Investing in your 30s - the young professional
If you want to ensure you can meet your shorter-term financial goals and enjoy a decent standard of living in later life, it's crucial to put the right financial foundations in place now. So how much do you need to stash away each month and where should you invest it?
In the first of a three-part series, we take a look at the options for people in their thirties. Each of our case studies is relatively new to investing, but although they have different priorities, all share relatively long investment time horizons - due to their age.
Case study: Jon, a single professional in his early thirties
Life has been pretty easy for Jon Roberts. He has managed to avoid any permanent financial responsibilities, so apart from paying his rent and a few bills, the rest of his £50,000 salary is his to spend how he sees fit.
He's taken full advantage of that financial freedom, buying a shiny BMW and making regular trips to the ski slopes of Austria.
But now he's hit his early 30s, Jon's turning his attention to the future. Although not yet on the housing ladder, he has ambitions to buy his own property within the next few years and wants to get his finances organised.
A risk-taker by nature, he's happy to take a more gung-ho approach to his investments, with exposure to some of the racier areas of the world in the hope that these will deliver him better returns over the next three decades.
Jon needs to save into cash to meet his short-term savings needs. He should start with a 'rainy day' cash ISA, holding this year's allowance of £5,640, for which he can currently get up to 5%.
To build up the deposit required to get into the housing market, he should also maximise the use of one-year regular savings plans offered by banks and building societies, as they invariably provide a better interest rate than standard savings accounts.
For investments, Jon needs to focus on generating longer-term gains, so he should mainly use growth funds.
He should also start to build a suitable pension pot; given his age, contributions of up to 15% of his salary (as a guideline, the percentage should be around half his age) will probably be required.
With the best part of 35 years before retirement, no pressing financial commitments and an enthusiasm for risk-taking, Jon can afford to take more of a chance with his longer-term investments, so the rapidly growing emerging market economies make sense.
However, these could also prove a bit of a rocky ride as such countries tend to be economically and politically more volatile than 'mature' economies like Europe or the US.
Gartmore Emerging Market Opportunities fund
Our expert, Mel Kenny says: "This fund has a range of exposures across emerging countries with strong future growth stories, while the fund manager has a long track record in emerging markets, especially Latin America. It also has an OBSR AA rating - an indication of superior quality, based on process and track record."
Aberdeen Emerging Market fund
"While it's high-risk, this fund adopts a relatively conservative investment approach, with returns generated from holdings that offer long-term good value," says Kenny. "It's a consistent top-quartile performer, with exposure to a range of emerging continents."
AXA Framlington UK Opportunities fund
Kenny says: "Axa's fund invests in companies of all sizes across a good spread of UK businesses, rather than focusing on particular sectors. It's an excellent performer, consistently achieving top-quartile performance over one, three, five and seven years."
Our fund advice comes from financial adviser Mel Kenny, director and chartered financial planner at Radcliffe & Newlands.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.