Paralysis - tracker and gilts v one fund or do I need an IFA?

Aminatidi

I have a very first world problem so firstly apologies (again).

Late 40's no dependents

I have £185K in an ISA in a global tracker with Vanguard

I have £23K in NS&I Index Linked Certs

I have around £5K in a normal bank current account

I have a credit card for day to day spending that is paid in full each month

I have £20K in a bank account as "sleep at night" money earning sod all

I have £120K in an unwrapped account with Hargreaves Lansdown where I need to make a decision on what to do with it

I have a DB pension that will be worth around £8.5K/year at 65

I have around £85K in DC pension pots accessible at 55

I'm putting 9% in my work pension to get the maximum match from my employer so there's around £750/month going into the DC pot

I have £2K/month spare to save or invest

I'm still just within the basic rate tax band

I'm debt free and mortgage free

I'm not a fan of locking money away - I always prefer the option to be able to access it with the knowledge it may mean taking a financial hit

I'm happy with the tracker but I cannot for the life of me make a decision what to do and how to structure my money.

On paper the simple answer seems to be to put the £20K that’s in the bank in a top paying instant access account and to put the £120K that’s sat in HL in a gilt to benefit from a 100% safe known and largely tax free return.

I never seem to crack on and do it though and I don’t honestly know why.

I find myself wondering whether to stick the ISA and the £120K into a 60/40 fund and just run the whole lot that way.

One thing I am keen on is an easy life and until now things like tax returns or paying capital gains or dividend tax hasn’t been an issue but with the new reduced limits it may be and whilst I’ve no issue paying them I’m not a fan of form filling and risking getting things wrong where HMRC are concerned.

Is there anything I’ve said that suggests I would benefit from speaking to a financial advisor or any form of coaching?

If I read the Vanguard “Advisor Alpha” stuff it all makes perfect sense and everything I’ve hinted at above as the “simple” answer fits in staying diversified and keeping costs low with the rest largely being psychological.

As I said it’s a nice problem to have but every week and month that I don’t do anything I’m losing out on around £550 in interest.

What would you do?

Linton

I think you are confused because you are starting from all your different pots of money.  I suggest you work on it top down by objective.

For example

1) Money needed for on-going short term expenditure (say 2-5 years) - current account or instant access savings account, return not a major factor
2) Money you need for emergency, primarily to tide you over for say 6 months if you lose your job.  Or possibly for a major unexpected bill.  Instant access, return not a major factor
3) Medium term money you may want forfuture major expenditure , say 5 years-10 years.  Fixed term savings accounts, possibly safer investments
4) Money needed for the long term - say 12+years. Perhaps you want to be able to retire before you can access your pension.  An S&S ISA would be best.  You wont want easy short term access to this - if you did it would be in a different category.
5) Pension for the very long term. Easy short term access not available.  Investments in a pension.

Work on each pot separately, perhaps starting with 1, 2 and 5, then finish off the middle pots with what is left over. Determine how much you want in each pot and choose type of savings/investments appropriate for the returns you want and short term risk you can accept.  Finally decide what funds/savings to use from which provider on which platform.

The one major change I would make from your current situation is to get your unwrapped investments into an S&S  ISA as soon as possible.

I dont think you need an IFA.  There is nothing difficult here, it should be a simple matter of approaching your problem in a calm, well structured way, sorting things out step by step.

As regards the funds you should use for those things where investments are appropriate I see nothing wrong with a 100% global equity fund if you can stomach the occasional temporary 40-50% crash or if not choose say a 60/40 fund with possibly a 30% crash potential or even something safer.  However if you are too cautious you run the risk of having insufficient return to meet your needs.

Aminatidi

Firstly thank you

I think 1 and 2 are mostly covered with the existing cash as between "bank" and NS&I that's around £50K of damned near instantly accessible "cash" that might lose against inflation but £50K in a those accounts will always show a minimum of £50K if I ever needed to access it.

Current DC pension is with Aviva previous one is with Royal London.

Yes the intention is each year to use up the ISA each and every year but even that is a (nice to have) challenge around whether to fill it up @ £2K month from salary or just sell down £20K from the general account and use the £20K allowance right away.

I think the first part of the calm well structured way could be to move the £20K to something like Santander and to do "something" with the £120K.

That "something" could be as simple as stick it in TN24 and sit back for the next 4-5 months and then do the same with a suitable gilt.

Even doing that would mean I've got around 50-60% in equities and the rest earning 4.5-5% with most of it tax free.

Both are "safe" too i.e. it isn't doing something risky in a hurry.

The annoying thing is I know I'm overthinking as I said and as you hint at I think I have a decent idea what to do but just seem to stall a little on actually doing it.

Doctor_Who

I think the first part of the calm well structured way could be to move the £20K to something like Santander and to do "something" with the £120K.
That "something" could be as simple as stick it in TN24 and sit back for the next 4-5 months and then do the same with a suitable gilt.

I agree with Linton and this is what I've been doing to sort out my finances after finding myself 'cash heavy' after inheritance/house sale. None of what you propose is high risk and can easily be undone if necessary.....you're not talking Bitcoin! Maybe use TN24 and TN25 in the GIA since you can only get £20K of the £120K in to an ISA next tax year?

Bostonerimus1

The DB pension and absence of debt allow the OP to take a little more risk than many. I'm semi-retired, and have a similar financial profile to the OP. What I do is keep at least a year's cash in by bank account and easy access money market accounts. I max out my non pension tax advantaged accounts and as I have a DB and SP to cover my retirement income needs I keep both my GIA and pension accounts in an 85/15 asset allocation made up almost entirely of a global ex US equity index fund a US equity index fund and for the bonds something like VLS40.

I think the OP should max out the ISA and make extra pension contributions and something like VLS60 or even VLS80 or 100 would be good as they have the DB pension, no debt and 20 years to retirement and then maybe another 30 years of investing. The some of the cash could go into that NS&I bond.

Aminatidi

I think the challenge there is how much risk I actually want and can handle.

It's one thing the maths saying that you can be (for example) 100% equities it's a totally different thing being able to do that.

I did consider something like VLS40 for the unwrapped account - that comes back to the tax efficiency/tax return/hassle question I guess.

I also consider moving the Royal London pension to Vanguard but the Royal London pension is actually buttons @ 0.35% all in so it's cheap enough and so far Royal London seem to have performed well on the default Governed Portfolio 4 plan.

MX5huggy

I think you should be upping the pension contributions and or moving some of your unwrapped money towards pension. 

You have ready access to lots of money if you wanted, you’re clearly a “saver” so I think it’s ok to put money in a pension for 15 years plus. 

You DB plus state pension (£10k) will see you OK from 67/68 but you need more savings to bring that retirement age down  (presuming that what you want to do) or improve the amount you’re playing with in retirement. 

Open the Santander (5.02%) savings account for your rainy day money 

Get your head around Capital Gain Tax and using up your annual allowance. Basically you sell one thing take the profit and buy something very similar like Vanguard Global All Cap then buy Vanguard FTSE All World. 

Aminatidi

This is where some of the "paralysis" I described comes from

One thought was to transfer the Royal London pension to a Vanguard SIPP and move (say) £20K out of the HL pot into it and then I've got a decent balance in a Vanguard SIPP.

The £100K that's left in HL in TN24 or TN25 and the £20K that's in the bank in a 5% instant access savings account.

Then I can put the £2K/month of new money into the SIPP or the ISA (when the allowance is available again) or gilts if the gain/yield is OK.

Done.

There are almost a few too many choices and as Linton hinted at I think it's those first few steps I need to take.

dunstonh

Why would you want to move RL to Vanguard?   Have you drunk the Vanguard Kool-Aid and letting that cloud your judgement?  Too many you tube videos from those that worship at the alter of Vanguard?

RL are very good on the defensive side of the GP range.    And you can select an index tracker on the equity side.   Their charges are good, and you get the annual mutual bonus.

Here is the 5 year return:


A&B are closest to VLS60   
D&E are closest to VLS40.

RL use time weighted portfolios.  Hence why you have two against one.  I have ignored their third which is short-term.

These figures assume the managed fund on the equity side (as that is pre-built into FE).  If you you switched the equity side to tracker, you would get the benefit of passive on equities, like VLS but RL's better downside cover on the defensive assets.

Here is the negative period (last 2 years):


I included HSBC GS as many consider that the best multi-asset fund with underlying passives now (it's had a very long run outperforming VLS and it's cheaper than VLS - cost being an important thing when using passives in the portfolio).

Plus, there is more....    VLS & HSBC have to be held on a platform.   So, the chart/figures are before the platform charge is deducted. So, you would actually get a little lower return with those.     Royal London is not held on a platform, and the charts/figures assume the 1% default charge.  Not the charges after discounts and not the mutual bonus credited each year.  So, RL would be better than those figures/charts show

So, remind us what is it that is attracting you to Vanguard? 

I'm happy with the tracker but I cannot for the life of me make a decision what to do and how to structure my money.

There are a number of different strategies, but one you could consider is to bucket your portfolio and stop looking at things individually but holistically.

How much are you drawing in the next 2 years? = cash
How much are you drawing out in years 3-7 = short-term portfolio
How much are you drawing out in years 8-15 = medium-term portfolio
Anything not being drawn out in the next 15 years years = long-term portfolio

You can choose your own spread on the years and anything up to 5 buckets excluding cash (any more than that becomes overkill)

Once you allocate amounts to each bucket, you need to decide your risk levels.  Short term would have less risk than medium and in turn long term.     Keep your emergency fund outside of the bucketing as it is there for emergencies.  

If you are not drawing anything in the next 15 years, you have a pretty easy bucket spread.   
If you are drawing money in the next 15 years, then you then look at how you will be drawing it.   e.g. (assuming current personal allowance)  £16,760 from the pension and £5k from the ISA.  You would then run bucketing in the pension and ISA.     If you have enough cash outside of the pension and ISA you could run the cash float using savings accounts.  Or if not, you can run the cash float inside the wrappers.   
 
If you do not have the risk profile/behaviour to hold 100% equities, then you decide if you are going to hold defensive assets inside the wrappers or outside.  e.g. if you think that 60% equities is your tolerance, then you don't have to hold VLS60.  You can have a global equity inside the wrapper and cash outside of the wrapper.  i.e. £60k in global equity and 40k in cash savings gives you 60% equities.     

In your post, you have told us what you have, but you haven't structured it for your objectives/goals. Perhaps you haven't mapped out your objectives and goals.  If not, start your modelling.    Once you know what you are after, then you structure the portfolios and wrappers to meet that.

Aminatidi

Dunston thank you that's a pretty awesome post and hits a few nails on the head.

I'll try and cover them but it may be a bit out of order and/or disjointed

The point about objectives and goals is interesting and the honest answer is I don't know.  As I said I'm late 40's and hopefully in good health and a steady job that I actually enjoy other than the odd off-day that everyone has.

I could see myself being one of those people where the maths shows one thing if I keep contributing as I am now but I could easily see myself choosing to work a lot longer than I have to.

I don't know how you actually model for that?

Likewise terms like "drawing" if I look at your list I don't see myself with any known large expenses coming.  It's just daily living expenses unless I decide to buy a car or something as a one-off.

On the Vanguard and Royal London question I keep wavering.

I can't complain at Royal London and what I'm paying is 0.35% all in which is as cheap as hell so sometimes I think just leave it be.

I do struggle with which fund to use at Aviva for my current pension as the My Future Focus Growth Pn S6 always looks a little bland but as with Royal London it does seem to have performed decently for a rough 60/40.

On the Vanguard point I wouldn't say kool-aid but I do like Vanguard as a platform as it stops me being like a kid in a sweet shop and doing daft things when there is too much choice.

I also like the FTSE Global All Cap as it's simple and means I think I have a bit of everything covered but now I have a decent amount in there I do sometimes find myself considering moving to a fixed cost platform like IWeb - which obviously directly contradicts the thoughts I also sometimes have about transferring the pension and consolidating on Vanguard

If I put the £120K that's in HL into a directly held short(ish) gilt tomorrow that's basically a 60/40 equities/bonds alongside the ISA and could be considered step one done.

I don't think there's anything massive needs doing here or anything insurmountable - I just seem to have gone a bit rabbit in the headlights around what to do next

dunstonh

I could see myself being one of those people where the maths shows one thing if I keep contributing as I am now but I could easily see myself choosing to work a lot longer than I have to.

I don't know how you actually model for that?

Every scenario and model has to allow for change. 

In your late 40s, what you think and what you do will likely have a wider range than how you feel in early to mid 50s and again in your late 50s to early 60s.  At this time, in respect of retirement planning, its probable that the bulk or all of it would be "Long term money".      The UK average retirement age floats around age 62/63.       When you look at time weighted portfolios the medium term portfolio is not wildly different from the long term one.  Often its a reduced allocation to emerging markets, slightly more home bias and more in cash/short term gilts than long term).  The growth/defensive ratio is usually not too much different.   So, if you go down the route of moving money from long to short but then defer the decision to retire, then it isn't going to be that much different.

Likewise terms like "drawing" if I look at your list I don't see myself with any known large expenses coming.  It's just daily living expenses unless I decide to buy a car or something as a one-off.

That is how it is for most people. So, the income and the "every x years" for car replacement is often the key part of short & medium term.