Based on David’s total income and expenditure, he is advised to allocate his existing resources during the next twenty-four months to generate funds for his long-term goals. Accordingly, David has the option to rent out, lease or mortgage the inherited house from his father during the year. Leasing would allow him to earn monthly rentals upon which he can earn additional bank interest and increase his total savings. David is also recommended opening a recurring account or a fixed deposit account for the next two years to lock his monthly savings and earn higher interest. He can also invest his current account savings in tax-free bonds or funds, meanwhile.
Furthermore, on the basis of his total savings, David needs to invest in cheap yet fast growing funds to meet his long-term goals. Accordingly, he has an option to invest in cheap tracker funds such as the “Fidelity’s Index World fund, which charges 0.3pc a year, or £30 on a £10,000 Isa fund” (Oxlade, 2014). Such funds allow investors to earn higher profits in the long run. When the savings reach a reasonable size, David can get the tracker fund converted into a low flat fee fund such as the Alliance Trust Savings or the Interactive Investor Fund (Oxlade, 2014). These investments shall allow David to maximize his wealth in the long run and allow him to satisfy his long-term objectives.
David is recommended to hire-purchase his new house at the end of two years and to pay the installments with the investment income he receives from the tracker funds and monthly lease rents. David should also invest in a self invested pension plan (SIPP) or invest in a pension fund, if his school offers any. He is also suggested to save at least £1,200 annually for investment purposes. With an increasing annual inflation rate and a 6% growth rate (assumed), David shall be able to save almost £70,000 at the end of the next 15 years.
References
Oxlade, A. (2014). The basic investing plan I would hand to my 21-year-old self. [online] Telegraph.co.uk. Available at: http://www.telegraph.co.uk/finance/personalfinance/investing/11185104/The-basic-investing-plan-I-would-hand-to-my-21-year-old-self.html [Accessed 15 Jan. 2017].
