What do you guys do to maximise your investments?

Glen_Clark

BLB53 wrote: »

I would suggest maybe looking at investment trusts - here is a good article today on another decent website - http://www.retirementinvestingtoday.com/2013/01/investing-for-income-via-investment.html - the theme is 'save hard, invest wisely, retire early'.

Just a couple of pointers which may help you decide.
Good luck!

Interesting link, Thank You.
We get so used to reading brokers saying buy/sell (they make money either way) its unusual to read anyone saying wait QUOTE: There may well be more favourable opportunities over the coming year when the markets turn down and yields improve.

gadgetmind

Glen_Clark wrote: »

We get so used to reading brokers saying buy/sell (they make money either way) its unusual to read anyone saying wait.

I've got so used to the bleatings of brokers that I now completely ignore them.

A motley smattering of brokers follow companies where I'm an "insider" by various mechanisms, and I know for sure that 80% of what they spout is complete nonsense.

Maybe they are better when covering banks or insurers than they are with tech companies, but I have my doubts.

jamesd

If you haven't done it yet, have a read of the book The Millionaire Next Door. I've accumulated enough over the last seven years to be able to live as I need to even if I never worked again, though without a good enough safety margin yet. That took me around six years and the seventh has been increasing the safety margin. Is that an objective you want? How about being able to retire at a particular age, say 55? Or earlier? That takes more money still, because it's not about minimum lifestyle but desired. Pick an objective if you have one, it's a useful planning and motivating tool.

Since I've been paying attention I've accumulated savings and investments worth 87% of my total net pay plus gross pension contributions over the period. Yes, I track that and other things, part of how to motivate and keep score. The top two tax years were 2009-10 and 10-11 with gains of 180% and 112% of my income in those years. The worst was 2011-12 with a gain of only 50% of my income. This gets harder over time as my large ongoing contributions have a decreasing effect compared to investment volatility.

First thing to do is pension contributions to get any employer contribution matching, unless they have one of the small number of really bad schemes.

Beyond that it's common for higher rate tax payers to make pension contributions to use all of their higher rate income, to get the 40% or higher tax relief.

For basic rate ISAs can be a better choice because they provide some protection from future income tax rises. But they don't provide protection from bankruptcy or anything else that takes all of your money, unlike pensions. If you share my objectives the ISA wrapper has the major advantage that you can draw as much capital as you need to to provide income. That is really useful to let you stop working before you can get to any pension money at age 55. It's also useful to boost income between age 55 and state pension age but a higher rate tax payer may do better using a pension for that longer period if they make high enough pension contributions getting higher rate tax relief.

I have an interest only offset mortgage and make no payments off the capital. Investment returns are greater and I was a sufficiently late retirement planning starter that I go for maximum efficiency even though I do have plenty of time to reach my objectives given my level of commitment. The offset feature is useful as a place to have money sit when not invested and as protection against high interest rates, since it's a tracker and I can put money in the offset account if interest rates get to high levels. Then take it out again when they drop back.

For investment choice, consider a core 30% or so of a global market tracker, something like a FTSE World or MSCI World tracker. Not because of low cost but because it's performance a little below the global market and that's a good base for your other investing and an initial move away from the excessive UK concentration that's common for UK investors.

Beyond that I tend to prefer active managed funds, particularly for smaller company and emerging markets areas, where it's clear that there is scope for managers to do better than index trackers. For special situations/undervalued companies and such I also use managed funds because again this is an area where it's not just about tracking an index but specific share selection.

I pay attention to managers (the humans) who have good records and use them when it seems appropriate. For example, a fair bit of Invesco Perpetual Income and High Income at times of elevated risk and when income-producing shares are likely to be popular, which has been true for 2012. But not at times when the manager's style seems wrong - caution in 2009 would have been a bad idea that would have greatly harmed my gains.

Since I want a global investment focus, not sticking to just the 8% of the global equity market that is the UK, I don't think I can hope to get decent knowledge of directly held shares, so I prefer collective investments of various sorts, mostly funds and some ETFs.

Leverage can be a useful tool. Things like x2 ETFs can be useful if used at the right times. Or just to increase the effective amount that you have invested, so you can have a particular percentage in say the FTSE using a doubly leveraged tracker without using so much of your total money. But double leverage means double the losses at the wrong time, so use with caution, particularly before you're really comfortable with investing, and don't go overboard with using it for too much of your total investing. For you, today, nil is probably the correct amount of leverage to use unless there's a truly exceptional opportunity like 2009-10 that comes along.

Work on buying low and selling high, buying when there's blood on the floor as the saying goes. I roughly doubled my net worth between January 2009 and January 2010 by investing heavily in early 2009, including using leverage. Be aware of the potential and risks of exceptional opportunities like that year. It's emotionally uncomfortable to buy when the news is bad and has been for a while. It can be even harder to sell when the news is good and has been for a while, but you need to try, so you can switch to lower volatility investments before the next downturn. Dealing with the emotions of buying and selling and when can be one of the hardest challenges after trying to predict the future.

Watch prices daily for a while if you have the time. Observe the volatility and get comfortable with it. That'll help to train your emotions to recognise that ups and downs are normal, while you still don't have large amounts invested. It's much easier to see a routine downturn's 20% drop that's just £2,000 of £10,000 invested than it is to see it when it's £20,000 of £100,000 invested or £40,000 or your whole annual income. Drops of that level can happen in days, with minimal to no time to get out of the market if using funds. So train your emotions to deal with them so you don't over-react when they happen, as they certainly will. And later, learn about options and covered warrants if you want protection.

I use mostly S&S ISA, only a little in cash and that mainly when I want to be partly out of the market. I do keep a good-sized emergency fund, though the amount needed to last beyond a year is usually invested in some way. The first year's worth is generally in cash or low volatility investments.

For your amount above the ISA limit you can use the same investments outside a tax wrapper if you like.

Learn. Not just about theory and practice but about what works for you. Some things just won't interact well with your particular way of investing or emotions. Learn what does and doesn't work for you and do more of what works and less of what doesn't. Your risk tolerance comes into play here as well.

novadragon849

Thank you for all the help guys.

Seeing that I plan to invest for a lengthy period of time, would it be generally better to transfer all my cash isa savings (approx £20,000) into my S&S isa as generally I believe this gives a lot better return compared to even the highest interest paying cash isas or is this very risky?

I have no intention of moving such money as I have a stable emergency fund which is constantly topped up in case I need money straight away so I can see the money being locked away for at least 5 years.

gadgetmind

novadragon849 wrote: »

I can see the money being locked away for at least 5 years.

Five year is the barest minimum you should consider.

You *will* be taking on more risk by investing rather than saving as the it's one of the rules of higher long term returns that you have to accept short-term volatility.

As long as you understand and manage this risk, then your plan is sound.

If there is *any* chance that you'll be selling at a loss (either because you need the money or you panic) then don't do it!

CLAPTON

do you own a property?

do you aspire to own a property?

novadragon849

It is highly unlikely that the funds will be touched as I make sure that I have at least enough funds to last me some time even if I don't work (currently about £10,000 in a easy access savings account).

I also own a property so no paying off mortgage is necessary.

I don't think that 5 years as a minimum will be a problem as it will most definitely be a long term/lifetime thing unless there is a major turn in my life.