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Bag lady sweats

Investment discussion for beginners. Why you should invest your money, get help getting started
tonyreptiles
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Re: Bag lady sweats

#327955

Postby tonyreptiles » July 22nd, 2020, 2:47 pm

Joe45 wrote:Tony, your summary is excellent, and this philosophy is one that I follow. You can't do much better that two low-cost global trackers: equities and bonds. This gives you maximum diversification at minimum cost. Optimise tax benefits using ISA and SIPP. Use a low-cost platform.

Others have mentioned asset allocation between these two classes of investment. This is possibly the greatest determinant of investment success, and is an area that I have struggled with. Lots has been written about this and you should read as much as you can to enable you to settle on an allocation with which you feel comfortable. FWIW I am about to retire and I have settled on 67% equities. I re-balance in March and September.

Studies suggest that a cash buffer can be a drag on returns over the long run, but a couple of years of non-discretionary spending taken from your bond allocation won't be too much of a drag, will help you sleep at night and will reduce the need to sell equities during a bear market.

Keep reading and good luck with your investing journey.



I think I need to know a bit more about bonds - what they are, what they do and the risks involved. (Assumedly lower than index tracker?_
I also need to understand SIPP.

67% seems like a very specific number and one which you likely used some kind of formula to arrive at? is that true, and would you be able to point me in the righ direction to unerstand how thse formulas are calculated?

Thanks again
Tony

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Re: Bag lady sweats

#327963

Postby Urbandreamer » July 22nd, 2020, 3:10 pm

tonyreptiles wrote:
Urbandreamer wrote:Here are my responses
    The purpose of managed funds is to outperform market returns. Is it? Some would argue otherwise for many managed funds.



I hear ya, although perhaps I should have been clearer.

I've always had a bad feeling about pensions, given the fact that they seem to randomly disappear and diminish in value - if what I read in the press and hear from people I know is true. That, and the fact that I never had enough money to put into one until now has meant that don't have a pension. And that's a worry.

Being 50 and only just coming to terms with the fact that living fast has not in fact caused me to die young, I must now consider how disgracefully I can afford to grow old. It's rather a surprise to all concerned that I haven't croaked yet. Indeed, I've recently created a will for the first time and insisted the wording was changed from 'when Tony dies...' to 'IF Tony dies...'

I don't think I can reliably save enough money for a comfortable retirement, so I need to somehow increase my money. Taking a punt on stocks and shares as a prospective investor probably isn't going to work by the sound of it. An index tracker might do a more reliable job it seems. I'm not sure a managed fund which returns lower than the market would suffice. I haven't done the maths for any scenario, but I assume I'll get more bang for my buck with less risk with a tracker.

Does that sound correct?

Cheers
Tony


It's a hell of a lot clearer and certainly explains your choice.

I'd just point out that "pensions" have got more flexible and security of recent years. Also that historically many contributed the minimum into a pension and that they wanted it in the lowest risk assets available. Naturally results were not great.

Assuming that you are 55 (or near it).
You put taxed money in an ISA, invest, grow, sell, spend (with no tax to pay).
You put money into a pension (a SIPP is one that you control), effectively untaxed or with 20-40% from the state. Invest, grow, sell, spend 1/4 with no tax to pay, 3/4 is taxable only if your taxable income is more than the personal allowance. In most cases the state is giving you free money.

In your situation I would use a SIPP "Self Invested Personal Pension" rather than an ISA. Actually I am now doing so. You can access the money in 5 years time (55) and the tax benefits are significantly better than an ISA. Younger people might value the flexibility of a standard ISA more, but I suspect that it's less of an issue for you and I could access mine tomorrow (though I wouldn't).

My SIPP is with A J Bell, because I want to do more than own a index tracker. However Vanguard do a very cheap SIPP, the only downside is that you have to use their funds. Not a problem if you are happy with their offerings and very many people are. If you just want a global index tracker in a cheap SIPP follow ReformedCharacter's link early in the thread. Pick your risk level or retirement date and it's likely that they have a cheap passive fund that suits.

BTW, Bonds are debt. Often fixed rate, but sometimes linked to inflation. Usually issued by companies but also issued by governments. Uk government bonds are known as Gilts. Often low to almost no risk, but returns are low if risks are low, sometimes less than inflation. Vanguards LifeStratergy and Target retirment funds combine trackers with bonds for either banded risk or falling risk. In my example the Ruffer active fund has ramped up it's bond holdings and is now mostly bonds. It will ramp them back down if the makets improve. That's how they achieve their objective and how they justify charges many times that of Vanguard.

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Re: Bag lady sweats

#327972

Postby Alaric » July 22nd, 2020, 3:39 pm

tonyreptiles wrote:I think I need to know a bit more about bonds - what they are, what they do and the risks involved. (Assumedly lower than index tracker?_


Someone lends money to a Company or Institution. They agree to pay it back in a number of years time and also make a periodic payment of interest which they cannot generally vary. When you buy a bond, it's usually second hand.

They are less risky in price terms as the future repayment always gives an anchor, but that depends on whether the borrower maintains the interest payments and is able to repay the loan. When bought as a fund, the risks of lending to an individual company are minimised. Governments also issue Bonds. Depending on the country, the default risk can be minimal, but so in current conditions is the interest.

AleisterCrowley
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Re: Bag lady sweats

#327975

Postby AleisterCrowley » July 22nd, 2020, 3:50 pm

Hi Tony
Not sure if anyone has recommended this upthreadwards^^ but the Monevator site has some good articles covering all aspects of investing.
https://monevator.com/highlights/

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Re: Bag lady sweats

#327983

Postby bluedonkey » July 22nd, 2020, 4:13 pm

Even billionaires worry about money.

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Re: Bag lady sweats

#327996

Postby Howard » July 22nd, 2020, 5:43 pm

Your attitude to risk must surely depend on how much you have to invest.

At the age of 50, if you only have, say, £10,000 to invest, I’d suggest taking very little or no risks at all and probably keeping most of it in the bank (but see below). If you have £100,000+ to invest, you can take a lot more risk.

My reasoning is that with a 10k pot, even if you take a lot of risk investing in shares/etfs etc, you aren’t going to make life-changing amounts of money over the next 20 years or so. You might lose a lot. And you are guaranteed some sleepless nights :( .

With 100k + you can take some risks with part of your portfolio and they may pay off handsomely. On the other hand, if you are careful, you shouldn’t lose too much.

A most important feature of a pleasant retirement is a regular income. If you don’t have a pension then it’s worth investing in yourself and your skill at persuading others to contribute to your “diverse freelance income stream”. You probably will be much more comfortable doing this than risking money in the markets. And you’ll have more fun and fulfillment. :)

Whatever you decide - good luck!

regards

Howard

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Re: Bag lady sweats

#328014

Postby LooseCannon101 » July 22nd, 2020, 6:51 pm

Your criteria for an investment are excellent, especially as regards use of an ISA and low-cost world equity fund.

The fund's value depends on the world economy which despite Covid, Great Financial Crash, Internet Bubble, .. etc. has made huge advances over the past 20 years. This is the sort of time frame one should consider when making an investment in such a fund.

The market will fluctuate on a daily basis - losing e.g. 10% on a quarterly basis, 20% e.g. on a yearly basis, and occasionally 30-40% during a recession.

A disciplined approach of long-term buy and hold, dividend re-investment and a monthly purchase program, will give you an edge on most investors. The average total return (dividends re-invested) over 20 years has been about 8%. This is about par for the course over such a time period.

I use a highly diversified global investment trust (FCIT) as my world equity fund. Others use a combination of trusts and/or ETFs (exchange traded funds). Low fees, conservative management style, and real assets - no synthetic products are all important criteria.

Good luck in your investing journey.

LooseCannon101

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Re: Bag lady sweats

#328018

Postby tonyreptiles » July 22nd, 2020, 7:14 pm

Howard wrote:
A most important feature of a pleasant retirement is a regular income. If you don’t have a pension then it’s worth investing in yourself and your skill at persuading others to contribute to your “diverse freelance income stream”. You probably will be much more comfortable doing this than risking money in the markets. And you’ll have more fun and fulfilment. :)


That's something we've discussed in some detail. We're lucky that the distinction between our 'work' and our 'life' isn't particularly distinct. It's not like we hate our jobs and live for the weekend. We're both lucky to have jobs that we enjoy - indeed, I currently earn a decent living doing the job I dreamed of in my 20s. Thankfully, these are also jobs that we could do if we became physically incapacitated - although mental incapacity could hamper our earning power somewhat.

What I'm getting at is that, regardless of how our investing/saving/pensions perform, we'll likely continue to work, in some capacity or another, for many years to come. That said, we currently seem to be accruing cash that serves no more purpose at present than sitting in a bank getting chipped away at by inflation. I can't help thinking that putting it to work in some way would safeguard us better should one of us become ill, or if the world somehow decided they didn't need writers or graphic designers in our respective niches.

With a bank balance and investment portfolio to bolster our financial security we would be in a position to, maybe, take a sabbatical and hunt for lizards in Nicaragua for a few months, if we so desired. While our income washes the face of our expenses with some to spare, I don't think we're in a position play fast and loose with our work/life balance. And we'd certainly be vulnerable if our earning capacity somehow took a beating.

I think our skills are robust enough to see us right, confidently producing a reliable income into our pensionable years. I just don't feel like I have enough fallback financial security to provide us with the security and freedom I aspire to in the decades to come. If the market plays fair and averages out sensibly over those forthcoming years, then hopefully we'll be alright.

That's the plan, anyway.

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Re: Bag lady sweats

#328025

Postby dealtn » July 22nd, 2020, 8:03 pm

Joe45 wrote:
Studies suggest that a cash buffer can be a drag on returns over the long run, but a couple of years of non-discretionary spending taken from your bond allocation won't be too much of a drag, will help you sleep at night and will reduce the need to sell equities during a bear market.



Just remember that bonds can also have bear markets and aren't risk free either.

AleisterCrowley
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Re: Bag lady sweats

#328031

Postby AleisterCrowley » July 22nd, 2020, 8:39 pm

...oddly enough, yesterday's Monevator article was about cash v. bonds
https://monevator.com/cash-versus-bonds/

(I don't get paid by Monevator by the way...)

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Re: Bag lady sweats

#328032

Postby Urbandreamer » July 22nd, 2020, 8:46 pm

TR, I am concerned that we are getting bogged down in detail.

Investment is not rocket science. You have chosen a global tracker.

Despite my comments upon the arguments, it's a good choice and will do you well.

Loosecannon has invested in FCIT, an investment trust well over 100 years old with a great history and good performance. I bet that he doesn't know that it's 18% tech though! It's still a great choice.
Others mix equities with bonds. This comes out of something called "Modern portfolio theory". The idea is that you can achieve a given rate of return at lower risk by mixing low risk assets with ones that provide a reward for risk.
Nobody has mentioned Gold, other than by mentioning asset allocation, so let's ignore it other than to admit that for some it's an asset that they want to mix in.

Don't worry about these details. They are just ideas to consider. The big mistake would be to do nothing. Investment isn't like your example of betting on a horse. The truth is that investment is simply buying good stuff. There's a ton of good options out there.

I would caution about holding too tight to "buy and hold", unless it's either an active or passive fund/collective. Both will change as the world changes, while few companies manage to do so.

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Re: Bag lady sweats

#328051

Postby LooseCannon101 » July 22nd, 2020, 10:24 pm

Loosecannon has invested in FCIT, an investment trust well over 100 years old with a great history and good performance. I bet that he doesn't know that it's 18% tech though! It's still a great choice. Comment by Urbandreamer.

I have been invested in FCIT for the past 20 years and follow each and every regulatory announcement, returns over various time periods, monthly list of investments, geographic weightings, cash and gearing, plus the names, experience and shareholdings of the fund manager and directors. That is the beauty of having only one holding - it's easy to check all relevant information. 18% tech is not a surprise.

I wouldn't recommend a highly concentrated trust like Scottish Mortgage as one's only holding. In that case, it should be part of the mix.

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Re: Bag lady sweats

#328054

Postby tjh290633 » July 22nd, 2020, 10:37 pm

LooseCannon101 wrote:Loosecannon has invested in FCIT, an investment trust well over 100 years old with a great history and good performance. I bet that he doesn't know that it's 18% tech though! It's still a great choice. Comment by Urbandreamer.

I have been invested in FCIT for the past 20 years and follow each and every regulatory announcement, returns over various time periods, monthly list of investments, geographic weightings, cash and gearing, plus the names, experience and shareholdings of the fund manager and directors. That is the beauty of having only one holding - it's easy to check all relevant information. 18% tech is not a surprise.

I wouldn't recommend a highly concentrated trust like Scottish Mortgage as one's only holding. In that case, it should be part of the mix.

FCIT has also been quite heavily into Private Equity. 7.7% according to the last Annual Report, page 13 with a detailed list on page 74.

TJH

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Re: Bag lady sweats

#328066

Postby Urbandreamer » July 22nd, 2020, 11:30 pm

LooseCannon101 wrote:I wouldn't recommend a highly concentrated trust like Scottish Mortgage as one's only holding. In that case, it should be part of the mix.


And that is EXACTLY what Mr Anderson (it's manager) would say. Indeed he has. Check out his recent Q & A.
It's a great addition to core holdings, but don't "bet" your wad upon it.

ignoring the pension that I have through my employer, I'm 10% in SMT and about 5% FCIT. However I wasn't when I bought them. FCIT has returned about 9% a year since I have owned them (7 years). Of course SMT has returned 25% a year over the five years that I have owned them. Dare I say that 16% a year may just have made a difference over the 5 years that I have owned both.

BUT for goodness sake, don't bet your wad on SMT for please sake TR. Don't even go for FCIT! You want a global tracker, and it's good enough.
It doesn't need justifying. It's good enough!

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Re: Bag lady sweats

#328155

Postby tonyreptiles » July 23rd, 2020, 12:20 pm

Thanks to everyone for their replies.

I have to say, it has been a fascinating and compelling few weeks of reading, YouTube and learning on this site and I think I'm starting to build a basic understanding. While the learning process is daunting, it's not at all a chore.

The risk side of things is something I need to get a grip of. I'm not afraid of risk, but everyone has their Achilles' heel. I'm usually quite ballsy, but tramp dread is my kryptonite. I guess I just need to be thinking with my brain a bit more and listening less to the irrational fear in my belly. The conversation with you folk here has done lots to help in that respect. It's reassuring that I'm not entirely naive and clueless.

    So, a global tracker ISA sounds like a good first step.
    - Drip-feeding the tracker with a small amount each month will help to break us in gently, building the size of the monthly amount as and when it gets comfortable.
    - At some point in the near future I'll look into how bonds might help with diversification and risk.
    - I also need to research how SIPPs work and the tax benefits therein.
    - At some later date I may feel brave and affluent enough to buy individual shares, or perhaps, a managed fund.

All there is for me to worry about now is the impact Covid-19 might have on my investment plans.
I'm sure there must be a thread on here somewhere that gives a conclusive, easily absorbed consensus of what the market might do - right|? :lol:

Thanks again everyone
TR

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Re: Bag lady sweats

#328164

Postby AleisterCrowley » July 23rd, 2020, 12:47 pm

tonyreptiles wrote:T..
I'm sure there must be a thread on here somewhere that gives a conclusive, easily absorbed consensus of what the market might do - right|? :lol:

TR


The price of the market is the consensus of what the market might do - everything else is noise ! :D
Doesn't mean Mr Market is right of course....

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Re: Bag lady sweats

#328944

Postby Joe45 » July 27th, 2020, 12:49 pm

tonyreptiles wrote:

I think I need to know a bit more about bonds - what they are, what they do and the risks involved. (Assumedly lower than index tracker?_
I also need to understand SIPP.

67% seems like a very specific number and one which you likely used some kind of formula to arrive at? is that true, and would you be able to point me in the righ direction to unerstand how thse formulas are calculated?

Thanks again
Tony

There is no scientific basis for determining the 'correct' asset allocation, although there are numerous published theses which will help you decide what is right for you. I've come to my allocation after literally several years of deliberation, and by using a convoluted calculation based on my own circumstances.
Last edited by tjh290633 on July 27th, 2020, 4:15 pm, edited 1 time in total.
Reason: Quote attribution and tags corrcted-TJH

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Re: Bag lady sweats

#329035

Postby TUK020 » July 27th, 2020, 7:23 pm

tonyreptiles wrote:It's ridiculous, I know. But here I am, in the most secure financial position of my life, about to start investing with money I can (almost?) afford to lose and I'm almost in tears with worry. I think it comes from having been down and (almost?) out before in my life. Sleeping in my car and living in a homeless shelter gives you a unique and unenviable perspective and, despite my relative affluence and security, I have a fear in my gut which is literally sickening.

In my brain I know the risk of me becoming an actual bag lady are almost zero. I have two-year strong emergency fund and a diverse freelance income stream which I'd say is as reliable as anyone could hope for. My expenses are low and I have no debt. My home is paid for and, at almost 50 years old, I'm fit enough to hold my own at most gyms. I have few real money worries to worry about. But I am worried. I feel the dread of messing it all up and becoming destitute. I worry, because I've been there. And it frightens the hell out of me.


Tony,
rereading this thread has caused me to reflect on your situation and attempt to appreciate your anxiety.

You have cleared all debt, have a place to live that is your own, an emergency cash fund of two years income, and a secure income.
You also enjoy what you do, and can keep at it.

1st thing to do: Give thanks to whatever god you believe in. You are in the most fortunate 1%? of the population.
2nd thing to do: Keep working and earning
3rd thing: Try this investment thing; you have received plenty of advice here
then: When you have proved to yourself that this can generate sufficient income for your to live on, you can decide whether to back off work.

Key thing to realise is that you do not have to worry about an arbitrary deadline. When YOU have sufficient confidence in the portfolio income, you can decide whether to make changes to your working life.

Bigger question to worry about: If you slowed down on work, what would you do with yourself?
HTH
TUK020

tonyreptiles
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Re: Bag lady sweats

#329735

Postby tonyreptiles » July 30th, 2020, 3:15 pm

TUK020 wrote:
tonyreptiles wrote:It's ridiculous, I know. But here I am, in the most secure financial position of my life, about to start investing with money I can (almost?) afford to lose and I'm almost in tears with worry. I think it comes from having been down and (almost?) out before in my life. Sleeping in my car and living in a homeless shelter gives you a unique and unenviable perspective and, despite my relative affluence and security, I have a fear in my gut which is literally sickening.

In my brain I know the risk of me becoming an actual bag lady are almost zero. I have two-year strong emergency fund and a diverse freelance income stream which I'd say is as reliable as anyone could hope for. My expenses are low and I have no debt. My home is paid for and, at almost 50 years old, I'm fit enough to hold my own at most gyms. I have few real money worries to worry about. But I am worried. I feel the dread of messing it all up and becoming destitute. I worry, because I've been there. And it frightens the hell out of me.


Tony,
rereading this thread has caused me to reflect on your situation and attempt to appreciate your anxiety.

You have cleared all debt, have a place to live that is your own, an emergency cash fund of two years income, and a secure income.
You also enjoy what you do, and can keep at it.

1st thing to do: Give thanks to whatever god you believe in. You are in the most fortunate 1%? of the population.
2nd thing to do: Keep working and earning
3rd thing: Try this investment thing; you have received plenty of advice here
then: When you have proved to yourself that this can generate sufficient income for your to live on, you can decide whether to back off work.

Key thing to realise is that you do not have to worry about an arbitrary deadline. When YOU have sufficient confidence in the portfolio income, you can decide whether to make changes to your working life.

Bigger question to worry about: If you slowed down on work, what would you do with yourself?
HTH
TUK020


Cheers TUK.

The work thing is an interesting one, as I've not often had to do a job which didn't have at least some recreational qualities. Reptile breeder, doorman, roadie, zoo keeper, fitness professional, and now, writer - these are not the kind of jobs that suck your soul, but neither are they the jobs that pay well either. All told, I think I backed the right horse, because life, to date, has been an adventure. Not well paid, but an adventure, nonetheless.

It's rather typical of me to be finally ready to invest just at the point where the world (and the market) is potentially at its most volatile and unpredictable. We're looking at drip-feeding an ISA worldwide tracker starting in a month or two and seeing how we get on. I have a couple of questions about how that might play out, so brace yourselves, but it seems like the start of a plan anyway.

WRT your last question, that's something I've spent a lot of time thinking about. While I do enjoy writing, I do feel that it keeps me indoors at my desk rather more than I would like. It seems rather fickle to be bemoaning making a decent living in an industry many believe to be their dream job, and I do acknowledge how lucky I am. But that said and aside, I do covet a role which is more active and outdoors.

Unfortunately, most roles which fulfil that criteria aren't really that rewarding. I can't imagine working on a building site, for example. I am, however, considering the idea of learning thatching. It's probably not the most reliable of work, but it fulfils the criteria and you'l likely be working with craftsmen with passion and intellect. And you'd have decent clients.

All I need now is for my investments to net me a pretty penny to give me enough confidence to become an apprentice again - at the age of 50! But, you know, it could be fun, and it beats retiring and joining the queue for the big pearly gates.

Thanks again all.

TR

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Re: Bag lady sweats

#329738

Postby Alaric » July 30th, 2020, 3:29 pm

tonyreptiles wrote: We're looking at drip-feeding an ISA worldwide tracker starting in a month or two and seeing how we get on.


You may already have considered the point, but putting cash into an ISA is time limited. In other words, there's a maximum of £ 20,000 per individual that can be put in by 5th April 2021. It may not earn much or any interest, but getting cash into the ISA shelter can be independent of doing something hopefully profitable with it.


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