How do I become investment literate?

[NickCQ]

bhstewie said:

How do people decide how to allocate their savings?

So for example you're left with X disposable that you know you want to save let's say £1000/month.

I use approximately the following hierarchy, try and keep up with it on a monthly basis but there’s some re-jigging in January (tax return) and April (allowances reset for new financial year):

0) Pension contribution (max £10k pa, I put this as number 0 as it comes out before I see it), diversified low cost funds
1) Top up my minimum cash requirement (if needed). All the financial planning resources recommend picking a figure to keep as cash - I use 6 months’ net salary.
2) Mortgage overpayment (max 10% of outstanding capital pa)
3) S&S ISA (£20k) with Barclays, diversified low cost funds
4a) Non-ISA savings with Vanguard, diversified low cost funds
4b) Discretionary spending (sailing, cars, holidays, home improvements etc)

[Unexpected Item In The Bagging Area]

I’m following this thread with interest as my OH and I are in a very similar situation to the OP.

A time ago we established a relationship with a wealth management firm but decided to look after our finances ourselves for 18 months to two years as it would give us time to build up a big enough pot to play with to justify the firm’s fees which are significant. However it’s easy to let things slip as there’s a lot of options to be researched and it’s all pretty dull stuff, so we keep putting it off.

I’ll buy a copy of How to Own the World, but I was wondering what you guys think of Investing Demystified by Lars Kroijer which seems to cover similar ground.

[BanzaiMan]

Jockman said:

JulianPH said:

rockin said:

Agreed. It leaves pension investors who've "maxed out" with the awkward question - whether to,
A) Keep on with normal investment and just suck up the 55% tax charge on anything over the max', or
B) Switch to a lower risk investment strategy for the security of locking-in existing gains.


The beauty of ISA is that once you're in there's no upper limit. ISA run in parallel with pension can deliver a very successful and extremely flexible overall strategy.

I would go with B any day as the 55% tax charge wipes off the entire point of using a pension in the first place.

I also agree regarding switching to ISA contributions or running them along side pension contributions.

The only purpose of the pension/SIPP is to benefit from the tax relief, invest tax efficiently particularly when it comes to assets that can't be held within an ISA) and the fact that pension/SIPP assets are now exempt from IHT.

This does make the pension/SIPP the better tax wrapper of the too, but the constant changing of the rules with pensions is off putting to most and ISAs seem to get away with such tinkering (for the moment...).

The penalty for exceeding the Lifetime Allowance can be as low as 25%. Why are people afraid of this?

I assume because you've got the potential income tax to pay on top

[xeny]

Unexpected Item In The Bagging Area said:

I’m following this thread with interest as my OH and I are in a very similar situation to the OP.

A time ago we established a relationship with a wealth management firm but decided to look after our finances ourselves for 18 months to two years as it would give us time to build up a big enough pot to play with to justify the firm’s fees which are significant. However it’s easy to let things slip as there’s a lot of options to be researched and it’s all pretty dull stuff, so we keep putting it off.

I’ll buy a copy of How to Own the World, but I was wondering what you guys think of Investing Demystified by Lars Kroijer which seems to cover similar ground.

I'd observe that when some of your own money involved the topic suddenly becomes fascinating.

Lars has a youtube channel, which carries some content in common with Investing Demysified. He's also made a couple of posts on monevator.com which are worth a read.

[bitchstewie]

Watching these now

http://www.kroijer.com/

[JulianPH]

Jockman said:

The penalty for exceeding the Lifetime Allowance can be as low as 25%. Why are people afraid of this?

Hi Phil, I think it is just the uncertainty and the headline figure of 55%.

That and the fact there is absolutely no financial education at any level, successive governments changing the rules around pensions all the time, and a general public mistrust of financial advisers.

Pension simplification hardly worked, did it...?!

[anonymous-user]

JulianPH said:

... successive governments changing the rules around pensions all the time, and a general public mistrust of financial advisers.

Pension simplification hardly worked, did it...?!

This is one of the biggest negatives.

It's completely wrong that they can change the rules for money that has already been put into a pension. The lack of certainty is just unforgivable.

[shopper150]

This is a great thread, as we have come to expect from HF.

Reading this, I want to explore the possibility of carrying back my pension contributions three years. So I think I can get relief on £40k x 3.
Can anyone clarify the rules in this. I think I was talking to someone that mentioned that you can only get relief on £40k if all that money had been from your primary source of income (and therefore not if you are controlling income from various limited companies and decide to put £40k from one of those companies directly into your SIPP, if that makes sense)?

HF - have you thought about maximising your pensions contributions for the last three years. It seems as though this everyones number 1 financial rule.

Edited by shopper150 on Saturday 6th January 22:02

[bitchstewie]

xeny said:

I'd observe that when some of your own money involved the topic suddenly becomes fascinating.

Lars has a youtube channel, which carries some content in common with Investing Demysified. He's also made a couple of posts on monevator.com which are worth a read.

Ordered "Investing Demystified" and watched a bunch of his YouTube videos.

I like the videos simply because at my level they're no bullst and make it pretty obvious what do choose.

[arguti]

JulianPH said:

Good point Will, I really don't understand why the government decided that people earning over £150k should not only lose their personal allowance (I can sort of see this) buy also lose £30k a year of pension contributions.

It is the lifetime allowance that really bugs me though. Why penalise people for successful investment decisions? Sure. put a limit on how much you can put in and gain tax relief on - that is completely understandable - but taxing success is absurd.

IIRC judges and MPs were exempt from the pensions lifetime limit........funny that!

[anonymous-user]

Which Lara book are you referring to? The creating a portfolio one or invest without speculation?

I assume the former, but just checking before I purchase.

[JulianPH]

shopper150 said:

This is a great thread, as we have come to expect from HF.

Reading this, I want to explore the possibility of carrying back my pension contributions three years. So I think I can get relief on £40k x 3.
Can anyone clarify the rules in this. I think I was talking to someone that mentioned that you can only get relief on £40k if all that money had been from your primary source of income (and therefore not if you are controlling income from various limited companies and decide to put £40k from one of those companies directly into your SIPP, if that makes sense)?

HF - have you thought about maximising your pensions contributions for the last three years. It seems as though this everyones number 1 financial rule.

Edited by shopper150 on Saturday 6th January 22:02

Obviously you need to have relevant earning to support the contributions, but very importantly you need to have had a pension scheme in place covering the tax years you wish to utilise the carry back.

Primary income is neither her nor there, it is relevant earnings that count. Your companies can make a gross contribution on your behalf, subject to the rules above.

[shopper150]

JulianPH said:

Obviously you need to have relevant earning to support the contributions, but very importantly you need to have had a pension scheme in place covering the tax years you wish to utilise the carry back.

Primary income is neither her nor there, it is relevant earnings that count. Your companies can make a gross contribution on your behalf, subject to the rules above.

Much appreciated. I think I should be OK with all these points.

[Jockman]

JulianPH said:

Hi Phil, I think it is just the uncertainty and the headline figure of 55%.

That and the fact there is absolutely no financial education at any level, successive governments changing the rules around pensions all the time, and a general public mistrust of financial advisers.

Pension simplification hardly worked, did it...?!

Hi Julian, hope you had a great New Year.

Simplification sort of worked but governments just can’t help themselves from tinkering. More to follow, one would assume.

[Jockman]

JulianPH said:

shopper150 said:

This is a great thread, as we have come to expect from HF.

Reading this, I want to explore the possibility of carrying back my pension contributions three years. So I think I can get relief on £40k x 3.
Can anyone clarify the rules in this. I think I was talking to someone that mentioned that you can only get relief on £40k if all that money had been from your primary source of income (and therefore not if you are controlling income from various limited companies and decide to put £40k from one of those companies directly into your SIPP, if that makes sense)?

HF - have you thought about maximising your pensions contributions for the last three years. It seems as though this everyones number 1 financial rule.

Edited by shopper150 on Saturday 6th January 22:02

Obviously you need to have relevant earning to support the contributions, but very importantly you need to have had a pension scheme in place covering the tax years you wish to utilise the carry back.

Primary income is neither her nor there, it is relevant earnings that count. Your companies can make a gross contribution on your behalf, subject to the rules above.

Not sure I’m following shopper correctly here but I would observe that there is no income connection for company contributions. Your company can make the contribution even if you have no earnings. It will receive Corp tax relief at 19%. You will receive no income tax relief.

[will_]

JulianPH said:

will_ said:

JulianPH said:

NickCQ said:

Julian, if it's not a silly question how did you get the funds into your SIPP? I am trapped by tapering, is there any reason to pay in out of taxed income?

I simply put the funds in out of PAYE earnings, I am not sure why you mention tapering relief as this is not connected (unless I am missing something).

Let me know here or PM me. Happy to help.

I presume he means that he is at the income level where he can't just dump £200k into a SIPP, but would have to drip-feed it at £10k per year because he doesn't have the £40k annual allowance.

When you add things like commercial property etc to a SIPP, to make it worthwhile are you not a significant risk of hitting the lifetime allowance? In which case, doesn't that reverse all of the the tax relief, such that you've just tied up a large sum of cash into a pension for no benefit at all?

Good point Will, I really don't understand why the government decided that people earning over £150k should not only lose their personal allowance (I can sort of see this) buy also lose £30k a year of pension contributions.

It is the lifetime allowance that really bugs me though. Why penalise people for successful investment decisions? Sure. put a limit on how much you can put in and gain tax relief on - that is completely understandable - but taxing success is absurd.

The government needs to decide whether it wants to encourage people to save for their retirement or not. Given £162k gross a year gets you into the top 1% of earners in the UK (and the top 1% of earners contribute 27% of the total UK income tax take) then hitting these people too hard (and constantly bashing them) could end up being a very bad move for the country as a whole.

You know as well as I do that taking away tax relief for "the rich" will not lose many votes, so those sort of policies get pushed through without much resistance. You are under the mistaken impression that we have a conservative government in place! Imagine what the loony left will do if they ever get into power. They will forget that 60/70/80% of nothing (because successful people will leave - indeed, they already are) is nothing.

Success has always been taxed.

[JulianPH]

Jockman said:

Hi Julian, hope you had a great New Year.

Simplification sort of worked but governments just can’t help themselves from tinkering. More to follow, one would assume.

Hi Phil, a great one thanks and I trust the same with you.

A-Day was supposed to be the fix for simplification but since then it has just got worse every year. I've just had an idea for proper simplification though;

Get rid of pensions altogether and replace them with a Tax Free Contribution ISA to sit along side the current Tax Free Withdrawal ISA (better names obviously required!).

Make the annual limit for both £25k.

The TFC ISA (formerly a pension) can also have a "loyalty bonus" of 25% tax free withdrawals if you do not access funds before you hit 55 (not available if you do access early).

It is effectively the same as what we have now, but far simpler to understand.

The government should be happy too as they have removed £15k a year from tax relief and if people do dip in early they get the tax back more quickly.

For a cherry on top, abolish Employer NI and replace with a TFC ISA contribution of the exact same amount. This would be cost neutral for businesses, well received and meaningful for the public, and off-set by the reduced tax relief at source (and early withdrawal taxation) for the government.

Any thoughts? I'll re-post this on the "What would you do with pension law if you were in charge" thread.

[anonymous-user]

JulianPH said:

Any thoughts? I'll re-post this on the "What would you do with pension law if you were in charge" thread.

How would it work in respect of assets that can be held in terms of a SIPP/SSAS eg commercial property/land?

[Jockman]

JulianPH said:

Hi Phil, a great one thanks and I trust the same with you.

A-Day was supposed to be the fix for simplification but since then it has just got worse every year. I've just had an idea for proper simplification though;

Get rid of pensions altogether and replace them with a Tax Free Contribution ISA to sit along side the current Tax Free Withdrawal ISA (better names obviously required!).

Make the annual limit for both £25k.

The TFC ISA (formerly a pension) can also have a "loyalty bonus" of 25% tax free withdrawals if you do not access funds before you hit 55 (not available if you do access early).

It is effectively the same as what we have now, but far simpler to understand.

The government should be happy too as they have removed £15k a year from tax relief and if people do dip in early they get the tax back more quickly.

For a cherry on top, abolish Employer NI and replace with a TFC ISA contribution of the exact same amount. This would be cost neutral for businesses, well received and meaningful for the public, and off-set by the reduced tax relief at source (and early withdrawal taxation) for the government.

Any thoughts? I'll re-post this on the "What would you do with pension law if you were in charge" thread.

I like your ambitious thinking, matey, and a fair bit of your post seems to be encapsulated in the Lifetime ISA. Anyone would think that the Govt has drawn a line in the sand at 40 years of age for old style / new style pensions.

Employer's NI is too lucrative for the Govt. Remember, Pensioners in work no longer have to pay NI.......but their Employer still does

[JulianPH]

desolate said:

How would it work in respect of assets that can be held in terms of a SIPP/SSAS eg commercial property/land?

I think they should be identical and based mainly upon the SIPP criteria (though removing the ability to invest in dodgy unregulated assets that SIPPs can access and ISAs cannot).

So, Stocks listed on a recognised stock exchange and Bonds from companies listed on a recognised stock exchange, Unit Trusts, OEICs and Investment Trusts, Commercial Property/Land and physical assets with daily liquidity (such as gold).