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I'm 28 with £50,000 savings. How long before I can afford to quit work and travel the world?

A high-earning young saver wants to quit work, don a backpack and see more of the big, wide world

Compared with most people in their late 20s, Ross Crowder, 28, is in a highly enviable position.

His full-time job as a design engineer for Jaguar Land Rover pays £50,000 a year plus a final salary pension, a highly generous benefit only a handful of workers his age get to enjoy.

Despite working for a luxury car maker, Ross, who lives in Birmingham, drives a modest Peugeot and chooses not to live an extravagant lifestyle.

Instead, he has been saving around £9,000 a year since he started work five years ago. He has accumulated around £50,000 in savings most of which is held in stocks and shares through an Isa.

He has around £5,000 from his grandparents, who paid his tuition fees some years ago, meaning he is debt free. He doesn’t have a mortgage, choosing instead to rent with friends. He pays £550 a month on rent and bills.

Ross’s biggest indulgence is travel. He has recently spent long periods in South America and he’d love to explore faraway destinations such as China and Australia.

His ultimate goal is to save enough money to quit work and go backpacking permanently. He wants to do this as soon as possible. He reckons his investments would need to generate a return of £20,000 a year to support him.

“If I can earn enough to do this I will die a happy man. I want to know how long it will take and how to get there,” he said.

His portfolio is around 80pc invested in managed funds, such as Woodford Equity Income, with a few individual shares including ITV, JD Sports and easyJet. It has performed very well in recent years, with annual returns averaging 11pc.

He holds around £2,000 in cash.

Mark Dampier, head of research, Hargreaves Lansdown, said: Ross is a lucky man earning £50,000 a year at only 28 with no university debt and with about £50,000 already behind him.

That said, I am not sure he has really worked out his true objectives yet. There is perhaps the difference between objectives and a bucket list. Nor have any of those things that change objectives like marriage yet reared their head.

Let’s try to put some numbers on his potential objectives to give a better idea. The key risk here is inflation. A sum of £20,000 in 20 years’ time will have roughly two thirds of the spending power of today’s money, so not only does Ross need to take this into account with his target income but he also needs the income he eventually takes from his investments to increase to offset the impact of rising prices.

If he carries on investing £9,000 a year on top of the £50,000 he already has, at 6pc growth after charges he will have £515,000 in 20 years’ time.

After adjusting for inflation at 2.5pc this will actually be worth £315,000 in today’s money and produce an income of £11,000 in today’s terms.

Therefore he needs about £1m in 20 years’ time to hit his £20,000 a year target in today’s terms, which means increasing his savings to £1,800 a month on top of the £50,000 he has already invested.

I think he also needs to lower his growth expectations. His 11pc a year is a very good return but way above what you might expect for the long term. A figure of 6pc after charges is a better and more realistic level of return on which to plan.

Another factor he needs to take into account is his pension. If he stops working after 20 years, his final salary scheme will be worth half of what it might be if he continued to work until retirement age.

While I am not against renting, I think he is still in a position where he could afford to buy a property.

He is probably one of the few who don’t really consider property as an investment but rather as a place to live. That said, if Ross wants to go travelling in years to come, his house could be a source of rental income.

I think it would be difficult to save an additional £1,800 a month on top of a mortgage. I think he needs to be a little more pragmatic and work on a firm foundation, thus enabling him to save more in years to come.

In looking at his portfolio, I think one danger is creeping in which is common to many investors: a proliferation of holdings. He has 17. For around £50,000 you probably don’t need more than 10.

In addition, while single shares can do well, unless you stay on top of them the gains can evaporate quickly.

This depends on your own investment nature but I would restrict shares to no more than about 5pc of a portfolio.

The vast majority of his money is in a “multi-manager” fund a fund that invests in other funds. These can be especially useful for investors who have little time to run their own portfolios, and can therefore be a very helpful core holding.

I would look at concentrating further savings into funds with top-rated managers, so I would add to his holding in Woodford Equity Income.

I am a fan of India over the longer term. Probably the best way to play this is through a monthly savings plan, which tends to smooth out the fluctuations in the stock market. It is surprising how quickly this adds up, and if you can be disciplined enough to increase your savings every time you have a pay rise, this will help you combat long-term inflationary effects too.

Given that Ross might wish to live on his investments in the future, UK equity income unit trusts and investment trusts should be a top focus. Income can be reinvested, adding to the holding until needed.

I would also build up an “emergency fund”. Three months’ salary in cash is the usual amount, but when he eventually goes travelling Ross will more probably need 12 months’ cash, easily available wherever he is in the world.

If Ross were to buy a property, he could use the rent from it as income while travelling overseas

Sean Port, chief investment officer, Nutmeg, said: Ross is in a great position with no student debt, a high salary and a decent savings pot. And he has what many people would envy a final salary pension. It is admirable that he seeks financial independence, but being able to stop work early and live off your investments requires a lot of sacrifice and good planning. The fact that he already saves an incredible 25pc of his net income is a great start.

To receive £20,000 a year reliably from his investments is going to require a big pot. Factor in inflation and earning an average return of 6pc from his high-risk investments means that he would need to put away £9,000 a year to be able to quit his job and travel at 49. By putting away £13,000 per year he could do it by 45.

Ross might also consider what his financial needs may be in five years’ time. Instead of paying rent, he could consider buying a property. After all, a £200,000 first-time buyer’s mortgage could cost less than £450 in monthly interest. While travelling he could rent his property.

Ross’s current choice of assets reflects his willingness to take on a high level of risk to achieve his longer-term goals, but his capital is perhaps not working in an efficient or diversified way. His portfolio contains 11 single small shareholdings and 30 active funds via the multi-manager holdings. Simplifying his portfolio may be a more effective way to reach his long-term goals.

His portfolio is heavily biased towards UK shares, with half of that exposure in small and mid-sized companies and the remainder in emerging markets. We think this portfolio is unnecessarily risky. Ross could restructure it to take advantage of a wider set of global opportunities and remove the single-stock risks.

Even in a high-risk portfolio fully invested in shares, there are some good gains available from being more diversified. In particular, his portfolio is missing the main developed markets United States, Japan and continental Europe which have performed significantly better than the UK over the past year.

Another area where Ross can make a big step towards reaching his goal is by looking at the fees he pays. As with many “DIY” investors, Ross may not be aware of what he is paying and why. He currently manages his portfolio through Hargreaves Lansdown and is charged an annual fee of 0.45pc.

On top of this, Ross pays management charges for the individual funds he owns, and the trading costs for his shareholdings. If he carries out 10 share trades a year, this all adds up to £714 for his current portfolio, or 1.7pc of total assets each year. By utilising active fund managers, Ross risks paying expensive fees for subpar performance. Recent research by S&P Dow Jones concluded that 86pc of US fund managers failed to beat the market in 2014.

The exposure gained through several of Ross’s holdings can be achieved in a more efficient way. For example, the use of multi-manager strategies can result in higher fees, because you pay fees to both underlying investment managers and the multi-manager.

Ross’s largest holding is the Hargreaves Multi-Manager Growth & Income Trust, with a management charge of 1.36pc a year. Each of the top 10 holdings of this fund (98pc of the fund) can be purchased separately through Hargreaves for much lower fees about 0.71pc in fact, a yearly saving of £155.

To increase diversification in a cost-efficient manner, Ross could look to utilise tracker funds in his portfolio, especially exchange-traded funds (ETFs). By using ETFs rather than ordinary passive funds he will pay trading fees, but a capped management fee from Hargreaves.

The fund costs of this portfolio would be just 0.16pc a year. Assuming seven trades a year, his total costs would amount to £197 (0.47pc) next year. Saving more than £500 a year in fees will make a big difference in reaching his goals years earlier.