Embarrassed 40 year old - no pension.

Albermarle

Right now, I have no idea if my funds are in the right pension plan. I have put 100% into https://markets.ft.com/data/funds/tearsheet/performance?s=GB00B4QBYH95:GBP

Due to your age it is usually recommended to be 100% in equities , so you have done that with a low charge . Only comments from a non expert would be 

1) It is only developed world large cap and normally something a bit more wide ranging is recommended .

2) There is no UK element . How much UK should be in a portfolio is debatable but normally not zero 

3) If there is a market crash , it will follow , which could be quite alarming if it is say 30% or 40% . Are you mentally ready if that happens , on the basis that it should recover again at some point . This is known as your risk tolerance.

MaxiRobriguez

£1,500 is a good pension contribution and with £500 or so left over that is enough to start building a decent emergency fund in tandem. In the meantime, whilst your emergency fund is small, consider getting a 0% credit card to tide you over that you can use to tide you over if you know you will only use such a card for real emergency purposes.

I think you have a nice balance there, and you can always dial the pension contributions down a bit if you find it's too tight.

But see how you go - for me the excitement of seeing decent sums go in monthly that will aide towards an early retirement is the motivation to not want to spend the money on other things.

MaxiRobriguez

sho_me_da_money said:

I have cut back on all the crap to a limited amount - i.e. eating out etc. I received my first pay pack after the first £1040 salary sacrifice and after all the bills and outgoings, I have around £1000 left over. That said, I do not have any emergency funds so am kinda using this excess amount to build up a fund.

I think I could up the ante and say contribute another £500 per month and take my salary sacrifice up to £1500.00. This would leave me £500 squids left over.....I think. I should be able to survive on that. 

I have no kids nor any partner so if there was ever a time to act like a monk, its now.

Right now, I have no idea if my funds are in the right pension plan. I have put 100% into https://markets.ft.com/data/funds/tearsheet/performance?s=GB00B4QBYH95:GBP

I have no fricken idea if I have done the right thing here. I simply moved UP a risk level and figured it can offer good/better rewards. Based on that product, how can I tell how much it makes per year?

Would love to make 10% per year. Not sure if I have the right product to do that though. Thoughts from you fine experts?

Not many funds are going to net you 10% per year given we've had a decade of zero interest rates which has pushed up equity prices. Be conservative with your expectations as it'll keep your plan on track. For my forecasts I've gone with a 4% real (after inflation) return over the next 30 years, but even that could be a little on the high side. 

The fund you're invested in is not perfect but it is fine for a novice. It is heavily weighted to the US (65%) with the top holdings being Apple, Microsoft, Amazon, Facebook and Google which together make up 15% of the total fund. All of these stocks are quite expensive after an amazing 4 year run, and history would suggest therefore that these stocks may act as a drag compared to other options - so that would give me greater reason to dial down the 10% expectation.

Personally I prefer to have an overweight UK and EM allocation (rather than none, which your fund has) given their relevant valuations compared to the US, but that is my personal preference.

Don't be surprised if your fund drops -20% in any given year, and if you hold it unitl retirement then odds are relatively high you'll have a year where it drops -40%, maybe -50%.

sho_me_da_money

Thank you for all the comments. I wanted to dive into some of the callouts Ex-Pat mentioned earlier:

 

1.     This monk turned 40 in the past couple of monks…I mean months. So not sure if LISA applies anymore

2.     Fortunately, my company does allow us to dial up/down on demand.

3.     You made some very callouts here:

Car – I have ZERO intention of replacing my car. I bought this one in 2013 outright at £17K knowing that it would be the ONLY ONE motor I will ever have. My intention is to run this to its final breath. Knowing that in advance, I opted for the most economical Diesel on the market at that time. This gave me benefits like 70-90MPG (depending on urban vs extra urban driving). I also don’t pay for road tax as at that time my emissions value qualified for it. When the new regulations kicked in, I was exempt as I had purchased my vehicle before that new date (April 2017). I also work from home permanently (have been for the past 3 years) therefore my car only does 4-7K miles per year. The one thing I don’t scrimp on is official VW parts, official VW service and official VW recommendations (replace water pump at 100K miles, replace timing belt at 120K miles etc.). I want to ensure this puppy is looked after with the correct parts and care so don’t scrimp here.

That said, I did not consider things like servicing, MOT, maintenance and car insurance. Good shout.

Mortgage - I exercised the Right To Buy just over a year ago in a 3 bedroom house that I have been living in since 1987. I was fortunate enough to get the full discount and qualify for a 25-year mortgage with Barclays. I believe I am in a 5-year fixed term at 1.69% and have £350 per month to pay. The total amount left to pay is £82K

Holidays – I really love doing things like this but I am looking to use the funds I am building to do at least one decent holiday a year with money left over. I’d like to be greedy and do more but Ill settle for one big one a year.

Washing Machine  - This is being paid off at 0% interest. It will be complete in the next 5 months

Credit Card – I have a debt that I am paying down using a 0% balance transfer card and have around £10K debt on it that I am paying it off at £500 per month.

Private Stocks and Shares – I have £11K invested in stocks and shares on the AIM market. I am seriously considering pulling this out and just paying off the credit card and be done with it.

Company Stocks and Shares - I have 4 RSUs awarded (tax fully paid on them). They are worth around £10K right now. I have 9 more vesting in November, followed by another 9 in May 2022. Both lots of 9 will sell 5 units to pay the tax meaning I will get a balance of 4 + 4 from the two vesting periods. This will give me 12 stocks (tax paid) and should be worth around £36K

Crypto – I invested $1000 in a crypto project and have it sat on $7500 at the moment. At the moment BTC is on the decline so I have it cashed out in USDT and will pile back in hoping to catch the bottom

Net Pay – I was a little confused on this figure of £2000 per month. At the moment I am receiving £3000 and sacrifice £1040.00. Now that I have upped it to around £1500, wouldn’t that mean I receive a net pay of around £2500?

Existing Pension Transfer - I did not consider this. I believe both of the ones I have are defined contribution pensions. This is where I think I need an advisor because I really don’t know if I am invest in the right plan.

Existing Pension Plan – No idea if this is correct but considering the comments above, I should include UK companies. I really feel like I need some solid advice around which basket I should put my basket in. I have heard that when you are youngish you should go 100% equities. I don’t understand that. Is the product I am in right now equities?

 

Love Novice Monk.

Albermarle

Existing Pension Plan – No idea if this is correct but considering the comments above, I should include UK companies. I really feel like I need some solid advice around which basket I should put my basket in. I have heard that when you are youngish you should go 100% equities. I don’t understand that. Is the product I am in right now equities?

 Equities is an alternative name for company shares . So 100% equities means you are 100% invested in shares .

Your product is a mixture of many different shares , which means it will follow the general trend in share markets and not be affected by one company share doing well or badly .

This particular fund has mainly very large companies and a large % of US company shares .

There is no rush but at some point you should look what other funds your pension offers . For example you could stay mainly with this one but also add a UK based one to balance it out a bit better .

sho_me_da_money

Current LG Plan:

World Ex UK Equity Index 3 Pen

https://markets.ft.com/data/funds/tearsheet/performance?s=GB00B4QBYH95:GBP

Current AVIVA Plan:

Aviva Pension My Growth FP

https://markets.ft.com/data/funds/tearsheet/performance?s=GB00B935C537:GBP

Question

I am in the midst of moving my AVIVA pension to my LG account. Does this make sense? I am not sure how to read the charts to see which fund is performing better?

Albermarle

sho_me_da_money said:

Current LG Plan:

World Ex UK Equity Index 3 Pen

https://markets.ft.com/data/funds/tearsheet/performance?s=GB00B4QBYH95:GBP

Current AVIVA Plan:

Aviva Pension My Growth FP

https://markets.ft.com/data/funds/tearsheet/performance?s=GB00B935C537:GBP

Question

I am in the midst of moving my AVIVA pension to my LG account. Does this make sense? I am not sure how to read the charts to see which fund is performing better?

After a quick glance it seems that the Aviva fund is not 100% equities but approx 75% ( but can vary) . Therefore in the recent years of bullish markets it has performed less well ( around 6.5% pa growth as compared to 13% pa for the L& G fund)
However of course if there was a market downturn the Aviva fund would most likely not be hit as hard as the L& G one.

Moving your funds from aviva to L & G is not that relevant . What matters is where you invest that money in the L&G pension when it arrives . You do not have to invest it only in the current L&G fund , there will be many others to choose from .

As mentioned previously it might be an idea to also find a L&G fund that is not so concentrated on large US companies as the current one . Such as a UK and an  emerging markets fund in addition to the current fund . 

MallyGirl

I am not making a recommendation as I am not qualified to do that but maybe take a look and see if they offer:
L&G PMC Global Equity (30:70) 75% Currency Hedged

We have just been told that our workplace pension is likely being moved to L&G and this is the fund suggestion as closest match to the BlackRock one I currently invest in. International, UK and Global Emerging Market.
I am sure there are others on your list if you want to spend a few hours doing some research.

Alexland

sho_me_da_money - sorry a bit late to this thread but I saw in June you increased your monthly contributions going forward to be enough to avoid higher rate tax presumably this would be effective from your July payroll onwards? I might have missed it but have you considered making even higher salary sac contributions just for the remainder of this tax year to make up for the 3 months in which you were not contributing at this level? That way you could bring your total earnings for this tax year below higher rate tax and you might even save 12% NI on some of the extra amount as you would be benefiting from 'lumpy sal sac'.

sho_me_da_money

Alexland said:

sho_me_da_money - sorry a bit late to this thread but I saw in June you increased your monthly contributions going forward to be enough to avoid higher rate tax presumably this would be effective from your July payroll onwards? I might have missed it but have you considered making even higher salary sac contributions just for the remainder of this tax year to make up for the 3 months in which you were not contributing at this level? That way you could bring your total earnings for this tax year below higher rate tax and you might even save 12% NI on some of the extra amount as you would be benefiting from 'lumpy sal sac'.

Hi Alex, I increased them again yesterday from £1040 to £1500. Thanks for coming back to me.