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.

February 2018 status update

Where did February go? No idea – but it’s time for another update!

I’m still not sure about the format of these posts. One of the issues is the way I track my finances in YNAB. Because most things in my world are a budget category balance (rather than a physical account balance) I am constantly moving money between virtual pots. As such, I’m not sure which figures I can rely on to accurately reflect my progress. So again I’m not going to worry about it, and instead just post (shoot?) form the hip!

February was a busy month trying to get things in order for the end of the tax year. I’ve decided that my highest priority has got to be making the most of my annual ISA allowance, so I’ve been busy preparing to add the full £20,000 to my recently opened (transferred) IWeb ISA.

What’s more, I’ve decided to try and make the most of Mrs FmC’s allowance too – so want to max that with £20,000 as well! A big ask with such short notice, for sure. I’ve started this one by opening a Vanguard ISA with an initial £5,000 deposit. I’m just not sure where the rest of the money will come from (although I have sold some crypto to help fund these investments and make use of this year’s CGT allowance).

With all this planning I have finally settled on a asset allocation strategy (following this recent post). I have documented it here.

My SIPP and ISA performance have recovered slightly since my schoolboy error earlier in the month, but I’m still down a few points. I am hoping they will get back into the black before I swap to the intended funds for my new strategy.

Matched betting brought in a measly £53.74, mainly due to cock-up I made which wiped out much of the month’s profits.

My P2P loans brought in £259.24, although one loan is in default with interest payments on hold until (hopefully) the debt is recovered. It’s nearly 2 months overdue at present!

I managed to save £1,300.93 so here is the summary for February:

Savings £1,300.93
Matched betting £53.74
P2P loans £259.24
Total £1,613.91

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.

January 2018 status update

Well, it’s my first attempt at a status update and I honestly don’t know how best to write it. So rather than procrastinate for days/weeks/months like I usually do, I’m just going to draft something and click publish. It’s better than nothing and will hopefully improve over time!

January was a good month financially as I managed to save £2,630. Not too shabby! In fact unusually high for recent months. I notice that other bloggers post a percentage of income figure to show their savings rate – I’m not quite sure what formula to use here, as I’ve seen different ones used. So I’ll leave that until a future post when I understand it a bit better.

My SIPP and ISA performance were non-existent – mainly because I decided to transfer them both from HL to IWeb (expect a separate article on that at some point). That took longer than planned so my investments have sat around in cash for the best part of two months. Hopefully they will be back on track soon.

Matched betting brought in £245.84, which I’m happy with. My plan is to only work on one offer at a time (I get confused with some of the more complicated ones if I’m trying to progress multiple offers together).

Finally, P2P lending brought in £217.41 – the first time it’s peaked above the £200 mark. Very satisfying!

So that brings January’s savings total to £3,093.25.

I’m sure this post will need editing over the coming days. I would certainly welcome any feedback that might help improve my blog! 🙂