Intelligent Money - your investment questions answered

[ElectricSoup]

JulianPH said:

Hi mate.

I thought that thread was going to turn into an absolute car crash, but it actually ended up being interesting!

I was referring to mega-cap shares and index tracker funds that have daily liquidity and so can always be accessed as required.

I know your plans are far into the future, but understanding this now may prove very helpful in your planning.

We offer three different approaches to this:

• IM Optimum - these are managed portfolios of index trackers that simply track global markets with weighting we consider to the the optimum balance to achieve the individual aims of each portfolio. We have access to every asset class available and each portfolio will hold them differently (or not at all) and can change and adapt these as the world around us changes.

• IM Index - These are portfolios of index trackers that track global stock markets based upon their market capitalisation (so the US has the highest exposure as it is the world's largest stock market, and so on). You have the option to select different elements of UK index linked gilts (loan notes issued and guaranteed by the UK government). This gives you the option to diversify, but does not necessarily offer the same risk/reward reduction that the managed IM Optimum portfolios offer. Put simply, in rising market they will do very well, but in falling markets they leave you more open.

• PH Equity - This is a portfolios of 10 buy and hold global giants, companies everyone knows and uses. The top 5 holdings include consumer staples (Colgate Palmolive and Unilever), together with price reducing tech companies (such as Amazon and Netflix) and drinks giant Diageo (which owns many of the most famous drinks brands in the world). Whilst being a "buy and hold" strategy, like IM Optimum it is fully managed.

That may be a bit of a mouthful to start things off, but basically it is a quick overview on which we can add clarity and build on. Have a look at our website (www.intelligentmoney.com) and click on "Private Clients".

Alternatively have a chat with Nik, who is excellent at putting complex matters into plain English ([e-mail]). There is no charge for this.

I hope that was helpful, but just shout if you would like me to start at a more basic level and I will be happy to help.

Cheers

Julian

Hi Julian, that's enormously kind of you. I shall have to read it a couple of times, I think. It is an entirely new language to me. You're speaking with someone here who has never understood what "off setting tax" means for example, and when I was a contractor rather than a permanent employee I opted for an umbrella scheme to get paid through, as I was absolutely terrified of dealing with my own finances and tax returns etc, even though I knew it was costing me money. I still am that terrified and uninformed.

At the moment I'm wondering if my fag packet plan even flies - I have no idea what the return on about £600-800k's worth of capital would be, in a low risk investment of some kind. If I can be confident it'll "pay out" maybe £4k a month I'd be delighted. But I haven't got a clue if that's wildly optimistic or wildly pessimistic. Are financial products better than buying a portfolio of rental properties for example? Haven't a clue, no idea what the numbers would be. I err towards tangible things I can understand easily, such as flats/houses, because I can see a predictable, stable income from those, but when it comes to financial products, I am utterly bereft. I don't want to cock this up, it's the only money I'll ever have and I want to stop working and enjoy my life asap.

TL:DR - will have modest (sub-£1m but more than £0.5M) capital in about 10 years time, want a steady income from it, want to retire, don't want to risk losing the capital.

Edited by ElectricSoup on Monday 3rd February 15:29

[JulianPH]

Bobajobbob said:

I'm also a refugee from the Portugal thread and am very glad you pointed us over here as what I've read here is extremely interesting and helpful.

When you have answered the question above I wondered how your fees compare to some of the other companies in this space. I currently use Brewin, having effectively inherited a relationship, and am aware of Rathbones and a few others however, even post Mifid2, their fees have never been crystal clear to me.

I guess I am asking if you were to pitch me on why I should move my portfolio from active management at Brewin what would be the basis of that pitch? Am I what is considered in the industry to be the "dumb money" paying crazy fees to basically track the market and recieve glossy brochures?

Thank you.

Hello mate

As I said above, from an absolute car crash thread to a very interesting one!

Our fees range from 0.57% a year (IM Index), 0.67% a year (PH Equity) to 0.87% a year (IM Optimum). These are all (very importantly) fully exclusive of all underlying costs.

If you would like to request a "MiFID II Fee Disclosure" from Brewin (for a comparison), then I suggest you sit down before reading it.

Then have a stiff drink before comparing our performance with them.

In a nutshell, we don't pitch - because we don't have to.

We are more than happy to provide you with any information, guidance and financial planning assistance that you need. You are quite capable of working out who offer the best costs, value and investment returns and so we don't insult your intelligence by trying to sell ourselves to you.

Many here will verify this.

I'm more than happy to answer any other questions you may have (or give a better answer to this one! )

Cheers

Julian

[Bobajobbob]

JulianPH said:

Hello mate

As I said above, from an absolute car crash thread to a very interesting one!

Our fees range from 0.57% a year (IM Index), 0.67% a year (PH Equity) to 0.87% a year (IM Optimum). These are all (very importantly) fully exclusive of all underlying costs.

If you would like to request a "MiFID II Fee Disclosure" from Brewin (for a comparison), then I suggest you sit down before reading it.

Then have a stiff drink before comparing our performance with them.

In a nutshell, we don't pitch - because we don't have to.

We are more than happy to provide you with any information, guidance and financial planning assistance that you need. You are quite capable of working out who offer the best costs, value and investment returns and so we don't insult your intelligence by trying to sell ourselves to you.

Many here will verify this.

I'm more than happy to answer any other questions you may have (or give a better answer to this one! )

Cheers

Julian

Thank you. You confirm what I have long suspected, have intended to address but simply haven't had the time/information/energy to action.

A couple more stupid questions for when you have a moment.
i) My current portfolio is a combination of currencies, funds, individual stocks, bonds, cash etc with most of it now in ISA wrappers. To shift to your funds I'd have to liquidate the portfolio and I assume that I can transfer the ISA wrappers although they will for a period be univested? Anything outside ISAs I guess will incur CGT, if any, in the transfer?
ii) Is your service one price fits all? I believe with Brewin the fees are tiered so I pay less the more I have under management.
iii) did I read correctly earlier in the thread that there is no "transfer" fee?
iv) My pension is currently in a company scheme that has an extremely competitive fee structure (0.25) albeit with not the most diverse choice of investments. When I leave this job the fees ramp up so I always intended to then shift it to a SIPP. How do you manage penison investments alongside general ISA wrapped, or not, funds? Is it all in one big pot with different tax treatment or does it need to be segregated?
v) At tax return times do you spit out a one page report to hand to the accountant for tax returns?

thanks again

[JulianPH]

ElectricSoup said:

Hi Julian, that's enormously kind of you. I shall have to read it a couple of times, I think. It is an entirely new language to me. You're speaking with someone here who has never understood what "off setting tax" means for example, and when I was a contractor rather than a permanent employee I opted for an umbrella scheme to get paid through, as I was absolutely terrified of dealing with my own finances and tax returns etc, even though I knew it was costing me money. I still am that terrified and uninformed.

At the moment I'm wondering if my fag packet plan even flies - I have no idea what the return on about £600-800k's worth of capital would be, in a low risk investment of some kind. If I can be confident it'll "pay out" maybe £4k a month I'd be delighted. But I haven't got a clue if that's wildly optimistic or wildly pessimistic. Are financial products better than buying a portfolio of rental properties for example? Haven't a clue, no idea what the numbers would be. I err towards tangible things I can understand easily, such as flats/houses, because I can see a predictable, stable income from those, but when it comes to financial products, I am utterly bereft. I don't want to cock this up, it's the only money I'll ever have adn i want to stop working and enjoy my life asap.

TL:DR - will have modest (sub-£1m but more than £0.5M) capital in about 10 years time, want a steady income from it, want to retire, don't want to risk losing the capital.

No problem!

That level of income is pushing it, but could be achieved if you were prepared to tighten things up in hard years. I would halve it in my expectations, it should grow far better and not leave you destitute in old age with only

For some more basic language, all investments contain one or more asset classes. These assets are generally:

• Cash - secure (as the bank/building society) but not inflation matching (so your purchasing power deceases over time).

• Property - perceived security (brick and mortar) but come with maintenance costs, rental voids, management fees, bad tenant and damage potential. This is not really a good source of passive income unless you are prepared to accept a lower yield for someone to manage all of this for you. Much longer term as an investment as property market growth in a primary factor here.

• Bonds - this is a word thrown about to cover many things, but I am using it in its truest form. Government bonds (known in the UK as Gilts) are sovereign debt and are as secure as the country's that offer them. The UK and US have never once defaulted, so pay a lower level of yield to borrow money. Argentina, for example, has to pay a fortune in yield to borrow money.

• I will interject here with the word "yield". It simply means the income that any asset class provides. With cash this is known as "interest" and with shares (see below) it is called a dividend. It can also be called a coupon, but "yield" is a catch all for what we would all call income (they are taxed in different ways though!).

• Growth - if I am going to interject with income I should do the same with growth. This is the rise in the value of any asset. If you buy a property for £100k and later sell it at £200k you have experience 100% growth. The same with any other assets. Growth is, again, taxed differently depending on the asset and how you hold it. It is a capital gain, not income - and you can only realise this when you come to sell. So a property is not much use for income if half of your gain is from the growth in its value (as you cannot access this half until you sell it, by which you lose the other half - the income part).

• Shares - this is where it gets difficult! Share are simply investments in companies. They are also often referred to as stocks or equities (and can come in different classes, such as preference shares), but in the main owning shares in a company means you own part of it, however large or small that part you own may be. Shares usually give you a regular dividend yield (income) and capital growth as the company share price grows (and capital falls if the company share price falls). These are easily the best long term performing asset, but carry greater risk (as would be expected for the greater rewards).

• Income investing verses growth investing. One aims to maximise the level of income returned and the other aims to maximise the level of growth returned. In my opinion, neither is right. It is about maximising liquid (i.e. readily realisable returns) from the best source at any given time. Income investing can work for people seeking growth, but growth investing in illiquid assets is hopeless for people wanting to maximise their income.

• Diversity - the most important factor here. I have kept the above short (and not included non-yielding assets such as base metals, and many other less obvious assets that can also act as a hedge; Hang on!

• Hedge - an asset you hold to balance out a higher risk holding, or a short (opposite to the market - if it goes down your money goes up) investment. I am speaking here of assets such as gold and cash, whereby a small exposure can "hedge" against* a larger equity/shares exposure where the reward can be much greater, but you want to reduce the risk.

• Diversity (again!) - It is still the most important factor! Utilising all asset classes and weighting to match your objectives is absolutely vital for long term growth and even more so for long term income. Of course you could win big on red or black, but you need to be the casino if you want to always win. Have you ever seen one of them with just one game or one table? No. Keep taking a regular amount from each game/table (or "market") and spread your risk whilst ultimately enjoying your beer in Slovakia!

Just shout if I can explain things better, and I have been on and off phone calls whilst typing this, so please excuse any typos!

Cheers

Julian

[mikeiow]

ElectricSoup said:

I have no idea what the return on about £600-800k's worth of capital would be, in a low risk investment of some kind. If I can be confident it'll "pay out" maybe £4k a month I'd be delighted. But I haven't got a clue if that's wildly optimistic or wildly pessimistic.

TL:DR - will have modest (sub-£1m but more than £0.5M) capital in about 10 years time, want a steady income from it, want to retire, don't want to risk losing the capital.

I'm sure Julian or Nik will address your message in detail....but on the topic of the above, you are really asking what the "safe withdrawal rate" in retirement (SWR).
Usually given as an annual sum, rather than monthly.
For years it was 'stated' as 4% (eg, £4K for every £100k)...then smart people did analysis and decided the UK would be safer at 3.5% - see here for one discussion.

So if you had, for example, £800K in a pot, then you might hope to get between £28K & £32K.

That also assume it should leave the original sum still there....so if you don't need to leave any inheritance, & perhaps have State Pension kicking in to help later, you can probably squeeze some more out

Over to Nik & Julian!

ETA - knew Julian would be on it: doh!!

[JulianPH]

Bobajobbob said:

Thank you. You confirm what I have long suspected, have intended to address but simply haven't had the time/information/energy to action.

A couple more stupid questions for when you have a moment.
i) My current portfolio is a combination of currencies, funds, individual stocks, bonds, cash etc with most of it now in ISA wrappers. To shift to your funds I'd have to liquidate the portfolio and I assume that I can transfer the ISA wrappers although they will for a period be univested? Anything outside ISAs I guess will incur CGT, if any, in the transfer?
ii) Is your service one price fits all? I believe with Brewin the fees are tiered so I pay less the more I have under management.
iii) did I read correctly earlier in the thread that there is no "transfer" fee?
iv) My pension is currently in a company scheme that has an extremely competitive fee structure (0.25) albeit with not the most diverse choice of investments. When I leave this job the fees ramp up so I always intended to then shift it to a SIPP. How do you manage penison investments alongside general ISA wrapped, or not, funds? Is it all in one big pot with different tax treatment or does it need to be segregated?
v) At tax return times do you spit out a one page report to hand to the accountant for tax returns?

thanks again

No problem whatsoever.

i) Yes(ish). Your current manager would have to liquidate to cash an d move this over. For you ISAs there would be no CGT event, but there could well be for your GIA. This needs planning so as to minimise any potential tax implications. We can do this with/for you.

ii) We are tiered too. Probably not to the same extent (as we don't start at the same high price!) but IM Index and PH Equity drop to 0.52% then 0.47% at the £500k and £1m mark. PH Equity drops to 0.62% and 0.57% on the same basis. IM Optimum will follow suit later this year for existing clients.

iii) You did. No transfer fee, no platform fee, no DFM fee and no adviser fee. Use the code PH2607 in the "Additional Information" box on the Personal Details page.

iv) The law has been changed to stop any charges increase in such circumstances. If the performance is good then you should stay where you are as the charges appear very low indeed. I would check them both though first.

v) Yes. I can't add any more to that one!


Sorry if my first response came across the wrong way, we just don't do the sales pitch thing. Reading it back I feel it felt harsh, that was never my intention.

Cheers

Julian

[JulianPH]

mikeiow said:

ElectricSoup said:

I have no idea what the return on about £600-800k's worth of capital would be, in a low risk investment of some kind. If I can be confident it'll "pay out" maybe £4k a month I'd be delighted. But I haven't got a clue if that's wildly optimistic or wildly pessimistic.

TL:DR - will have modest (sub-£1m but more than £0.5M) capital in about 10 years time, want a steady income from it, want to retire, don't want to risk losing the capital.

I'm sure Julian or Nik will address your message in detail....but on the topic of the above, you are really asking what the "safe withdrawal rate" in retirement (SWR).
Usually given as an annual sum, rather than monthly.
For years it was 'stated' as 4% (eg, £4K for every £100k)...then smart people did analysis and decided the UK would be safer at 3.5% - see here for one discussion.

So if you had, for example, £800K in a pot, then you might hope to get between £28K & £32K.

That also assume it should leave the original sum still there....so if you don't need to leave any inheritance, & perhaps have State Pension kicking in to help later, you can probably squeeze some more out

Over to Nik & Julian!

ETA - knew Julian would be on it: doh!!

Seriously great answer Mike!

If you want to preserve the capital (and increase it in line with inflation) then you are in the right ballpark (did I just use an Americanism - wash my mouth out!!!)

If not, then you can eat into it (conservatively) as this is what it is for.

Just don't eat tomorrow's dinner today!

[Bobajobbob]

JulianPH said:

Sorry if my first response came across the wrong way, we just don't do the sales pitch thing. Reading it back I feel it felt harsh, that was never my intention.

Cheers

Julian

No worries, all answers very much appreciated thank you. The question wasn’t very well articulated. When I said pitch, it was purely hypothetical. I was just looking for your USP and how you generally differentiate yourself from the competition given that I’m with the competition today.

[JulianPH]

Bobajobbob said:

JulianPH said:

Sorry if my first response came across the wrong way, we just don't do the sales pitch thing. Reading it back I feel it felt harsh, that was never my intention.

Cheers

Julian

No worries, all answers very much appreciated thank you. The question wasn’t very well articulated. When I said pitch, it was purely hypothetical. I was just looking for your USP and how you generally differentiate yourself from the competition given that I’m with the competition today.

Cheers!

No problem. Our USP is just doing and delivering what we say we will do, at the very competitive price we do it for. You can compare us with others and make up your own mind up about this.

Cheers

Julian

[ElectricSoup]

Thank you very much for the fantastic answers from JulianPH and mikeiow. Really very, very helpful to a beginner.

I would very much like to leave the capital alone as far as possible, and pass it on as an inheritance once I'm gorn. So it really is all about maximising income from the capital as long as possible, rather than nibbling away at it. Of course, I may need to buy myself the odd beige Honda Jazz out of the capital...

So even if I could be confident of £28k a year income that would probably be sufficient for my needs. Actually I say "my" but I am talking about 2 people here, myself and my spouse.

Where I lose your reasoning a bit is around property. If we take an arbitrary figure of £800k, that would buy 16 flats of around £50k value each. £400 a month rent out of each of them would be £6,400 a month, before costs. Let's assume £2k costs every month (allowing for voids, repairs, defaults, fees etc), that's still way better than £28k a year.

Am I missing something?

[Bobajobbob]

My guess would be in finding flats for £50k that can be rented for £400 pm? Is that still possible?

[superlightr]

ElectricSoup said:

Thank you very much for the fantastic answers from JulianPH and mikeiow. Really very, very helpful to a beginner.

I would very much like to leave the capital alone as far as possible, and pass it on as an inheritance once I'm gorn. So it really is all about maximising income from the capital as long as possible, rather than nibbling away at it. Of course, I may need to buy myself the odd beige Honda Jazz out of the capital...

So even if I could be confident of £28k a year income that would probably be sufficient for my needs. Actually I say "my" but I am talking about 2 people here, myself and my spouse.

Where I lose your reasoning a bit is around property. If we take an arbitrary figure of £800k, that would buy 16 flats of around £50k value each. £400 a month rent out of each of them would be £6,400 a month, before costs. Let's assume £2k costs every month (allowing for voids, repairs, defaults, fees etc), that's still way better than £28k a year.

Am I missing something?

a flat at £50k wont be very nice and most likely be in a depressed area of the country. which in turn attracts low end/higher risk tenants and high turnover of tenants. You shouldn't work on 12x monthly rent.
We recommend to work on 10 out of 12 often if you get the right property/agent then you may well get less voids.

Saying that many properties we look after are let for 12 mths and then extend for another 12 or longer so you can get closer to having 11/12 let or 23/24 mths let.

The "income" is income but you do need to factor in the capital growth as that an important part of the calucations/guess.

The key is to get a nice property in a good area with high demand and a decent Letting agent.

[ElectricSoup]

Bobajobbob said:

My guess would be in finding flats for £50k that can be rented for £400 pm? Is that still possible?

Well not where I live it isn't, but in other parts of the country it seems achievable. Glasgow, for example. Where I live it'd be 4 flats at £200k each, at £1000 a month rent, ball park. Which would still be better than £28k a year by my calculations.

[ElectricSoup]

superlightr said:

ElectricSoup said:

Thank you very much for the fantastic answers from JulianPH and mikeiow. Really very, very helpful to a beginner.

I would very much like to leave the capital alone as far as possible, and pass it on as an inheritance once I'm gorn. So it really is all about maximising income from the capital as long as possible, rather than nibbling away at it. Of course, I may need to buy myself the odd beige Honda Jazz out of the capital...

So even if I could be confident of £28k a year income that would probably be sufficient for my needs. Actually I say "my" but I am talking about 2 people here, myself and my spouse.

Where I lose your reasoning a bit is around property. If we take an arbitrary figure of £800k, that would buy 16 flats of around £50k value each. £400 a month rent out of each of them would be £6,400 a month, before costs. Let's assume £2k costs every month (allowing for voids, repairs, defaults, fees etc), that's still way better than £28k a year.

Am I missing something?

a flat at £50k wont be very nice and most likely be in a depressed area of the country. which in turn attracts low end/higher risk tenants and high turnover of tenants. You shouldn't work on 12x monthly rent.
We recommend to work on 10 out of 12 often if you get the right property/agent then you may well get less voids.

Saying that many properties we look after are let for 12 mths and then extend for another 12 or longer so you can get closer to having 11/12 let or 23/24 mths let.

The "income" is income but you do need to factor in the capital growth as that an important part of the calucations/guess.

The key is to get a nice property in a good area with high demand and a decent Letting agent.

Yep, thanks for that. Good points. I'm more interested in income than capital growth. I don't think I'd care if the capital didn't grow at all. But still, I'd have to have an absolute disaster, like all properties empty more than 50% of the time, to reduce the income to a level equivalent to the financial products suggested earlier producing £28k a year.

Maybe I'm still missing something? I don't know. But even disaster calculations make it look far better in income terms to do this, from my admittedly simplistic analysis.

[Bobajobbob]

I'm not an expert on the rental market across the country but in my neck of the woods I don't think I could rent a 200k flat for 1000 a month. It would be in the 500-750 range I think.

[Mr Pointy]

JulianPH said:

Our fees range from 0.57% a year (IM Index), 0.67% a year (PH Equity) to 0.87% a year (IM Optimum). These are all (very importantly) fully exclusive of all underlying costs. (Edited)

Did you mean exclusive or inclusive?

[ElectricSoup]

Ok, we're going off topic a bit, it is fair to say that different returns can be achieved in different parts of the country and in different sectors of the rental market. The trick is finding the best return, not just looking at property in your own immediate area.

My point stands though even if you looked at £750 a month for 4x 200k properties. That would still bring in a bit more than £28k a year, and benefit from some capital growth in the background. But better returns are available if you spread your capital thinner, in different parts of the country.

What I'm hoping to find out from folks like JulianPH etc is what kind of financial products can match this in terms of "yield" as they call it.

Here's the sort of property I'm talking about.

https://www.rightmove.co.uk/property-for-sale/prop...

It would rent for about £350-400pcm I would estimate, going on similar properties in the area.

Edited by ElectricSoup on Tuesday 4th February 12:40

[JulianPH]

Mr Pointy said:

Did you mean exclusive or inclusive?

I was just testing!

I meant inclusive!

[Mr Pointy]

JulianPH said:

Mr Pointy said:

Did you mean exclusive or inclusive?

I was just testing!

I meant inclusive!

I thought so!

How is the GIA transfer in work coming on?

[mikeiow]

ElectricSoup said:

Ok, we're going off topic a bit, it is fair to say that different returns can be achieved in different parts of the country and in different sectors of the rental market. The trick is finding the best return, not just looking at property in your own immediate area.

My point stands though even if you looked at £750 a month for 4x 200k properties. That would still bring in a bit more than £28k a year, and benefit from some capital growth in the background. But better returns are available if you spread your capital thinner, in different parts of the country.

What I'm hoping to find out from folks like JulianPH etc is what kind of financial products can match this in terms of "yield" as they call it.

Here's the sort of property I'm talking about.

https://www.rightmove.co.uk/property-for-sale/prop...

It would rent for about £350-400pcm I would estimate, going on similar properties in the area.

My view is that you can absolutely take that approach if you prefer: but property rental is not always a low-touch investment....unless you use a full management agent, who I imagine might take a tidy chunk out of things.
I suspect quite a lot of older people might be using TFLS (the tax free lump sums from their pensions) to buy rental places in order to get a more regular income.....& if the numbers work, why not! Just be prepared to put a bit more into it that than you would a passive tracker

We have a holiday cottage, and whilst we do make some money on it, the maintenance can potentially take a chunk out. Terrible investment from that perspective (although we own it for other reasons, & specifically do not aim for maximum occupancy). Some days it feels more like a millstone than a holiday place!