Occupation: School bursar
The problem: Mr Grove, who is 41, earns about pounds 25,000 a year, while his fiancee earns pounds 16,000. He has a pounds 54,000 mortgage on a property that cost pounds 65,000 in February and may now be worth pounds 75,000. The mortgage is backed by two with-profits endowment policies, one maturing in 2009 and the other in 2016. He also owns 450 Woolwich shares
He has pounds 10,500 invested in an M&G investment trust which has a wind-up date of 2002, which he is concerned about because of its relative under- performance, plus pounds 4,000 savings in a building society. His fiancee also has a similar amount in a society account.
The couple are both members of their respective occupational pension schemes. They have no outstanding loans and estimate that after setting up home together they will have a monthly "surplus" of pounds 450, although they are also considering starting a family, in which case they might need to move to a larger house, potentially costing pounds 100,000.
Mr Grove is considering investing for capital growth, possibly through direct investment in the stock market, looking 12 to 17 years ahead.
The adviser: James Bruce, financial planner and independent financial adviser, Corporate and Personal Planning, Highwoods Square, Highwoods, Colchester, Essex, CO4 4BB (01206 841176).
The advice: First, you have a need for an adequate fund in case of emergencies. You already have pounds 4,000 in a Nationwide Postal Account. This offers a superior rate of interest to equivalent branch-based accounts. I would recommend that you continue with this.
On the protection front, the two endowment policies contain life cover to pay off the mortgage loan in the event of your death. You also have death in service benefits of twice your salary in the event of death. Given that you have no dependents, at present you have no need for further life cover.
If you were unable to work for reasons of ill-health or accident, you would receive six months' full pay. I would recommend that you insure against this happening to you. Replacement of earnings cover paying pounds 16,000 a year (about 64 per cent of current income) would cost pounds 29 a month, assuming a 52-week deferment period.
You also have no protection in the event of a sudden serious illness - such as cancer, stroke or a heart attack - which you then survive. Critical illness cover pays a lump sum on diagnosis of a range of illnesses. The cost of such cover, which could be used to pay off the pounds 54,000 mortgage loan in the event of illness, would be pounds 30-pounds 35 a month.
The pension scheme you belong to is a good one, with index-linked-benefits based on your final salary and years of service. I recommend that you remain a member of this scheme.
One eventuality you have mentioned is marriage to your fiancee next year. Typically, the costs of a wedding can be up to pounds 10,000. This would make a significant dent in your savings.
After marriage the professional drafting of a will becomes vital, otherwise normal intestacy laws will apply. With a will you can determine where you wish your inheritance to go.
Buying a new property at pounds 100,000 will require extra funds of pounds 35,000, assuming the sale of your existing one at pounds 75,000. You are concerned that, jointly with your fiancee, mortgaging yourself to the hilt may not be sensible. I suggest putting down the largest deposit possible, using the financial resources you already have at your disposal.
The shortfall above can be partly financed through the equity of pounds 21,000 in your property, the existing PEP investment and your 450 Woolwich shares, leaving a gap of about pounds 4,000. To meet this, I would suggest that any surplus income continues to be paid into your Nationwide account for the foreseeable future.
Although I agree that equity investment is the best option for long-term financial returns, I am not convinced that buying shares directly is the most sensible way to gain such exposure. Given your relatively low resources at present, pooled investments - such as unit and investment trusts - that spread risk are a better alternative. Given that you may require it to help finance the new property, I would suggest that you do not transfer the M&G investment trust into another fund at present, irrespective of its current disappointing performance. You might incur expensive initial charges to little purpose.Reuse content