The next phase begins - time to clarify my thinking...

MrLeek

After some hard work over the past few years I'm just a few months away from being 100% debt free. Even better news - I just turned 40, so there's plenty of time left to invest. Even better news.....I've got £700 p/m that can be invested without harming my day-to-day financial security.

In addition to all of that I've got a final-salary pension scheme plus a preserved pension from my service in the Forces. All told, I'm in a good position.

But I need to start locking down the decisions i need to make. I've got some of the loose answers already in my head, but I need to clarify a lot of my thinking - and the MSE boards are always a good place to be (especially challenging decisions - these boards don't suffer fools gladly!)

I've done a lot of reading of monevator.com and picked up Smarter Investing (Tim Hale). I've got more reading to do, especially since I'm not convinced I understand bonds. But passive investing is the way to go for me it seems - I see it as a 65-70% equity mix to begin with, then re-balance as I get older. But:

- Fidelity have a number of 'own brand' trackers which have a low cost. Is that a sane starting point? Feels like using trackers from other providers would be a better balance...
- Obviously costs are an important factor in picking a investing firm to work with. Is that the key factor? What things should I be thinking of? For example, Hargreaves Lansdowne seem more 'beginner friendly' (for want of a phrase) - what questions should I be asking of a potential provider?
- "FTSE 100 breaks through 7000" - should I really care, given that this will be a 15-20 year investment path?
- Would it be a reasonable starting point to focus 100% on equities initially (via trackers) to 'kick start' things, or stay balanced from the beginning? Doing the former seems like it has more long-term gains, but it's easy to get caught up in the moment and never really get a balanced portfolio.

In short? The more I know and understand about this next chapter in my financial life the more I realise I still need to learn. I have a lot more reading and learning yet to do, so I appreciate any thoughts.

Thanks for reading!

jimjames

MrLeek wrote: »

But passive investing is the way to go for me it seems - I see it as a 65-70% equity mix to begin with, then re-balance as I get older. But:
Thanks for reading!

It really depends on your attitude to risk but for a 20-25 year time horizon I have 100% (well actually now around 98%) equities.

MrLeek wrote: »

- Fidelity have a number of 'own brand' trackers which have a low cost. Is that a sane starting point? Feels like using trackers from other providers would be a better balance...

The important thing with trackers is their cost and their tracking error. Having a mix of trackers from different providers really isn't needed.

MrLeek wrote: »

- Obviously costs are an important factor in picking a investing firm to work with. Is that the key factor? What things should I be thinking of? For example, Hargreaves Lansdowne seem more 'beginner friendly' (for want of a phrase) - what questions should I be asking of a potential provider?

HL are certainly much more beginner friendly but you are paying for that at almost double the cost of other similar providers that may not be quite as easy to use. Some people are prepared to pay that for the convenience.

[

MrLeek wrote: »

- "FTSE 100 breaks through 7000" - should I really care, given that this will be a 15-20 year investment path?
- Would it be a reasonable starting point to focus 100% on equities initially (via trackers) to 'kick start' things, or stay balanced from the beginning? Doing the former seems like it has more long-term gains, but it's easy to get caught up in the moment and never really get a balanced portfolio.
!

FTSE level this week, this month or this year is pretty irrelevant in a 20 year timescale so no you shouldn't need to care.

I have 100% equities but am prepared for that risk and the possible 50% drop - that happened in 2008/9 but I survived!

InvestInPoker

MrLeek wrote: »

- Fidelity have a number of 'own brand' trackers which have a low cost. Is that a sane starting point? Feels like using trackers from other providers would be a better balance...

Fidelity are clearly trying to muscle in aggressively on Vanguards popularity - via undercutting them on price on all these trackers. Vanguard are popular with a few years history on all of their UK products now. They track their respective indexes very very well and charge only a smidgen more than Fidelity. Fidelity's are cheaper but most of them are new with not a lot of history. Solid company though who clearly do know what they are doing in this field. All things being equal the slightly lower charges of Fidelity will win out over the long term but other ugly things like tracking error MIGHT get in the way and make other providers a better bet. Up to you which way you go.

- "FTSE 100 breaks through 7000" - should I really care, given that this will be a 15-20 year investment path?

I know I started the thread on that when it happened on Friday but no, you should not care. Don't let emotions rule your investment decisions.

- Would it be a reasonable starting point to focus 100% on equities initially (via trackers) to 'kick start' things, or stay balanced from the beginning? Doing the former seems like it has more long-term gains, but it's easy to get caught up in the moment and never really get a balanced portfolio.

I am 100% equities but only because I have a >20yr timeframe and I believe I can brush off the 50% drop in portfolio value when it comes along (as well as the more common 10% type sudden dips). It is as you say for the long term gains. Once I have less than 20 years to go I will start to balance it out with some more defensive assets, building more and more towards a 50/50 split 5 years before I want to retire.

In short? The more I know and understand about this next chapter in my financial life the more I realise I still need to learn. I have a lot more reading and learning yet to do, so I appreciate any thoughts.

Same here, I am very glad I took some time out in the last few years to learn and do things myself though. I previously went to a financial advisor from 03-13 and although I am glad I made some previous investments I was overcharged with fees and entry charges into high cost poor performing funds. These are now all gone though.

PeacefulWaters

In addition to all of that I've got a final-salary pension scheme

Work on the assumption that it won't survive.

jimjames

PeacefulWaters wrote: »

Work on the assumption that it won't survive.

True. Mine closes this month, as of April new DC scheme takes over so whole new investing plan!

MrLeek

PeacefulWaters wrote: »

Work on the assumption that it won't survive.

This was my basic start point - assume that I'm going to get no state benefits due to already existing pensions.

Been looking at US Index trackers. Some track the S&P 500 with others tracking the FTSE US Index (which I've never heard of).

Also been reading about c-type investments and the like. Been doing a lot of Google searches lately! Right now I understand the language being used, but struggling to put them into a practical context.

im still thinking index funds all the way (maybe a managed bond/gilt fund? I need to learn more on this area). If I bought shares directly then I'd probably look to buy established blue-chip since I know I don't have the time or expertise to look for hidden bargains so to speak.

Short post as my iPad decided to eat my longer, and (hopefully!) more thought out post!

MrLeek

Plenty of more reading being going on.

Been talking a lot about this with my partner to make sure we both understand the potential and risks involved. Interestingly we both did one of the 'how risk adverse are you?' quizzes on the Vanguard site (the link came from monevator.com) - and we both came out of it 70% equities.

Probably will still focus on pumping in cash @ 100% equity first then rebalance over the first 1-3 years. Partner has promised to start reading Tim Hale's book and starting asking more questions - so expect some stupid questions in the weeks ahead! Here's two:

- Assuming that I have a Cash ISA post 6 April, will it be a simple process to transfer that cash into a decent savings account (cash in hand for all of life's little emergencies) without messing up any S&S ISA? (I understand that paying money into that Cash ISA after 6 April will count as my annual allowance)

- I'm struggling to see any practical difference between S&S ISA and a SIPP. I'm not expecting to hit the higher tax bracket for the next 4-5 years (and I may end up reducing my working hours in any case). So what am I missing - aside from the obvious (you can't take it out until you're over 55)?

kidmugsy

MrLeek wrote: »

- I'm struggling to see any practical difference between S&S ISA and a SIPP. I'm not expecting to hit the higher tax bracket for the next 4-5 years (and I may end up reducing my working hours in any case). So what am I missing - aside from the obvious (you can't take it out until you're over 55)?

Pensions are wonderful if someone else provides part of the money - an employer, the National Insurance Fund, or whoever. It can happen with SIPPs but is rare. For an ordinary 20% taxpayer, you have a marginal 6.25% advantage with SIPPs, if basic rate tax stays at 20% (you feelin' lucky, punk?). You lose all flexibility, and are exposed to substantial political risk, until you reach withdrawal age (55, increasing to 57 in 2024). Me, I'd use an ISA. If the 20% tax relief is abolished and replaced by 30%, I'd think again. That might be quite enough of an incentive to tempt me to gamble on the political risk.

MrLeek

kidmugsy wrote: »

Pensions are wonderful if someone else provides part of the money - an employer, the National Insurance Fund, or whoever. It can happen with SIPPs but is rare. For an ordinary 20% taxpayer, you have a marginal 6.25% advantage with SIPPs, if basic rate tax stays at 20% (you feelin' lucky, punk?). You lose all flexibility, and are exposed to substantial political risk, until you reach withdrawal age (55, increasing to 57 in 2024). Me, I'd use an ISA. If the 20% tax relief is abolished and replaced by 30%, I'd think again. That might be quite enough of an incentive to tempt me to gamble on the political risk.

That's more or less what I was thinking (just with a lot less detail than you provided so thank! ). 40% tax rate? Worth serious consideration - but otherwise it feels like a bad deal overall.

mf78

Well for me the 20% tax relief you gain on a SIPP was worth having as its a nice boost to my savings. I'm self-employed so otherwise no particular benefit to the SIPP and in light of the political risks and minefield of possible rule changes which may catch me out in the future, I've split my "pension" investment between the SIPP and a S&S ISA. I put about 3x as much into the SIPP at the moment and have atleast 22 years to go before I can touch it. I quite like having the flexibility and piece of mind from not having all my eggs in the one basket

kidmugsy

MrLeek wrote: »

). 40% tax rate? Worth serious consideration - but otherwise it feels like a bad deal overall.

As you get nearer to your withdrawal age, it becomes a better deal: the lock-in is for a shorter period, and the 6.25% gain is spread over fewer years, so feels like a good interest rate boost.

It's also a good deal if you expect to withdraw some of the tax-exposed bit tax-free, because you are not using up your full personal allowance.

So for many people they are probably better off leaving it for later in life.