably afford to make the extra contributions.
- You don’t mention a private pension at all – as a higher rate taxpayer you get decent tax relief which effectively means £1 costs you 60p. Contributions are capped but it’s worth investigating.
- The Stocks and Shares ISA – Vanguard is a decent option for the £20,000 – it’s low cost as you say. If you like the concept of passive funds this is a decent choice. I think the LifeStrategy 100% is a decent option. Building your own combo sounds a bit over-complicated and of course would need maintaining & rebalancing/tweaking, which the LifeStrategy option does not.
- As to whether you go now or drip feed in – this is a near impossible question and you need to make this call. Markets are pretty volatile at the moment – there is a logic to drip feeding in to average out the entry price. But of course, I can't predict the future so I think you need to decide this one.
- Your general investment account - it’s going to be under £50k for the next three years (probably), and you seem to want to explore different investment choices. So Vanguard could be too restrictive. I'd suggest you have a look at AJ Bell Youinvest which is low cost at these levels, and offers choice. They have a core passive range which could be the starting point or the foundations. And as your confidence grows you may want to add a few active funds, but this is of course your decision. Have a look at the platforms’ preferred fund lists which are generally a good guide – such as Hargreaves Lansdown's Wealth 150+ or the AJ Bell favourite funds.
Good luck! Please remember that I'm not qualified or regulated to give financial advice, so the above are my opinions only.
You earn a decent wage and you’re in a really strong position. So you could do worse than try to see a financial adviser for a few hours, at least to check your planned approach.