2020欧洲杯网站The consequences and fallout from the pandemic has meant many of us will need to place greater importance on sorting out our finances. Whether still in work, furloughed or between jobs, the lockdown and subsequent economic fallout is unlikely to leave many better off.
2020欧洲杯网站School business manager Mark Allam, 41, and his wife Becky, 39, a self-employed marketing consultant, hope to sort out the “disorganised chaos” that is their finances.
2020欧洲杯网站The pair need to save more for retirement. They own a mortgaged rental property but neither have much in a pension.
This desire must balance against their short-term goals of buying a new home and funding their children’s future – equally important ambitions.
2020欧洲杯网站They live in Bedfordshire with their three young daughters, Evie, Isla and Maia, and want to move to their dream property when the five-year fixed period on their newly remortgaged home ends.
Things are complicated and ambitious but not bleak. The Allams currently have £10,000 stashed away to fund their house move. Another £10,000 for the children and Mr Allam invests a further £10,000 in a stocks and shares Isa.
The new home will cost around £550,000 and the couple already have £94,000 of equity in their home and five years to pay off more debt. They are saving around £1,000 a month.
2020欧洲杯网站On the retirement front, things are slightly worse. Mr Allam has just £8,000 and Mrs Allam, nothing.
2020欧洲杯网站An amateur investor, Mr Allam wants to change the way he runs his and his children's Isas, moving away from high-risk single stock bets, after he got his fingers burnt. He believes investment trusts are cheap at the moment and will use this strategy.
But how can the couple simplify this three-pronged strategy? And what trusts should Mr Allam be targetting?
Cleona Lira of Conscious Money said:
The Allams have done well to be clear on what they want to achieve.
However, they should have a target for what they need to save for the new house deposit and adjust the savings plan accordingly. This should be the first port of call. At the current rate, the couple would save £60,000 towards their new home, some way off the £180,000 extra it will cost.
A larger mortgage will be necessary and they should work out whether they can afford the future repayments.
However, they should not try and make this up via investing. Buying shares for fewer than five years is risky as they could see a steep market fall just as they need the money. It might be boring, but saving in a high-interest savings account or a fixed-term bond is their best option.
2020欧洲杯网站Yes, the benefit of investing and potentially having a higher deposit is lost; yet, all financial planning is a trade off.
Regarding the pension, it appears that Mr Allam is quite underfunded, having only recently started paying in. Being self employed, Mrs Allam should start to contribute into a self invested personal pension (Sipp) if she enjoys investing herself.
While a buy-to-let property is a good addition, the majority of their wealth and retirement is tied up in one asset which is quite high risk. Rental yields may fall in the future and being a taxpayer, generating additional taxable income via rent is less attractive.
2020欧洲杯网站Although they would like to keep the second property, they could save on income tax with contributions into a pension. They should consider selling it and redirect the funds towards the future house deposit and boosting their pensions, investing in markets for the long term. However, there could be capital gains tax to be paid on the sale.
Dzmitry Lipski of Interactive Investor said:
When investing for children or for your retirement you have a long time horizon so it makes sense to look to the stock market.
Since they seem willing to take risk, but are aware that this comes with the potential to make mistakes, they are right to look to investment trusts.
2020欧洲杯网站They can be a great way to buy when the market dips, because historically, discounts – the market value of the trust versus the value of its portfolio – tend to rise when markets fall, making them cheaper ways to buy in.
2020欧洲杯网站What has been notable during the recent market crash is that investment trust discounts have been volatile so those looking for so-called bargains have had to be quick. The average investment trust discount recently hit 18.4pc on March 23, surpassing its peak of 17.6pc during the financial crisis of 2008. Yet as of this week, the average discount has gone back down to 8pc.
2020欧洲杯网站How to assess whether an investment trust is good value or not is a good question. An investment trust on a wide discount can be a buying opportunity, but it might widen further. Moreover, it could be wide for very good reason.
Mr Allam should assess the discount alongside gearing (debt) levels, the discounts of similar rival trusts and the performance of the stocks in the portfolio.
One trust Mr Allam is interested in is BlackRock Throgmorton Trust, which is a case in point. Over the past month, its discount went out to 20pc but currently trades around 0. The trust has fallen far less than most of its peers over the past year.
If he is interested in discount opportunities, this may be a trust to keep watching and buy if it falls again.