The moment you have all been waiting for (I like to kid myself!) – the “Go T’ Pub” portfolio! So for me, I have my Financial Advisor who does most of my pension and some of my ISA investments, but I also do my own ISA investment as I have said before.
For my main ISA I don’t follow any golden rules (although I am trying to get these setup) of rebalancing or asset allocation. I haven’t, until recently (to try and establish some form of guidelines), used any trackers either.
I buy and sell individual shares, from major FTSE-100 all the way down to my smallest AIM listed stock which has a market cap of just over £6M. I use screeners, bad news reports in the media and general investigation to find things to buy. Both my ISA and my IFA portfolios have beaten the benchmarks to date (over the course of each financial year), so I’ve been quite happy. There is however a very high level of volatility in my ISA, and as the value of the portfolio has grown and grown, I am starting to get to the position where individual holdings are getting larger, I thought I ought to sacrifice some of the growth potential for a bit of stability and not worry.
I do check my ISA portfolio far more often than I ought to which led me to the idea of doing the experiment I will describe below, and also timed with the need to find yet another ISA provider to spread my risk (the bulk of my portfolio is with TD Direct as for me it was the cheapest provider). I will cover the assessment of which provider I will go with as part of the overall approach, and then provide updates. The aim of the “Go T’ Pub” portfolio is that I can do exactly that – I don’t need to think about what I am going to buy or do, it’s on auto pilot. I will share every purchase, dividend received and charges along the way, hopefully to help others on their course to FIRE.
In addition to this I will be looking to use the earned income from it to cover more of my daily expenses, so that a larger percent of my salary can go into savings. This may seem a bit odd – but given the new levels of ISA I am not sure I will be able to fill up 2 lots of ISA holdings and my pension. If I get to that stage then I will stop taking money out! The sort of thing I already have lined up to spend the dividends on instead of direct income are things like new glasses, maybe our wine in the future when there is enough coming in (thus creating a never ending river of wine…. now I like the sound of that!).
I accept that I will probably be putting in more per month than most people may be able or willing to do, however don’t let that put you off – all it is doing is increasing the speed of the snowball (think of it as firing it from an RPG down the mountain rather than just a gentle nudge).
As the saying goes where would we be without rules (if you are wondering, the answer is France)? So, the basic rules are as follows:
- Monthly investment. I will put in a monthly investment. I had originally thought to do a split 80/20 equities bonds and did contemplate just using a Vanguard fund, but that would come with the cost of the funds ongoing from the platform, and I want to keep it a little more interesting. Given my aggressive timescales I have decided that for at least the next 3 years (until 2020) I will go 100% equities. The Equities will be in Vanguard All World (VWRL)
- Any new money added into the Portfolio (i.e. not from dividends) will be put to work the day it is added, regardless of where the market is (so none of my fun trying to time the market), subject to the following rules:
- Regular monthly contribution will go in on auto pilot
- No transaction will be for less than £1,000 (including fees / costs) unless part of the cheap regular monthly subscription
- It will purchase more VWRL funds, or
- It can be used to buy Investment Trusts should I choose (I like to top up my SMT holdings each year if I can) – part of this is that at some point in the future I will stop adding to the account, so to avoid charges I want something that I can use as a valid trade to avoid inactivity charges – from my investigations to date some consider dividend reinvestment as an active trade
- I don’t hold any gold in any of my portfolios at present, and I think I ought to. It will never account for more than 10% of my entire portfolio (excluding home equity). I suspect I may never get around to buying any as it doesn’t yield anything but as an insurance policy (plus I don’t want to hold gold bars!)
- I can hold up to £5,000 (provided my emergency cash levels are at their required level, if not then I can go above this up to the level of the emergency cash allowance) in cash in the account of re-earned income as part of the emergency fund (and means I could potentially try and time the market I will just have to be honest on this). This means the maximum cash balance at any time would be £6,999.99 (subject to emergency cash balance)
- I can withdraw re-earned income out of the ISA should I need it (my other ISAs are considered sacred and I don’t dare pull money out until I pull the FIRE trigger)
- I also plan to transfer in half of one of my cash ISA holdings. This will be used to buy an IT, which I will automatically reinvest dividends. Why? Everyone says that you should hold cash for emergency funds, and I agree, but I have held this cash for years, never touched it and it is growing poorly. I will aim to report monthly on how the Cash Value is going against the IT Value to challenge the perception that you should only hold cash for emergencies. Even with the two large hits I have taken in November and now December, the cash in the ISA is still in no danger of being touched, and I could cope with another hit like this in January and still not need to. Note: Everyone’s circumstances are different – you really should have at least some cash reserve!
So there we have it – my fire and forget approach and see how it progresses over the coming months and years. From my last review (and with help from Monevator’s table), it looks most likely that I will use Self Trade – with a single purchase a month it will cost me £1.50, and then the cost of any one off purchases, and dividend re-investment on top – I will make sure I keep a note of all of these costs.
So the question will be to see how this progresses, and can I start using my dividend purchases to pay for things I would normally purchase with my salary, and slowly replace my salary with passive income. This means the capital will continue to grow. It may seem odd, and I will revisit if I get to the stage of filling up my entire pension allowance, and both ISAs then I will stop taking money out, but until then….
Why take this approach? I can always find an excuse not to invest money, whereas this will mean each quarter I will in effect get a cheque which I can split over the next 3 months and do as I please – either use to reinvest, to cover some expenses (for example the need to stock up on alcohol – the thought of a river of wine here is very tempting!) or any other thing I can think of (such as new glasses, food shopping etc.). This means that my taxed income will generate non taxable income going forward.
The only other question is then how will I report on the performance? My initial thinking is that any money that comes out will be deduced from the contributions. For example if I put in £100 per month, but I took out £50 that month, then although the capital will go up £100, the contribution was only £50. On reflection I think I will in fact just keep track of both. As this is starting from scratch I may look at unitising the portfolio, but that does feel a little bit like hard work.
As always – I welcome your thoughts and feedback on the approach!