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‘Can I afford an extortionate house after putting my three boys through private school?’

Daniel Garside
Daniel Garside, 39, aims to build investments now and reap the rewards in a decade - Julian Simmonds

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Daniel Garside, aged 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 firms, 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.

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The dad-of-three reckons 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.

He said: “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.

“In an ideal world, I’d want to make between 5 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 ten 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. He said: “I’m aware this will be extortionate, so I want to prepare for that now. I’d like to plan and know I could afford it in the future.

“I don’t want to get to the end of working and not be able to decide whether we can do this.”

Chris Allen, director of wealth planning at private bank Arbuthnot Latham

Daniel should be able to achieve his main goal, but I would suggest reordering his priorities.

First, Daniel needs to build up an emergency cash buffer for any unknown situations, if he doesn’t have one already.

Next, he should consider what overpayments could be made on his mortgage to lessen the impact of debt on his asset base. We have been in a period of interest rates increasing over the past 18 months and debt repayment should be a serious consideration.

It would be worth properly scrutinising his cash flow. Sending three children through private school is costly and his ambition to save money for his children as well as investing £20,000 to £40,000 each year is a significant consideration.

Pensions are a clear area that Daniel, and his wife, should explore. If Daniel 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 for both Daniel and his wife, 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 Daniel 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 Daniel would likely need to take out more debt to fund them, which may not be the most appropriate route to take. Property would also lead to a lack of diversification across his asset base and would be more illiquid than alternative investment options.

Relative to Daniel’s expectation for returns of 5-10pc per annum, I would anticipate long-term annualised growth for a moderate risk portfolio to achieve approximately 6-7pc. As Daniel 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 like 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, Daniel 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.

Other factors that Daniel should consider, if he hasn’t already, include life insurance or serious illness to make sure his family is protected.

Craig Rickman, personal finance expert at Interactive Investor and qualified financial planner

The investment strategy that is right for Daniel must centre on his core financial goal, which is to accrue sufficient savings to build his own home within the next ten to twenty years.

There are several things to factor in: his personal appetite for risk, affordability, investment timeframe, and access requirements.

Let’s first focus on asset allocations. Daniel describes himself as having a moderate risk appetite, which suggests that he’s comfortable with the ups and downs inherent with stock market investing but would like some protection from market falls.

Daniel’s preferred asset weighting is two-thirds stocks and one third gold. However, while gold is a useful addition to any portfolio, acting as a counterweight to the likes of equities, allocating a third of his portfolio to this asset might not be the best approach.

Historically gold has proved a “safe haven” for investors, but it can still be volatile over short periods. Instead, aiming for a smaller weighting to the metal, say somewhere between 10pc and 15pc, would be more suitable.

A further drawback of gold is that physical holdings such as bullion or coins can be liable for capital gains tax when sold, which could take a sizable bite out of his home-building fund.

Daniel may be better served by spreading his portfolio across a more balanced range of assets, diversified across different sectors and regions. For the sake of simplicity and easy maintenance – two things which are important to Daniel – he can achieve this within a single fund, particularly one that keeps costs low.

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 Daniel 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 Daniel will want to pay as little tax as possible, which brings us onto 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 Daniel 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 Daniel 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.

Finally, with regards to saving for his three children, Daniel could open Junior Isas. This must be balanced against his own financial goals. Namely, he would need to be happy to relinquish ownership and control of the funds.

As an alternative, Daniel and his spouse could top up their own Isas, providing they have sufficient allowance to spare, then gift the money to their children when they see fit.