Is this the worst way to start an ISA?

So this started out as a bit of a shorter post for today, although it hasn’t ended up that short. As I was staring out of the train window this morning, I was reflecting on the Go T’ Pub ISA setup and if I could have got things any more wrong!

Smiling to myself as I reflected back on the last few days and my mind wandered, I was glad I was looking out of the window rather than round the train itself, so that people didn’t give me a lovely new jacket that allowed me to give myself free hugs all the time.

For those who have been following know that I have setup the rules, selected a provider and have kicked off the preparation (although I should probably reduce the size of the image there… note to self).

This was the first time I have started to look in anger at it, and my cash ISA transfer has been completed.

So the first thought I had was more around timing the market. Right now the markets are very high, so is it really sensible to be investing now? Well, there were a few scenarios I thought of – the main thing to remember is that I see this is a long term investment – i.e. I will be keeping this going for 5 years as a minimum (it will depend on growth of various portfolios as to what I do).

Scenario 1: A major stock market crash at the beginning

So, in the first year suppose there is a major crash and all my money put in halves in value. So, I will have lost money on the investments I have made so far, but the joy of regular investment means I will just be buying more stocks for the same money. The likelihood is that then the market will go back up so the overall portfolio would nicely grow. So for me, no real risk provided I keep the drip feed of money going in.

Scenario 2: A major stock market crash just before I need the funds

So, the worst possible scenario for almost anyone – all those years of building up a nice diversified portfolio, only to see it halved by circumstances outside of your control. Take it to the extreme and assume that the market remained static during the years of investments you lose half the investment. Well not quite – don’t forget all those dividends reinvested.. The minor fluctuations, the dividend reinvestments means that the portfolio will still have grown. And if it crashes on the last day? That is a paper value – hopefully the dividends will continue, but even if there is a year without any, I would have a couple of years cash for a safety blanket so really, it shouldn’t matter in the slightest as then things would have gone back up (just look at the changes from the financial crisis – I haven’t looked at dividend payments during the great depression as yet).

Scenario 3: Some random combination of the first two

So otherwise it would be some random combination of the above. Well… who cares! Either way the money will be flowing in steadily, so a crash or drop at some point is bound to happen given how long this bull market has been going. That just means more shares  when it’s down, and less when it is higher.

One thing I believe is that I am mentally prepared this time for the investment. I know it sounds odd, but I am mentally just forgetting about the money – it goes out of my account just after payday and the purchase is automated so I don’t even need to log into the account to check on cash availability. The only time I am really expecting to check it will be on the month end update. Whilst I will update my DigitalLook portfolio page to show both portfolios, for some reason our work connection is blocking the login so I can’t check even if I want to!

The Cash ISA #%&* up….

So I thought to share this for peoples amusement. As I am mentally set that the GTP ISA to take VWRL ETF I don’t really think properly, least of all on a Friday. This was demonstrated very well when I purchased my stock with my Cash ISA transfer.

I logged into my account, very much on autopilot, and saw the funds. Great! So this was my first opportunity to try out the Selftrade purchase method. The stock portion of the Go T’ Pub ISA was ready to start! So I went ahead, as excited as a little kid (or even a big kid) with some new Lego (make it Star Wars related Lego and even more excitement!). I promptly bought up some VWRL.

I then slammed my head against my desk, called myself some very rude words, and went to get a fresh mug of coffee.

I then came back, promptly sold the VWRL (yes, taking a double hit on trading costs). If you want a “How to lose money trading” I don’t think I could have demonstrated this any better.

So having thrown away some money I then bought the Investment Trust I was planning to with that money (to be revealed in the month end update for this ISA) – taking yet another hit on trading cost, as well as the usual stamp duty. This means that the Stock comparison of my Cash ISA has taken a massive up front hit. Well, I guess that will show people in a few years what the difference may be.

There is a silver lining – it would appear that, unlike TD Direct, Selftrade allows you to reinvest dividends in an ETF, so of course I will look to automatically reinvest even though I was looking to hold the cash. I won’t complain at that!

I hope that at least put a smile on your face on a Monday!

How my Emergency Fund works

So one thing you will hear throughout the PF community is making sure you have your emergency fund setup and funded. The amount you need varies and only you really know what that is, but of course less than 3 months of expenses can be considered risky and require further work.

The bigger question is – where do you tuck it away? Put it in a fixed bond or account and you get penalised if you pull it out early. You could have multiple fixed accounts and roll them over each year. You could leave it all in one account and forget about it except in emergency. You could stuff it under the mattress for all I know, although possibly a little risky if there is a fire or burglary!

So I thought I would share how I have structured mine, and the purpose of each part of it. All the funds that go in on a regular basis are via standing order almost as soon as I have been paid – pay yourself first remember. This is not a recommendation or approach for how you should save yours, but to help provide ideas for people to tailor to their fund and approach, or just for you to laugh at me, take your pick!

Part 1: Cash Flow Fund (CFF)

So this is my relatively easy cash at hand part of the fund, the first line of defense. The account is linked to my current account so that I can transfer money instantly via mobile app or internet or telephone. I don’t consider this particularly “protected” – it is there to help smooth out the ride. In my monthly updates on expenses you will see some months (e.g. November, December) I had a declared savings rate of 0% or -111%. Whilst this is true, I dipped into (aka emptied) my CFF – this meant the direct debits to my pension and my other half’s ISA (and from this year the Go T’ Pub ISA) all went out as usual – in effect meaning I am transferring my emergency fund into long term funds.

I like this approach as it means I am always adding to my investments no matter what happens and gives me some flexibility.

Part 2: The Rainy Day Fund (RDF)

So I guess this is what you would class as the main emergency fund. It is setup with a building society that I require a separate login to view, can’t access on my phone and have no card for. Generally, I forget about this fund wherever possible – money goes in every month to it (I am thinking of upping the amount slightly) and it ticks up slowly but steadily. I have ducked in and out of it, and I am guilty of saying that I would also dip into for holidays or other big purchases. Please remember folks, holidays are NOT emergencies (although I could put up a damn good argument for it I am sure!). If this were all I had in cash or cash equivalent then I wouldn’t use it for that. This was used to balance out the huge negative savings rate I had in November and towards my tax bill – so now it needs to be repaired. I am too lazy to tart around for better rates, I go for simple, single place and not worry about it. If I had a larger amount of cash then maybe I would (for example when I get close to FIRE and want a year or two in cash, then I will start to think about it!

Part 3: Serious Trouble Fund (STF)

This part of the emergency cash is held in Premium Bonds and is there in case of dire emergency. Not used for holidays, some random home improvement (e.g. carpets or whatever), but out and out emergency. Why Premium Bonds? Any winnings are tax free (and get reinvested in more PBs) – given my tax rate this makes them worth a lot more than regular savings as the equivalent taxed rate would need to be a lot higher to offset the tax. So far I have never had to dip into these savings for over a decade, but it is comforting to know that I have it there “in case”. Should the worst happen and I need it, it is there for me.

Part 4: Last Chance Saloon (LCS)

The LCS is my last Cash Isa. Over the years as the STF grew I transferred more of my cash ISAs into stocks and shares ISAs. As it stands now I have one more cash ISA left which, as part of the Go T’ Pub approach, I will be transferring 50% of it into an Investment Trust. I’ve had these funds in a cash ISA for about 15 years and have never touched it hence I am splitting it between cash and stocks to avoid the money losing its value. Over time, and depending on performance, I may end up transferring the remainder into the Investment Trust as well, but who knows. If I have never needed it for 15 years despite some serious challenges, am I holding too much cash? Who know’s. For now I am happy to be a little different and start reducing this.

So there you have it – a reasonable assortment of places where I keep my funds and how I utilise them. How do you manage your emergency fund?

April ’17 Performance

Annoyingly my computer rebooted and I lost my post, so I am having to redo it – not ideal, but such is life – this is where I am glad I have the template!

So the month has ended, and so its time to take stock of the performance across my portfolio, and compare it to the usual index of choice. This enables me to see how I am doing. As I covered in my “How I measure performance” – basically I take the value of the portfolio at the end of last month, add on any contributions for the month, and that was my starting value. End value is the value at the end of the reporting period. Simples 🙂

Portfolio Performance Notes
Company Pension  -7.52% No income generated as all funds are in growth or reinvested
Personal Pension  -0.49% No income generated as all funds are in growth or reinvested
ISA 1 0.14% No income generated as all funds are in growth or reinvested
ISA 2  -1.09% The performance does not include the income that was paid out into my account, but is covered by the income so really need to consider both in conjunction
ISA 3  -1.83% Although dividends are paid out, they remain in the ISA wrapper, and will get reinvested for growth. The performance figure includes both the Capital growth, and also income received which will get reinvested. The Income is the %age paid out by the portfolio but remains inside the wrapper to buy more goodies
ISA 4 0% Account setup but no funds as yet
FTSE-100  -1.62% This excludes any dividends
FTSE-250  3.39% This excludes any dividends
FTSE-All  -0.69% This excludes any dividends
S&P500  0.72% This excludes any dividends
Dow Jones  1.10% This excludes any dividends
VWRL  -1.85%
VHYL  -2.60%

Ok – what the f**k happened to my company pension?! I have no idea, but seems like it lost more than I put in this last month. Ouch. Whilst each month I add more cash in it still hurts when I see this. Oh well, these things happen in investing times…

My actively managed ISA didn’t do too well either. I am trying to get the tracker value of my portfolio up to where I had targeted so I bought some more VHYL this month (about 3% of total portfolio value), after which it promptly dropped. Oh well. I have also learnt that I really don’t look at my tracker values, they are just there doing their thing in the background. It really is a great sense of ease on that side as the trackers slowly increase in value. I suspect it will take at least another year or two for it to get to the balance I want, but never mind. The dividends thrown out whilst not massive were not bad, but still adds more to the total value of these funds. The BMS I bought back in January has done well – up nearly 10% now, although I knew I should have bought some more after the crash from their results, I am focusing on getting the trackers leveled out.

My IFA ISA and pension did ok given the changes that have been made this month. After meeting with my IFA in March, I have changed the funds I invest in which of course has an impact, although there were no charges for doing this. Secondly, the funds from my bonus ticked through, so coupled with the basic tax relief this has had a huge impact knocking months off my predicted target date for the fund value I am after.

My other half’s ISA continues to tick along throwing out some cash which continues to chip away at the old mortgage.

Lastly, the Go T’ Pub ISA. So, no funds made it in this month. I’ve completed the transfer of 50% of my Cash ISA funds and they have left the Cash ISA but so far no sign of them appearing in my Selftrade account. In addition I have setup the direct debit from my bank account (you can do this on the 1st, 8th or 15th of each month I think it was), but they only do the regular investment purchase on the 24th of each month, so the first funds I will actually get to buy will be the back end of this month. I know it’s sad but I really can’t wait for this to start ticking along, it seems to have taken an age to get this far!

Despite all this negativity and drop in performance, my overall networth still went up mainly helped by the bonus hitting my retirement account, so I don’t mind as much!

So that’s it for this month, nothing great, but slow and steady as she goes. How was your April?

 

Notes:

Company Pension: This consists of a number of actively managed funds – I don’t have any choice of trackers etc, but I will take the matching, that will more than cover the fees, and I will just live with it.

Personal Pension: This is managed by my FA and contains Actively Managed funds. I continue to contribute each month and the contribution is included in the performance – before my FA has taken their cut (e.g. if I put in £100, and they charged me £5, so only £95 went into the account, I would still class that as £100).

ISA 1: This is also managed by my FA, but no new contributions going in (nor planned).

ISA 2: This is also managed by my FA, however its slightly more complicated than that. There are 3 sub portfolios within, each of which have funds added each month, but each portfolio has different levels of contribution.

ISA 3: This is the ISA I manage myself. The last contributions added to it will be this tax year, 2016 – 2017 until some of my other ISAs  have grown to a similar size

ISA 4: This is the Go T’ Pub ISA that is being held for now for reference, but will start from the new tax year in 2017 – 2018