The end of the tax year

It’s the last day of the 2017/18 tax year and I’ve achieved my goal. Hoorah! 🙂

I’ve managed to squirrel away £20K in both Mrs FmC and my own ISA accounts.

Due to some cashflow problems (i.e. peer-to-peer loans that didn’t get paid back on time!) I even had to borrow £9K from my parents. I wasn’t happy doing this (and neither was Mrs FmC, for fears of strings being attached) – but needs must. I’ve promised I will pay it back within 3 months (and I am a man of my word!).

I am going to have to tread very carefully over the next few weeks, as I have hardly any cash on hand whatsoever. So I will be deferring as much to next month’s credit card bill as I can. Thank goodness I get paid fortnightly, that’s all I can say! 😉

My plan is to try and contribute the full annual allowance into both ISAs each of the next 4-5 years, until I reach FI. They will then serve as a buffer between when I quit my job and when my main SIPP becomes accessible, 5 years later.

How have you got on making use of your tax free allowances?

Asset allocation strategy

Following my recent post on asset allocation ideas, I’ve decided how I am going to invest over the next several years.

Our retirement savings will be split across 3 main pots – 2 ISA accounts and 1 SIPP. The plan is that short of other available income at the time, the ISA accounts will help fund the period of age 50-55. I won’t be able to get my hands on the SIPP funds until at least age 55 (and possibly 57, depending on what date in 2028 the government decides to raise it).

I’ve decided to keep things simple to avoid unnecessary costs and rebalancing effort:

SIPP (IWeb) – 60/40 ratio

  • 100% Vanguard LifeStrategy 60% Equity Fund – Accumulation

ISA1 (IWeb) – 100% equities

  • 100% Vanguard LifeStrategy 100% Equity Fund – Accumulation

ISA2 (Vanguard) – 100% equities

  • 10% Vanguard FTSE U.K. All Share Index Unit Trust – Accumulation
  • 10% Vanguard Emerging Markets Stock Index Fund – Accumulation
  • 80% Vanguard FTSE Developed World ex-U.K. Equity Index Fund – Accumulation

The SIPP is the most important to us long-term, because it has the most in it and will be responsible for our long term income. That is why I have stuck to a 60/40 profile for that one. I feel I can be a little more risk tolerant in the 2 ISAs in the hope of greater gains.

Asset allocation ideas

I think I’ve finally settled on an asset allocation strategy that I feel comfortable with.

I am going to start with a 80/20 split between equities and bonds.

For the bond component, I might use this fund:

Vanguard Investments Funds ICVC-Vanguard U.K. Long Duration Gilt Index Fund A GBP Gross Accumulation

For the equity portion I’m going to keep things simple by using 4 equal chunks:

25% Vanguard US Equity Index Acc
25% Vanguard FTSE Developed Europe ex UK Equity Index Acc
25% Vanguard FTSE U.K. All Share Index Unit Trust Accumulation
25% Vanguard Global Emerging Markets Fund A GBP Acc

Some initial thoughts:

Yes, 80/20 is a little bit high – but better than the 100% equities I currently have! I need a degree of risk if I’m to stand any chance of growing my portfolio to my target £0.5M+ value within the next 10 years.

Yes, I quite like Vanguard funds 🙂 But I will consider other options.

This design makes it easy for me to change the equity/bond ratio in future, if I want less risk. I would just need to change the overall ratio and then divide the equity portion by 4.

I am not sure when the right time will be to implement this allocation strategy – considering my fund is still down following last week’s panic 🙁

Are bonds the right thing to be buying? I’ve heard a lot of negative press about them lately, which I don’t fully understand. I get the feeling the most I would get from them is to cover inflation each year!

Thoughts?

Tuesday morning panic

I awoke on Tuesday with a feeling of panic. I had only just discovered before going to bed (via a number of tweets on my timeline) that the Dow Jones had dropped heavily. I went to bed without checking my portfolio (head in the sand syndrome!), filled with dread. Not surprisingly, I didn’t sleep well that night.

One of the things that compounded how I felt was the heavy decline in the crypto markets over recent days, which I have a vested interest in. I was honestly thinking “there goes both my option 1 and option 2 FI plan in one fell swoop”.

You see I had only recently completed the transfer of my SIPP (and ISA) from one provider to another. I had deliberately sold my investments before initiating the process so that it was a quicker cash-only transfer (or so I thought). It still took the best part of 2 months before I was fully vested again though.

As such I was keen to get my money working again after this 2 month hiatus. As I had not yet settled on the desired mix for my portfolio, I went all-in (£210K SIPP & £28K ISA) with one particular fund: Vanguard U.S. Equity Index Fund (ISIN GB00B5B71Q71). I had researched this fund previously and it looked a good fit for what I am trying to achieve. Recent year returns have been exceptional.

OK, so I know what you are thinking. Who puts all of their eggs in one basket? It’s risky enough to hold 100% equities – but to have them all in one geography too? You must be crazy, Fork! Well perhaps.

I really did fear that it was the end of the world on Tuesday morning. But things don’t seem so bad just 24 hours later. Yes my portfolio is down 5%, but I’m sure it will recover. I’m just glad I held my nerve and resisted the temptation to panic-sell (for what would inevitably be an even bigger loss). I certainly contemplated it for a short period!

The main lesson to take away from this experience is to understand the feeling of absolute dread that one small market correction had on me. I really thought it was the end of the stock market’s bull run, and I had made the classic mistake of investing at the very peak. I had even just finished reading a book on investing that explained how to average-in with large investments, to avoid exactly this scenario! If that was my response, then I’m clearly not as much of a risk taker as I thought. I will continue working on what my ideal portfolio should look like.