Any massive flaws in this?

Makelele

Hi,

A couple of months ago I finally decided to take control of my finances and try and put some kind of long term plan together. It's by no means the most sophisticated of plans but would be interested to get some opinions on it and make sure I'm not leaving myself open to some inter-connected doomsday scenario!

My circumstances are I'm 32 years old, I earn on average about 35k per year after tax, paid via wages and dividends from my own company. Every now and again (once every 5 - 6 years on average) I have the potential to have a really good year and make a large bonus of 50 - 100k but that is very much the exception rather than the norm.

I've got 4 different investment streams which are:-

1. Cash ISA's
- keep tarting around for the best rate, max out the allowance every year, don't touch it and let it compound.

2. Property
- I basically became a reluctant landlord a couple of years ago when we couldn't sell our old house and didn't want to miss the chance of buying our dream "forever" house that became available so ended up stretching finances to the max and owning 2 houses. Broken even each year at the mo but I guess in the long, long run could be a nice little earner once the mortgage is paid off.

3. S+S ISA
- Vanguard Life Strategy 100% equity fund. Happy to drip-feed into this long term and see what happens.

4. Sports betting
- I know this will seem crazy to some! My day job is a freelance odds compiler for major bookmakers so I know this area inside out and know there's money to be made by knowing what you are doing. Returns are very good (I've made 75% per year on average over the last 6 years I've been doing it) although it's obviously very volatile and risky and the manual intervention of actually choosing and placing the bets yourself leaves you open to human psychological failings. I don't see any differences between sports betting and manually choosing your own stocks and shares though.

Between these 4 I'll contribute an equal amount of drip-feeding each month after my living expenses (and some fun money!) have been taken and hope to not touch them and compound them for the forseeable future. With the property I don't really want to add any further houses so the 25% drip-fed into this will go to paying off the mortgage.

A pension is the obvious gap but with me not having an employer and generally not being a higher rate taxpayer I'm not sure the slight financial advantage outweighs locking away the money until I'm 55 (happy to be corrected on this though)

As I say, I know it's not the most complex, sophisticated plan of all time but just wondering if there's any significant hole in the plan that I'm missing? I know the sports betting and the equity investing are risky and I'm comfortable with that.

Totton

Seems fine to me, property may be a safe haven if the markets implode or it may be a risk if house prices fall the 40% as desired by some. Sports betting is a no-no for me but if you can make 75% returns then go for it.

I did think the setup was as a whole high on risk but that maybe agreeable to you, perhaps in time look to reduce the VLS down to 60% to give some fixed income balance but it doesn't appear to be a requirement just now.

At the age of 32 you are very well placed for life ahead, well done on doing much better than I did :-)

Linton

A pension would be a very good idea particularly for your £50K-£100K good years when you will be able to avoid most of your higher rate tax. I think there are advantages in your company paying into your pension, though I know nothing about that area. Others can advise.

I also think that drip feeding your cash ISAs beyond the point when you have 6 months living expenses (including mortgage repayments) covered is more cautious than need be. Perhaps you could put that tranche into your S&S ISA.

One difference between shares and sports betting is that you rarely lose your whole stake with the former and once having bought your shares you can hold them for as long as it takes for them to show a profit. Also of course sports betting is a zero sum game with the bookie being the only person who always gains on average. With shares everyone can gain.

Makelele

Totton wrote: »

Seems fine to me, property may be a safe haven if the markets implode or it may be a risk if house prices fall the 40% as desired by some. Sports betting is a no-no for me but if you can make 75% returns then go for it.

I did think the setup was as a whole high on risk but that maybe agreeable to you, perhaps in time look to reduce the VLS down to 60% to give some fixed income balance but it doesn't appear to be a requirement just now.

At the age of 32 you are very well placed for life ahead, well done on doing much better than I did :-)

Thanks :-) I'd be in a much better position if I hadn't blown some great opportunities in my 20's but thems the breaks.

I have been thinking about maybe dropping the VLS down and certainly will as i get older but I think at the mo I'm happy to basically have a punt and keep my fingers crossed.

Makelele

Linton wrote: »

A pension would be a very good idea particularly for your £50K-£100K good years when you will be able to avoid most of your higher rate tax. I think there are advantages in your company paying into your pension, though I know nothing about that area. Others can advise.

I also think that drip feeding your cash ISAs beyond the point when you have 6 months living expenses (including mortgage repayments) covered is more cautious than need be. Perhaps you could put that tranche into your S&S ISA.

One difference between shares and sports betting is that you rarely lose your whole stake with the former and once having bought your shares you can hold them for as long as it takes for them to show a profit. Also of course sports betting is a zero sum game with the bookie being the only person who always gains on average. With shares everyone can gain.

I think I def need some IFA advice with the pension.

My thoughts with sports betting is that if you stick to the high liquidity markets the bookmakers overround is close to 100% if you shop around to get the best odds. So over a long, long time (1000's of bets) even if you are wrong about your bets being value and the market has the odds correct you will only at worst breakeven (unless you are spectacularly wrong where even then realistically you'd lose maybe 10%). As long as you allocate your bank correctly it is pretty low risk. The risk comes from being a dumb human who gets influenced by insignificant things.

Having worked in the bookmaker industry they are nowhere near as effiecient as conventional thinking would have you beleive. The odds compilers who set the odds are hugely overstretched. Everyone basically copies each other as no-one dares step out of line and be a standout price. Bookmakers tend to win money because of human psychological frailties more than their own sharpness.

Obviously that's massively oversimplyfing it and I wouldn't encourage anyone to do it as like anything you need years and years of experience before you truly know what you are doing.

Ark_Welder

There are advantages even for a basic-rate taxpayer of having your company pay into a personal pension. Unlike a dividend, the payments are made from pre-tax profits, so no corporation tax to be paid. And unlike salary, payments into a pension do not attract either employer or employee's national insurance.

One potential downside to pension payments in lieu of salary, though, is that the reduced top-line salary might affect credit availability - assuming that being your own boss does not already do so!

The following gives a bit more info: http://www.contractorcalculator.co.uk/pensions_contractors_limited_company.aspx

If you use an accountant to do your books then they might be willing to provide a bit more.

gadgetmind

Makelele wrote: »

I think I def need some IFA advice with the pension.

Not a bad thing but pension can be as simple as ISAs. My wife contributes monthly to her SIPP and mainly invests into a Vanguard LS 100% fund. Other than the wrapper there isn't really much difference.

TBH I'd speak to an accountant to get a handle on company contributions before an IFA.

Regards missing opportunities in your 20s, I think we all do that, and tend to blow the money we make from the ones we do seize. I had things back on track by the time I was aged 30 (dream house, good income, etc.) and am glad that I got the big mistakes out of the way early.

grey_gym_sock

well, if you're mostly paying yourself in dividends rather than salary, and not reaching higher rate tax, then pension contributions only save you corporation tax. which is less worthwhile. (and if you're not paying yourself mostly in dividends, why not? )

when you're paying yourself bonuses which would push you into higher rate, then it could well be worth instead paying employer pension contributions.

this is especially true when you have little pension provision already. as state pension alone won't even use your full personal allowance in retirement, so some of pension is likely to be untaxed (in addition to the 25% tax free lump sum).

when you already have a bit in pensions, it may make more sense to use S&S ISAs. usually, a bit of both is a good idea.

Makelele

Thanks for the replies guys. I hadn't even thought of my company paying into a pension so food for thought there. Will have to have a chat with the accountant when I next go in.

All feels horribly grown-up and responsible! I was down in the dumps when i hit my 30's, talking about pensions is tipping me over the edge!

grey_gym_sock

you're looking at it the wrong way ... the more money you have in retirement, the less need you'll have to act responsibly ...