How do I become investment literate?

[The Green Triangle]

xeny said:

Don't forget with iWeb you also get a taxed trading account, you can put some in there and still not pay tax on it (I'd do that with inc rather than acc units so it's easier to track dividend income vs capital gains).

If you want to experiment with a small fraction, a couple of people have mentioned fundsmith, and it seems to have a pretty reasonable record and not too outrageous fees. Have a read of http://www.fundsmith.co.uk/docs/default-source/doc... and http://www.fundsmith.co.uk/docs/default-source/ana...

Cheers, yes I put a little into fundsmith and was going to put a bit more in there. Curently only a grand. Costs are a higher than Vanguard at 1per cent but might have to check out their recent performance.

Looking quickly it's up 22% compared to vanguard 11% in last 12 months...

Hmmm might have to consider some rebalancing.

[xeny]

The Green Triangle said:

Looking quickly it's up 22% compared to vanguard 11% in last 12 months...

If you're ever thinking like that, the odds are that you're looking at one of the assets after a particularly good run - make a point of understanding what you're buying, why it has performed like that and looking over as long a time period as you possible can, which at least is easy to approximate if you've got a browser that will run flash and can use google finance's graphs.

[red_slr]

NickCQ said:

Jockman said:

Agreed. You don't need to be debt free to have financial freedom.

It's mainly about confidence.

Yep. The powerful stat I heard is that once you have net assets (excluding primary property) of 20-25x your average annual spending, you have enough money to support you for the rest of your life without working in almost all market scenarios.

That implies a 4-5% drawdown of your capital per annum.

25x is 4% SWR.

Its worth noting the study (Trinity Study) concluded that 25x would be good over 30 years in all market conditions based on all of history. However if you want to be sure a 3.5% SWR pushes the 30 years out to 100 years. At that point it becomes highly likely you will end up with more than you started. Its pretty powerful stuff.

[Harry Flashman]

gibbon said:

diametric123 said:

Believe me, I am no expert - buts it’s to do with the % return after fees and therefore amount of wedge you have to put down

Put simply, you can make 6-8% net on property versus ~1-2% on some equity thing that I don’t really understand...

Alternatively you could make 4% on property, have to actually occasionally do something for said yield or you could buy BP shares at periodic oil lows which div 6.5% and bounce back 10/20/30/40% with oil whilst doing sweet FA to earn your yield all wrapped up in a tax free pension/ISA etc. I have both these examples, so hopefully am not overly biased.

• past performance is not guarantee of future returns you may get back less than you put in blah blah blah.

Dont write off equities and funds, be careful of compounding costs however.

Thanks for continued thoughts etc chaps.

The initial advantage of property for me was the ability to take cash income.

I could well be wrong - and buying a load of student houses in Birmingham through a limited company may well be the way to go. But that still means that I would have all my wealth undiversified e.g. in UK property. Which, given world and UK events, makes me nervous - one country, one type of asset.

Diversification aside, a massive incentive on property was being able to use small amounts of my cash and plenty of leverage to make returns on the whole value, and long term make a capital gain. The downside is illiquidity and maintenance requirements/costs.

But take tax breaks on leverage away, take my income tax band, factor in rising interest rates (long term), and real inflation meaning that capital growth could actually be a myth mid-term as house prices normalise to income/spending power, and it doesn't look like a direction I want to go in.

My tax band alone means that maxing out ISA's and avoiding taxes is more compelling than many other things, just because I pay away 45% on anything I make anywhere outside an ISA. Effectively, my ISA income only has to be half as effective as anything else to be worth doing - and that's in income terms. Capital gains-wise, same thing on CGT, right?

I can only put £20k a year into ISAs (especially as my wife is American so cannot use ISAs). But it seems the smartest place for the first £20k, regardless.

I appreciate that only having ownership in another business can genuinely cover my expenditures with regular cash income, and maybe opportunities will arise as the economy worsens/interest rates go up etc. But it seems to me, for the next few years, tax shelter and diversification away from the UK seems logical for new investors?

My view obviously does not apply to folk who have a healthy and averagely leveraged portfolio of property bringing them income. But as a new investor, it seems the wrong time to go in.

Still thinking over here, rather than doing, but very much appreciating all the viewpoints and experience on this thread: it's really proving to be an interesting one (with some useful resources posted - thanks again).

Edited by Harry Flashman on Monday 22 January 11:44

[anonymous-user]

red_slr said:

25x is 4% SWR.

Its worth noting the study (Trinity Study) concluded that 25x would be good over 30 years in all market conditions based on all of history. However if you want to be sure a 3.5% SWR pushes the 30 years out to 100 years. At that point it becomes highly likely you will end up with more than you started. Its pretty powerful stuff.

Powerful indeed.

[diametric123]

Very wise thoughts

Few comments on property:

Remember that it doesn't have to be residential - commercial property can generate far higher yields, with low levels of responsibility under FRI (fully repairing) leases

However - and I'm desperately looking to be proven wrong - you can't get as much leverage on commercial as you can residential

In fact, my experience is you can't get much leverage at all - I'm at about 45% equity down and haven't found sources that go beyond about 35% down

Anyone on PH can prove me wrong please?

[xeny]

Harry Flashman said:

I can only put £20k a year into ISAs (especially as my wife is American so cannot use ISAs). But it seems the smartest place for the first £20k, regardless.

I appreciate that only having ownership in another business can genuinely cover my expenditures with regular cash income, and maybe opportunities will arise as the economy worsens/interest rates go up etc. But it seems to me, for the next few years, tax shelter and diversification away from the UK seems logical for new investors?

Edited by Harry Flashman on Monday 22 January 11:44

I'd agree filling your ISA allowance first is a no-brainer. Given some of your assets are unavoidably located in the UK, it seems logical to put investment capital outside the UK to do as much as you can to diversify.

As your wife is American, can she at least take advantage of corresponding American options (501Ks and Roth IRAs isn't it?)

However, thinking about tax breaks, I'm now going to slightly contradict myself. Have you had a look at VCTs? You get 30% tax rebated on any new shares you purchase, and dividends are tax free. Downsides are they're not as liquid as conventional equities, you've got to hold them for 5 years to avoid having to repay the tax refund and they can only invest in UK businesses (AFAIK), but for your circumstances they may be a good option.

[Harry Flashman]

Thanks Xeny. As I build an idea of what I am going to try, I think VCTs will be part of an ex-ISA strategy, to minimise tax. I want to use my annual CGT allowance for something else too...

[Phooey]

Harry Flashman said:

Since you liked the book "How to Own the World".. did you know Andrew Craig / Plain English Finance have recently launched their own fund - The VT PEF Global Multi-Asset Fund?

https://plainenglishfinance.co.uk/funds/

Anyone any views on the above fund^^?

[Harry Flashman]

Phooey said:

Since you liked the book "How to Own the World".. did you know Andrew Craig / Plain English Finance have recently launched their own fund - The VT PEF Global Multi-Asset Fund?

https://plainenglishfinance.co.uk/funds/

Anyone any views on the above fund^^?

I saw this - I am wondering about it myself. Haven't really looked into it in any detail yet.

[Mezger]

Phooey said:

Since you liked the book "How to Own the World".. did you know Andrew Craig / Plain English Finance have recently launched their own fund - The VT PEF Global Multi-Asset Fund?

https://plainenglishfinance.co.uk/funds/

Anyone any views on the above fund^^?

It's expensive. TER (AMC and OFC combined) looks to be 2.04% (until they hit 75m then they "hope" to reduce it to 1%.
Vanguard can be as low as 0.1% - makes a big difference over the long-term when you take into account compounding of those costs.

[FredClogs]

Mezger said:

Phooey said:

Since you liked the book "How to Own the World".. did you know Andrew Craig / Plain English Finance have recently launched their own fund - The VT PEF Global Multi-Asset Fund?

https://plainenglishfinance.co.uk/funds/

Anyone any views on the above fund^^?

It's expensive. TER (AMC and OFC combined) looks to be 2.04% (until they hit 75m then they "hope" to reduce it to 1%.
Vanguard can be as low as 0.1% - makes a big difference over the long-term when you take into account compounding of those costs.

It's 1.14% on HL added to that 0.45% platform costs and its not cheap for what it is, a mixed asset class tracker. The majority are black rock etfs. Black rock do their own "Consensus 80" which is a tracker of black rock mixed asset etfs, managed to vary between 40% to 80% equity depending on market... That is 0.2% on HL.

[Harry Flashman]

Heh. I like that cost structure - Andrew Craig goes on a great deal about compounding costs in his book, and the importance of managing them. And then launches something to his readers that is more expensive than anything else out there.

[BanzaiMan]

Mezger said:

Phooey said:

Since you liked the book "How to Own the World".. did you know Andrew Craig / Plain English Finance have recently launched their own fund - The VT PEF Global Multi-Asset Fund?

https://plainenglishfinance.co.uk/funds/

Anyone any views on the above fund^^?

It's expensive. TER (AMC and OFC combined) looks to be 2.04% (until they hit 75m then they "hope" to reduce it to 1%.
Vanguard can be as low as 0.1% - makes a big difference over the long-term when you take into account compounding of those costs.

Think you may have meant OCF - TER isn't AMC and OCF combined

In order of size

AMC: Fund manager charge
TER: AMC + audit and legal fees etc
OCF: TER+ a few more costs (believe custodian)

You will also need to take into account some/all of performance fees, trading costs and dilution levies. Vanguard have the total cost of investing below (also including platform)


https://www.vanguardinvestor.co.uk/content/documen...

not sure what you mean by costs making a difference over the long term - surely all you care about is performance net of fees?

[BanzaiMan]

BanzaiMan said:

Mezger said:

Phooey said:

Since you liked the book "How to Own the World".. did you know Andrew Craig / Plain English Finance have recently launched their own fund - The VT PEF Global Multi-Asset Fund?

https://plainenglishfinance.co.uk/funds/

Anyone any views on the above fund^^?

It's expensive. TER (AMC and OFC combined) looks to be 2.04% (until they hit 75m then they "hope" to reduce it to 1%.
Vanguard can be as low as 0.1% - makes a big difference over the long-term when you take into account compounding of those costs.

Think you may have meant OCF - TER isn't AMC and OCF combined

In order of size

AMC: Fund manager charge
TER: AMC + audit and legal fees etc
OCF: TER+ a few more costs (believe custodian)

You will also need to take into account some/all of performance fees, trading costs and dilution levies. Vanguard have the total cost of investing below (also including platform)


https://www.vanguardinvestor.co.uk/content/documen...

not sure what you mean by costs making a difference over the long term - surely all you care about is performance net of fees?

HL have cost breakdown here (assuming I have correct fund)

http://www.hl.co.uk/funds/fund-discounts,-prices--...

[xeny]

BanzaiMan said:

not sure what you mean by costs making a difference over the long term - surely all you care about is performance net of fees?

Maybe if you think manager derived alpha is entirely the result of random chance then any variations from benchmark return are merely noise, and all that in the long term matters is fee drag, as any out or under performance will tend to average out?

[Phooey]

Harry Flashman said:

Heh. I like that cost structure - Andrew Craig goes on a great deal about compounding costs in his book, and the importance of managing them. And then launches something to his readers that is more expensive than anything else out there.

ha! Yes I noticed that. Just finished reading the book - found the last few chapters a bit harder to digest - need to read it again. I'm not really sure what to make of the book tbh - he makes it sound soooo easy I think you (or certainly I) could make silly mistakes / act too slowly on investing in or out of the asset classes he mentions. He keeps making a point of how the novice investor will already own more knowledge than "most" IFAs by the time you have read his book. Mmmmmm. I don't mind taking risk (already in an Adventurous portfolio (ISA)) but I don't think he's filled me with the confidence to go alone without at least some help from someone in the profession. Certainly opens your eyes to the power of compound interest and fees.

[wisbech]

diametric123 said:

My thoughts / experience:

- financial freedom comes at the point where you have a secure, guaranteed source of income that broadly covers your outgoings

- forget equity / fund investments as a way of ever covering income needs

- there are only two real recurring income generators: net yield on property / other assets or recurring income spun out by a trading business

- I completely separate out equity generators from cash generators. Equity growth kicks out returns every few years but can never be relied on for regular cash
!

Not sure why you don’t think recurring income spun out from a trading business isn’t from an equity investment in said trading business? I.e dividends from a share portfolio. Or do you see that as net yield from other assets.

If you want guaranteed income, then gilts (especially IL) are worth looking at - but probably only once you have already ‘won’ and more concerned about keeping what you have.

[Wombat3]

This is a great thread/discussion.

What's the general view on wealth managers who can take on SIPPs, ISAs, equities etc & invest it globally? Obviously there are fees to pay but against that they are able to invest In ways and with a spread of risk that would be difficult for the average individual to achieve.

I'm looking into Fishers at the moment.

[wisbech]

Vanguard & other trackers, and many investment trusts, enable you to diversify globally