FIREside Chats

perfume_waggon

edinburgher said:

Happy weekend all 

I read a sobering article this morning that stated that more money had been invested in equities in the last 5 months than the preceding 12 years and that valuations for everything are frothy.

I can absolutely agree with that viewpoint, I'm starting to get worried about the increasing number of posts from people gambling on cryptocurrencies and a slew of other alternative investments. That said, there's not much I can do about the market losing steam, except stick to the plan and buy more (cheaper). Housing markets are just as bad in nice areas (everything going to closing dates around here or mad offers of tens of % offers over).

From looking at Vanguard, I can weather a fall of roughly 30-40% without losing any actual money, I can live with that. £2 paid into my SIPP, £2.50 after tax relief. Perhaps I'm part of the problem - nowt to spend money on but bills, Internet shopping, food and drink and investments?

De-lurking as this is something I've been reading about and, as both OH and I are leaving work this year (at age 53), is a concern. Mike Green has identified the huge rise in passive investing as a significant factor in the way the market is behaving and there is a risk that it won't end well. We've been working towards FIRE for many years, so for the world to have changed so drastically just when we've reached our goals is disconcerting to say the least. 

edinburgher

@perfume_waggon - I had no idea who Mike Green was so Googled. Suffice to say with a first search result of a video titled "The perversion of passive investing" and his recent CV, I won't be researching further.

There have always been those vehemently opposed to passive investing and while some of them try and make novel points, it usually just smacks of sour grapes from active investors or investment managers.

For some people you will either be a "winner" or a "loser" in all aspects of life, including investing. I've been convinced of the efficacy of passive investing for 15ish years now, I know why I do it and I've heard a lot of the counter arguments. It can be hard to convince people that "average" with low fees is just fine. It took me a decade to get an admission from a financial professional relative that passive investing had served us well. I didn't need the validation, but it was nice to get 😀

perfume_waggon

Don't get me wrong, I'm big into passive investing myself and have no plans to change. It's just that the amount of money invested in passive funds is unprecedented and no-one knows how that will pan out. 

Cheery_Daff

greenbee said:

Cheery - I'd really consider doing the eco-improvements as you sort the heating etc now rather than having more disruption later or thinking you'll get round to it. I have a 'solar ready' heating and hot water system, but really can't face this disruption. 

After all my efforts looking at pensions over the last week, I'm now even more confused about the work pension - I know that they are removing the qualified earnings cap (although whether for their contribution or just the employee one I'm not sure), but that they count the tax recovered at source as part of the contribution so take 4% employee contribution and count the tax to get it to 5% (not sure whether that's correct). HR have told me we're not changing to salary sacrifice but also sent an invitation to a 'Financial Wellbeing' webinar that includes 'how the change to salary sacrifice will affect you'. 

I've also discovered that my Aviva pension actually has useful information in it. Sometimes I wonder whether investments are actually do anything or I'm losing money... but as they list my contributions, employer contributions and tax reclaimed over the life of the pension it's clear that there's a lot more in there than I put in there, which is good news. Whether it has grown as much as it should have, I have no idea, but at least there is more in there than I've put in over the years. Sadly I can't find the same detail on other provider portals, but I'll make the same assumption. 

Part of me would love to greenbee, but right now I'm pretty overwhelmed as it is, and it's been enough of a stretch to get to the point of getting someone in to fit a kitchen. We're grappling with Mr Cheery's physical and mental health too, and I just have no brain space to add anything else to that list. We're not having anything done to the heating at this point - it literally is just turning kitchen & bedroom from shell into functioning rooms. Much as I'd love to add extra exciting projects, and as many people as keep telling me it's sensible to do it now while everything is in disruption, I'm afraid I just can't 😕

And also we're spending about half of Mr Cheery's pension payout on this, and the rest is the emergency fund in case I lose my job, the septic tank malfunctions etc. I can't justify spending that on a big, not strictly necessary, home improvement project, when I'm just about to drop to four days and he's not very well.

So yes, that does mean it might never happen.... Just the way it is.

Hope you sort out what's happening with your pensions - your employer sounds pretty confused themselves!

ElmoR

@greenbee I've been trying to work out how you measure pension performance too. You can read their brochures for the past year/three years but that doesn't give you any comparison other than a benchmark (that I'm guessing they pick to make them look better).

I had a click around google and ended up on Trustnet website, where it looks like you can find funds - with pension funds being a sub category. There are zillions listed and frustratingly I couldn't find the USS ones, but you might find your there and can then compare with others on there?

If anyone has a better way to compare pension fund performances, please do shout! If all else fails, I may go ask the 'other' board...

Also, speaking of the 'other' board, I was trying to get my head around the differences between Van's Life strategy and the Target Retirement Funds. Two people recently asked this 'over there' - it made me chuckle because second person was pointed to first person's thread. Second person replies, yes, I did see that but I don't understand the answers. That's how I find it too, it get's very technical very fast. So second thing to ask everyone here...does anyone have any tips for simpler reading? I've read Tim Hale's Smarter Investing but are there other good ones?

Enjoying reading everyone's out loud thoughts, ideas, plans.

Oh, and one thing that might help the 30 somethings - the one big thing that 50+ me now thanks 30 year old me, is making the decision to sign up for added years additional voluntary contributions. While the wider pension scheme may change (and it has, multiple times now), they have to continue to honour that agreement. It will earn more income than I could ever make now.

ElmoR

SuperSecretSquirrel

Tartan_Mum said:

This might be people like me? First dip of the toe via a S&S ISA. Not overwhelmed so far but it’s only been a couple of months. 

This is why I like mortgage OP. It’s a blunt instrument but it’s certain. You pay it off and the balance reduces. The black and whiteness of this is reassuring. 

Perhaps, but the key is to hold your nerve if it happens. Instead of dwelling on what may have been "lost", try to enjoy buying more for your money in the future. Over a long enough time scale, sticking the course always has (and probably always will) resulted in an overall "win", usually resoundingly so!

I always liked cash savings and mortgage overpayments for the reason you stated. You know exactly where you are headed, and you can plan a year or two ahead with incredible accuracy (steady employment caveats etc apply). Those capital repayments feel solid, tangible, and nobody can take those future interest savings away from you. Totally different ball game with equities, but it becomes a different kind of fun, if you are that way nerdily inclined

Be strong, hold your nerve, and don't let the prospect of a dip out you off. There's always a bear market around the corner. The good news is there's always a bull market around the corner too. It's all part of the game

greenbee

@ElmoR - my pensions are SIPPs, so I'm responsible for choosing all the funds. I used to be more active in my selection and have slacked off in the last few years. Although I've changed some of the funds i'm invested in, I haven't made the effort to sell previous investments and move them so my investments are spread far too thinly. At some point need to do the maths to work out whether I'm doing better or worse than a managed fund. 

edinburgher

@ElmoR - Hales book really is one of the best that I have read. While he does a fantastic deep dive into lots of data, different model portfolios etc., the funds of funds offered by Vanguard and others  that you are talking about try to do away with that complexity, reducing passive investing down to simple, automatically rebalanced approaches.

Vanguard LifeStrategy funds offer a fixed percentage of equities (I.e. 80%). There is a home bias (roughly 25% of the equities are UK, vs the 5% of total global markets that the UK represents). The reason for this is that the majority of the equities and bonds held by LifeStrategy are not hedged to take account of currency movements that might open you up to rapid fluctuations.

This percentage of equities will never change and your choice should be informed by your targets, the time until your investment will be crystallised and the level of risk you feel comfortable with.

Target Retirement funds are much the same as LifeStrategy funds, with the caveat that Vanguard will automatically "lifestyle" your portfolio to reduce risk as you approach your target date. For example, I use Target Retirement 2045, which is currently 79% equities and 21% bonds. This will fall over time to roughly 30% equities and 70% bonds.

This fact sometimes opens TR funds up to criticism, 30% equities is very low. These are funds, however, for folk who need a certain amount of caution towards the end of their working lives and can't afford to gamble towards the end. Many people who use a TR fund may opt to increase their equities again once they retire, assuming their goals have been met, they feel comfortable in their cash flow etc.

If you think that the final percentage of equities is too low, you can game this slightly by opting for a later target date. I do this, TR 2040 would better suit my planned date.

Hope this helps

Ps. To complicate matters further, you can recreate all Vanguard funds by buying the components in the same proportions. This will lower your costs, but you will lose out on automatic rebalancing.

taka

ElmoR said:

I had a click around google and ended up on Trustnet website, where it looks like you can find funds - with pension funds being a sub category. There are zillions listed and frustratingly I couldn't find the USS ones, but you might find your there and can then compare with others on there?

USS have their own funds (10 of them I think?) which are only open to USS active members. The info on each is only on theUSS website. Log in, then pick Investment Builder then Fund Information to get the info on each.

ElmoR

@greenbee @taka @edinburgher   thank you! 

Ed - what a simple, easy to understand explanation. Have you considered writing a short guide for the novice?

I do have the USS fund performance info - I want to compare it to other funds/pension schemes. I suspect I'm making it more complicated than it need be - one of the USS funds I'm in ended at minus 6% compared to the previous year (they valued on March 30th 2020). To compare it with others, you would therefore need to look at March 30th 2020 and see how up/down the others were. Maybe it means having to wait until next year/quarter? and seeing how they are doing then? Presumably every pension fund had taken a kicking on March 30th 2020.

This probably isn't the best date/year to be doing comparisons