I’m a 25-year-old graduate with limited savings, but a strong desire to start investing. Should I prioritise building an emergency fund or begin investing small amounts into a diversified portfolio? What percentage of my anticipated income should I invest and are there any specific areas or sectors that I should look at?
Dan Boardman-Weston, chief executive at BRI wealth management, says it’s great that you want to start investing and building financial security for the future.
It’s crucial that you have an emergency fund to begin with. Try to save three months worth of living expenses before you consider investing and once you’ve reached that target, gradually start investing while also building your emergency reserve up to six months of expenditure. Interest rates are still competitive on savings accounts, and you should be able to generate a return of over 4 per cent for the time being. Try and ensure that this is in a cash Isa to minimise the potential tax liability.
Once you’re in a position to start investing, try to set an initial goal of investing 15 per cent of your income. Consideration should be given to investing via an Isa which means capital gains and income are free of any tax. You can invest up to £20,000 per year, which at this stage of your investment journey should give you enough scope to invest everything in a tax-efficient manner.
If you’re able to tie up a portion of your savings for the longer term you should consider your pension where capital gains and income are tax free, while the fund accumulates, and you can claim tax relief at your marginal rate of income tax. Consider using your workplace pension as some employers will top up what you save. If that’s not a suitable option, then consider using a fund platform to set up the Isa and personal pension.
There are lots of investment options that you can choose from, but given your age and investment time horizon, you should consider having a significant portion of your investments in equities, as these tend to generate the best long-term returns. It’s important to ensure your portfolio is diversified, so look to have a mix of different sectors and geographical exposures.
The core equity components of a portfolio tend to be US, UK, European and Emerging Market equities. Consider investing passively in these markets as this will reduce costs and should generate good long-term returns. You may then want to consider smaller investments in technology, healthcare and global smaller companies. These are potentially more volatile investments but offer the prospect of good long-term returns as there are a number of structural drivers that make them attractive. Consider paying a little bit more for exposure to these investments and invest with an active fund manager that will choose which are the best companies to invest in.
Can mediation resolve lease dispute?
I am having trouble with an architect who leased a studio from me. I’d like him to leave, but his intransigent approach has cost me a lot of money. Is it true that mediation can save a lot of time and money when resolving disputes? If so, what steps should I take?
David Wadsworth, a real estate disputes resolution partner at JMW Solicitors in London, says mediation can indeed save a lot of time and money in legal fees to resolve disputes.
The process involves appointing a mediator to help the parties talk through the issues, negotiate and come to a mutually agreeable solution.
While there’s no guarantee you’ll get a resolution, in practice, mediations tend to conclude the dispute in a relatively short period of time, perhaps a matter of weeks; whereas a court claim will take many months or more from start to finish.
Another benefit is that, since mediation is a consensual process, you can agree a settlement on the basis of anything you and the other party decide to agree on — even if that settlement is wider in scope than a court could ever order. For example, in boundary disputes parties can swap parts of land between each other regardless of what the legal position about the ownership of them might be.
In your particular case, a mediation may help depending on what your dispute relates to. Is it over your ability to end the lease early, for example? Or the financial value of doing so? Might the architect leave early if he was paid some money to leave early?
While it does require the architect to co-operate, the court is becoming much more forceful about convincing people to do so. If one party refuses to go into mediation, they risk not being awarded any of their legal costs, even if they win, were the court to decide that mediation would have been a quicker and more cost-effective route.
Our next question
My daughter has asked if I can help pay for her son’s private school fees as she is struggling with higher mortgage rates and increased cost of living. I am in a position financially to help, but is there anything I should think about before I say yes? Would this impact inheritance tax? How best should I structure the payments? And finally, how would I deal with questions from my other children?
What’s more, any settlement achieved through mediation can be agreed to be confidential. This can be valuable where one or both parties do not want anyone to think they have admitted any liability to the other and nor do they want the details of the settlement known or publicised. In court, nearly all trial hearings are held in public, and the outcome can be freely reported on.
Finally, it is far easier to maintain any necessary ongoing relationship between the parties after the dispute has been resolved. You may not be intending to continue the relationship, but an amicable conclusion generally benefits everyone involved.
However it’s worth bearing in mind that while mediation offers benefits, potential downsides include the possibility of no guaranteed resolution, costs associated with the process, and the need for both parties to be willing to compromise.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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