My Personal Actively Managed ISA

So I am used to being asked by some of my friends who know I enjoy “stocks and shares” about recommendations and thoughts, as well as bouncing ideas off each other. I continue to shout my disclaimer that I am not involved in the Financial Services, I am not a Financial Advisor, and you should always Do Your Own Research. I do however enjoy bouncing the ideas around but there you go!

Right, enough on the disclaimers, onto the meaty stuff! When I first started out doing this I had no clue and no rules or target allocation or what my portfolio should look like. I started it firstly as a bit of fun, and secondly, looking at all the funds they all seemed to contain the same top 10 stocks. Why pay them for holding them when I could hold them myself?!

I had no idea about ETF’s, no idea about Bond / Stock allocation, risk tolerance (although I am willing to take on what they class as “aggressive” – so over the top risk I am happy with as you will see from some of my stock selection!).

So what does trigger me to purchase? There are a few key things that will trigger me to buy:

  1. Too much cash sitting in my ISA Trading account. Once I get to a set amount I will start looking for something that seems good value and buy it – I just can’t help myself!
  2. Bad News. This really is a high risk and should certainly not be recommended for most people, however its worked well for me so far on average, but please do remember this can be a VERY easy way to lose money (I did on Northern Rock)

On the bad news side of things, my desire is to hang on to some cash so I can take advantage of it, but it doesn’t always work (I didn’t have any when the Costa Concordia sank, or I would have bought Carnival then). I did ok out of RB when Bart Becht stepped down. I bought in, held for a month or so and sold out with a 10% profit (post fees). In retrospect I should have held longer and I would have been even better off, but this comes down to me being happy with that profit. As with my caveat above, I have also lost money – Northern Rock the biggest that made me lose my entire holding there!

If I am really deeply honest, I don’t have a fixed rule even now. I am trying to get more structure into it, especially as its grown to a reasonable size now (I’m not yet an ISA millionaire sadly). So my latest thinking, that will no doubt change over time, is:

  • 30% in ETF / Trackers
  • 30% in Investment Trusts
  • 30% in “Self Select Shares Portfolio”
  • 10% in “High Risk” – AIM shares or other random things that grab my attention 🙂

At present I am some way off this – I am heavily overweight in “Self Select” and “High Risk”, however I don’t want to sell these, so I will simply look to increase other holdings to get to the above target. I do however firmly believe that this will reduce my overall performance in this ISA, but should also reduce my overall volatility.

I will be doing a number of posts on what I have bought over the years, and I will update my Portfolio page to cover what is in as I unveil the portfolio, and add to it.

The portfolio itself probably won’t change very much over the coming years, as from the new tax year all my subscriptions will be going into another provider to spread the risk, so it will only be reinvested dividends.

I would add that this really isn’t a great way for most people to invest – if I knew then what I know now would I do anything different? Probably. Why only probably? Like many, I love to dabble and try and pick out good investments – however its also good to have a stable base which I do think the Trackers help provide. This means you can have a steady tick in of income to help build the base, and reduce the impact of potential dividend cuts on the overall portfolio whilst still having your fun. So have your cake and eat it…

What about you – do you have a set allocation that you track and stick to? Or do you like to dabble?

November 2016 Performance

Ok folks, so this is the moment you have all be waiting for, to see how things are going?!

The month has ended, and so it’s time to take stock of the performance across all of my holdings, and compare it to the usual index of choice. This enables me to see how I am doing. I calculate this by taking 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 🙂 (I will one day learn how to put smiley faces in wordpress, but give me time!)

So without further ado, below is the overall performance of each of my various portfolios.

Portfolio Perf. Income Notes
Company Pension -2.83% 0% No income generated as all funds are in growth or reinvested.
Personal Pension -1.60% 0% No income generated as all funds are in growth or reinvested.
ISA 1 -1.71% 0% No income generated as all funds are in growth or reinvested
ISA 2 -2.46% 0.17% The performance does not include the income that was paid out into my account.
ISA 3 -4.22% 0% 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. I do keep a graph demonstrating the contributions vs. Portfolio value over time, the question is would people be interested in seeing this? Not great, but that’s what you get with volatility
ISA 4 N/A N/A N/A – not yet set up, so will only start from the new tax year
FTSE-100 -2.45% This excludes any dividends
FTSE-250 0.01% This excludes any dividends
FTSE-All -2.01% This excludes any dividends
S&P 500 3.65% This excludes any dividends
Dow Jones 5.71% This excludes any dividends

 

So what does all of this tell us, apart from I have too much time on my hands to fill out the various spreadsheets? Well, it isn’t the start I would like for the blog, seems like its all doom and gloom here! I am actually not that disheartened by it all to be honest – so far this year overall I am doing ok – and remember folks, 1 month is nothing in the journey to FI – if anything it means I will buy things slightly cheaper the next month, the question will be how it pans out over the coming years. If I had bought a FTSE-100 tracker I would only have been better off than my personal portfolio, and my company pension. Well, nothing I can do about the company pension as they don’t offer any tracker funds, so only a slight under performance, but then given that the company puts in more than I do, I guess I am still up. On my managed ISA side, yes its disappointing. But if I look back and compare this for the tax year, it’s been a highly volatile time. Seems when the market drops I take a slightly heavier hit, but when it goes up I do very well indeed.

You will have to wait until the end of this tax year to see the overall performance!

 

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 went 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, different investment strategies and different targets. This means that the performance is a little trickier to compare given that I also take out one of the sub portfolios dividends rather than reinvest them. There is also between a 3 and 6 month time delay between new contributions and when the funds pay out, depending on the fund and where it is in the dividend cycle.

ISA 3: This is the ISA I manage myself, trying to time the market. 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. All dividends will continue to be reinvested once they get to a sensible level to make the cost of dealing worthwhile. As the cash is included in my overall total it is included in overall performance, hence not separated out

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

November 2016 Income and Expenses

So, my very first report on my months expenses and income. I am so not looking forward to this, and you will see why below, but hey, best to be honest from the start and see how it is. I would like to say next month will be better but I know it wont, its Christmas, and we have a lot on in December – but that’s next month. I think this month can be summed up in two words.

EPIC FAIL

If I could work out how to make it flash red, I would have done that as well. So lets get into the details and see just how badly wrong things went.

Income.

So, the income front was steady with the same salary landing in my bank account as always. I don’t include any income generated by my savings vehicles that don’t go into my current accounts, so the only other item coming in was a very small tickle from my other half’s ISA – which went straight off the mortgage. There is something comforting about the same amount of cash hitting the bank each month!

Expenses.

So, this personal finance and Retire Early stuff… it’s spend less than you earn.

Right.

Ok.

Ooooops.

There were a number of large one off’s that came up in the month that I wasn’t expecting, but then this is exactly why I tuck away a small amount into an emergency fund, to cover these large unexpected one off’s. The amount column is the percentage of my monthly income I spent on the item(s).

Item Notes Amount
Things I choose not to avoid* Mortgage, Insurance, bills, travel card etc. – yes, we could move somewhere cheaper, not have insurance, reduce our bills a bit and so on, but we are where we are.

42%

Groceries All the food and other stuff needed for home – my spreadsheet still says Food for Home but that’s because I am too lazy to change everything

7%

Alcohol for home Home alcohol consumption only. Please don’t judge 🙂

12%

Bicycles / Car related Any costs related to either the bikes or the car (car insurance and MOT come out of the first item, of things I choose not to avoid, so generally its just the fuel)

0%

Alcohol Out Generally, its the pub…. but it could be wine at a restaurant if i do split the bill out

3%

Eating Out I include purchased lunches in this as well as meals out etc.

5%

Other My catch all for anything I may have missed….

101%

Holidays Any spending related to holidays, flights etc.

41%

Savings Anything left over! This includes money into ISAs, mortgage payments and non relief pension contributions. My company pension comes out before it hits my bank account so isn’t included, nor do I include the “top up” of money when my money goes into my personal pension (i.e. I put in £100, I register it as £100, not the £125 that gets credited in my pension). Its worth noting that my pension savings and other half’s ISA savings go regardless.

0%

* This covers a number of things that I would class as essential for me. Yes, I could move to somewhere cheaper to reduce the mortgage (which in turn would reduce the insurance I have to pay), yes I could reduce my bills by switching energy supplier etc. but it comes down to what I am happy with. There are a few other things in there that are classified as essential that others may object, and so I have just lumped it into there.

The Details

So what to make of all this? Firstly, the big “Other” number is not things I expect to have to shell out on again, for at least 10 years, if not longer – possibly ever. The Holiday spending was paying for an entire ski chalet for our group, so I will recoup this in other ways when I am away, so I think of it as a down payment on my holiday!

Both the alcohol (in and out from home) and the food are higher than average, but I tend to do “splurges” where I do big shops and stock the freezers up for food.

Technically my numbers show 0 saved, however this isn’t quite true. Regardless of spending, my direct debits go into my other half’s ISA, and my personal pension, but I like to report from a cash flow perspective, so in effect I took money out of my emergency fund to keep my investments adding up. It works for me, but not for everyone.

So, not really a great start to a personal finance blog, showing how I spent so much more than I earned but this is exactly why you should have some cash in the bag for an emergency. If that money hadn’t been put away we wouldn’t have been able to do it – or worse, taken an overdraft / credit card bill etc. to cover them.

According to my spreadsheet nothing has changed as I don’t include my emergency cash, so it’s quite nice that nothing changes!

One final note and a plus side for me is that the mortgage over payments are starting to bear some fruit. We took a 5 year fix, and if we were to remortgage on exactly the same terms (duration, interest etc.), then I have knocked my payments down to the next rounding point (i.e. £50 less per month). This shows what difference those little extra bits soon add up to.

What savings vehicles I have for retirement

So, I have multiple savings vehicles that I spread my investments around in. Some of which I can access now, others in the future, and some that are a complete unknown. All of these, except for the state pension, count towards my total net worth, but not all are included in my calculations for when I can pull the trigger and retire.

State Pension

Whilst I have regularly paid my NI (although I did contract out for a couple of years), I am assuming by the time I can get my state pension (when I am 67, not really that early!) it will either be means tested or some other idea the government has come up with. I am therefore assuming in all my calculations that I will receive a grand total of £0 per year from the state pension. In effect anything above this will be a nice little bonus (likely with some tax implications, but…) if and when I get to that age. Maybe it will pay for a holiday each year!

Defined Benefit Pension

I realised one of the smart things I did when I first started work was to sign up to the DB pension scheme they offered. I was only there for a couple of years, and on a very low salary, so the amount that it built up is limited, but an inflation linked “guaranteed” (as close as these get) income isn’t to be sniffed at. Granted its about £1,000 per year – so again, this doesn’t feature in my retirement planning, and will act as a nice little bonus when it kicks in at the age of 60. To quote my FA – “Ask them to pay it out once a year as you won’t notice it in a month, and then go out for a nice meal”. I think £1,000 would buy a rather nice meal, but I don’t think I could ever bring myself to spend that much on a meal. I’ll let you know when I get to take it, on the assumption I am still blogging!

Private & Company pensions

I always sign up to the company pension wherever I work to make sure I get the maximum match possible. The minimum amount of total contribution I ever make is 10% (including match) to my company scheme, and then when I leave a company it gets moved over to my private pension. I used to automatically put 10% of my salary in regardless of the match requirements, however my concern now is the Life Time Allowance – I have 17 years to grow my pot. I do worry that with good returns I will breach this. As it stands I do salary sacrifice and also a direct debit into my personal pension, and any bonuses I get I then top up into my pension so it will grow quickly. Why pension first? The tax break, it’s that simple.

As it stands, I will hit the Lifetime Allowance in 17 years if I don’t contribute another penny and I get 9% returns P.A. – if I only get 5% P.A. and maintain my current contributions, excluding one offs, pay rises etc. I will also hit the limit in 17 years. In reality I will probably have to stop contributing before then unless they change the rules. I know, I can hear your heart bleed and oh lucky me. I accept that this is a really fortunate position for me to be in, so I shouldn’t complain – but if it makes me think twice, how do people in their 20’s starting work think? This won’t just affect me though – put away £1,000 per month (£800 pre-tax) into your pension for 33 years and achieve only 5% return and you will be at the limit. Yes, most people wont be able to put that aside, but now think about it over the 37 or so years people will be working, that becomes even less.

I can’t access this (under current rules, which will no doubt change) until I am 57. I want to have hit FI by then, so this means that it is my backstop – I know that the worst case would mean that I can hit FI when I can access it, so not a bad backup plan!

ISAs

I have a number of ISAs and it’s where I try to put the majority of my savings (be it in my name or my other half’s) for a tax efficiency point of view. They are spread among a number of different providers to reduce risk, and from the 2017 tax year I plan to start my “Go t’ Pub” portfolio in another ISA wrapper – but I will detail that in another post. For now – this is my income that will allow me to retire before my pension age, but it’s going to be tough going to get enough income out of it.

My other half’s ISA

The extra income generated from my other half’s ISA comes out of the wrapper to me rather than directly compounding in the wrapper. Not the most efficient some people may argue, however I use it to either pay extra off the mortgage or towards purchases that month, and gives me an easy obvious answer to how my income is tracking up. In the end this will go into the joint bills account, so I want to push to make sure this covers both of our share of the bills, and a bit extra so we can keep it increasing. The money we both contribute is put into other portfolios within the wrapper.

My S&S ISA with my IFA

This just ticks along and isn’t doing much. At the minute the performance isn’t great, so I may need to either transfer it away from him or into a different allocation. I will discuss with him at our next review meeting. It’s still ticking up slowly so I guess at least it’s going in the right direction. Having started this post, I checked my monthly tracking, and whilst I thought it hadn’t gone anywhere over the last 12 months, its still gone up 5% – not a great return, but we will save this for the year end review.

My self managed S&S ISA

This has grown nicely over time and so after this financial year no new contributions will be going into it with this ISA provider for some time but I will continue to report, monitor and grow it. More details to follow.

My Go T’ Pub ISA

This will only start in the new tax year but will build up over time with a different ISA provider, and also help to supply some of my cash reserve. More about this in another post.

My cash ISAs

I only have 1 cash ISA left now as I have moved most of them over to S&S over the years. They are part of my emergency cash pile, but the rates are so crap it’s untrue. That is why I will split this into two, one half remaining in cash, one half in an Investment Trust in my “Go t’ Pub” ISA and we can see how things pan out. Hopefully this will be of interest to others to see the difference, and also why you shouldn’t keep your emergency fund in the stock market! This is not included in any of my calculations for FI (the cash ISA that is).

Cash savings accounts

I have a few of these dotted around for my emergency reserve. I don’t chase the best rate, I go for ease and laziness. I could get maybe 1% extra but to be quite frank, I really can’t be bothered – the returns are just not worth it for my time. As my other income streams in the ISAs increase I will look to decrease my cash holdings. These are also not included in my numbers to hit FI.

Premium Bonds

The other vehicle for my emergency cash, but with the prizes automatically reinvested. Not the greatest rate, but its tax free, and that counts for a lot. Who knows, the million would make a great benefit! Again, these are not included in my plans for FI.

Mortgage

Some may question this as a savings vehicle, but when my mortgage was lower I spent more! We still have a fairly hefty mortgage (in my eyes, although to be fair it is less than 4 times my salary, and about 25% of my net income for my share) which I would like to reduce – there is one big however in this.

ISA allowances are a use it or lose it reward – at the end of the year, what you haven’t used is gone, never to be replaced. If I didn’t have a mortgage (and so also the insurance I pay to cover it), I would have more money than I can fit into the ISA allowances (subject to ever changing allowances!) – granted a great place to be. So for now I took the decision that the money I would have overpaid the mortgage with now goes into my other half’s ISA (see above). It’s going to be slow going and not as fast on the snowball, but means that I have the benefit of that income for the rest of our lives, and I am assuming I still have to pay the mortgage in my calculations which gives me a nice big boost to my income once its cleared!

So what do you use for your savings? Do you overpay the mortgage as well, or just invest as much as possible through your ISA? Or just spend it all down the pub? 🙂

My Approach and Assets

So this initially started as a single page to track and show everything, but as I tried to condense it, I found it just didn’t work, so this is more of an overall statement, along with the necessary links (when they get published), let’s see how it pans out. I have now split it into the various areas, for this post I will focus simply on my approach.

I will also put my target up here, at the top, in full view.

1st June, 2025.

That’s the date I have put in for me to be FI. Right now, I think it’s highly unlikely (read impossible) because of my approach however – aim high! It will encourage me and keep me thinking. Worst case I am off by a few years it’s still giving me something to aim for! Why is this impossible? Simple – the mortgage is too high (and I am not willing to move), I am putting a lot into pensions for tax reasons (and I am not willing to change), and I don’t want to sell off parts of my ISA until I can collect my pension. So it’s all my own fault, and I accept this.

Approach

Like many people in the FIRE community, I have a figure in mind of what I think it will take for me to be able to make work as an optional extra. I even follow Mr Zombie’s experimental withdraw strategy which gives me confidence that these things will work, however there are some complications for me.

Key among them are what does that actually mean in terms of the big number (apart from being a big scary number!), can I actually cope with selling off units to live (the answer is no which increases the number I need) and what can I get at, when.

Firstly, can I actually cope with selling off stock? The simple answer is no. However this isn’t quite the whole picture. If I were to be at close to the Life Time Allowance in my pension then I would have no choice but to sell and take some money, but this is more of a tax decision than a personal one and I think I wouldn’t have a problem with that (in fact I would probably sell them, take them out of the pension and reinvest outside of the pension wrapper). In effect this means no sell down, but living off the natural yield – this means my big scary number needs to be even bigger.

What can I get at when – that’s a much bigger challenge, and so I have put a separate section to go through that as its more complex I think for the UK based folks than those in the USA (I am not sure about other countries but I am sure all of them have their own challenges).

So the short answer is I have a great big number to aim at and I need to get going (faster).

Firstly to make the extra cash above my expenses. A lot of people in the FIRE community go for Buy To Let or side hustles. I didn’t – I invested in myself, worked the extra mile and collected the promotions, moved jobs and worked my way up. Like RIT, this involves long hours, often weekends, but having seen how my total pay has gone up, well worth it.

I want to make it as tax efficient as possible, that means initially using ISAs & Pensions, and then after that what about broker accounts etc. however that would require me using up £40,000 of ISA allowances and then of course my pension allowance on top. That’s a lot of cash to find, but its a good aim to go for.

So I have a minimum figure in mind that I need to hit, however the “problem” here is that of all my assets not all will be accessible until I am older, and can access my private pension – this impacts the date I can achieve FIRE – however I want to make sure I make the most of the tax perks of putting money into the pension so I will continue to do just that. I will document my approach on finances and wrappers, from the very last piece (State Pension) to available now.

I know some people look at running down their ISAs and unwrapped accounts so they are almost empty to time with being able to access their pension. I am not comfortable doing that, so I aim to hit my FIRE number excluding Pension and Housing wealth whilst still building those up. Its a tall order indeed, and hence I don’t think it is going to be achievable by my date above, but I would rather aim high and get close than aim low and make a lower amount.

According to the Mad Fientist and Mike over at 7 Circles (deep link to the spreadsheet here) – I have used both of their spreadsheets  – I could retire before then, however I would have to sell down my ISAs in the run up to my pension, which I don’t want to do. I also rejigged the Mad Fientist’s spreadsheet so I can track full net worth FI, net worth excluding housing FI and then excluding housing and pensions FI. Based on that its 6 years, 17 years and 22 years respectively (this was before my November, a story for another post). That doesn’t fill me with confidence, but heck, I will go for it anyway. If I can look back at this blog in 9 years having made it and go “Wow, I did it” that will be amazing!

What do you think? Am I mad trying to set the bar so high, should I sell down my investments whilst waiting for my pension?