Retire Wealthy – Vanguard SIPP is Coming to The UK

The announcement that Vanguard are finally going to offer a personal pension, otherwise known as a SIPP, in early 2020, is potentially game changing for those building a retirement pot.

SIPP’s have long been a great way to invest for old age with fees being moderately low for many years, but with the introduction of the Vanguard SIPP the industry will potentially be turned on its head with ground-breaking cuts to the cost of retirement investing.

You simply have no excuse anymore if you don’t retire wealthy.

In this article, we thought we’d take this opportunity to highlight what Vanguard will be offering with their SIPP and to talk about how we save for retirement with the goal of retiring wealthy. Let’s check it out…

Editors note: Don’t forget to check the Offers Page and grab free shares worth up to £200 plus £50/£75 cash backs when you open new investment accounts through the sign-up links there.

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What is a Self-Invested Personal Pension (SIPP)?

In one way the Vanguard SIPP is not much different to any other SIPP. And by that we mean it will allow you to invest in a tax-efficient way for your retirement. A SIPP is not particularly exciting, but they do have a few cool features:

Firstly, they allow your money to grow without the greedy taxman taking a huge slice. Over the years this tax-free status will allow your pot to grow unhindered to hopefully unimaginable heights.

Secondly, you will also get tax relief on your pension contributions. In effect this means the government will pay into your pension if you do.

As an example, this table shows that basic rate taxpayers would receive an additional £2,500 if they contributed £10,000 themselves or even more for higher earners.

Sounds amazing- where do we sign up? But hang on! The main downside to any pension is that you cannot access the money until at least aged 55 and this will be increasing. Most probably into our 60’s for our generation.

The fact that your money is inaccessible until your older age is bad but meddling governments have and will continue to increase this age. We don’t trust governments.

The Western World including the UK is walking blindfolded into a financial catastrophe caused by excessive debt. It’s been heavily speculated that a future government will have no choice but to dip into this tempting pot.

What is the Vanguard Personal Pension (SIPP)?

The Vanguard SIPP has the same pros and potential downsides as what we just discussed but at least they do it all with rock bottom fees.

Their platform fee will be just 0.15%, which is much lower than all the existing investing platforms. That’s so low we feel it’s worth repeating. They will only charge 0.15%.

Moreover, it does not charge you to buy and sell funds or ETFs, meaning you won’t incur further trading costs as you do with the majority of other platforms.

You will be able to invest in any of the Vanguard Funds and ETFs, of which there are 76 at time of writing. And if you are a regular viewer of our YouTube channel you will know that Vanguard funds are some of the best available on the market.

You will of course incur the inbuilt fees from the funds, but these are also extremely low cost.

It’s worth pointing out that you will not be able to invest in non-Vanguard funds or invest directly in stocks. Perhaps check out the AJ Bell SIPP if you are keen to do that but it is more expensive.

It's just so flippin' cheap!

Is a Personal Pension right for you?

When investing for retirement it is almost always a good idea to first use any matched contributions offered by your employer. This is because you will essentially get a 100% immediate return due to your employer paying in as well as you. Then of course you get the government tax-relief on top.

It’s great to see that Vanguard are even encouraging this and this is something we certainly support.

This then leads us onto whether you should be investing additional retirement savings into the Vanguard SIPP. This is only something you can decide. If your plan is to retire either at or after the minimum age from which you can draw your pension, then this would probably be an excellent choice, particularly if you’re a higher or additional rate taxpayer.

What Do We Do?

Whatever anyone else does, doesn’t necessarily make it right for you, but we want everyone to live a more fulfilling and enjoyable life starting today, so we’re always more than happy to share what we do in the hope that it might inspire others.

Neither of us add additional money to old age retirement savings over the matched amount that our employers will pay.

We feel that money in our hands today can be invested more wisely so that it can start generating us an income now or at least much sooner than the state dictated retirement age.

This benefits us in a number of ways:

  • We get the 100% top-up from our respective employers
  • We get the tax-relief
  • This acts as a plan B should our plan A of achieving financial freedom today fail
  • The money that we don’t put into a pension is put towards our business and investing ventures
We're thinking of making Vanguard the provider for our SIPPS - will you?

But that doesn’t mean that we don’t use SIPPs. Andy invests in a SIPP because he has consolidated several pension pots accumulated over the years from changing jobs.

He doesn’t invest additional monies into it for the reasons just outlined but finds it a great way to manage his pot rather than having retirement money all over the place in old and more expensive workplace pensions.

With Vanguard entering the SIPP scene he’s seriously considering transferring his SIPP to them because he currently has about 75% of his SIPP invested in Vanguard funds. The question to ask is whether it’s worth paying more platform fees across the entirety of his portfolio in his current SIPP provider, for the sake of the small allocation that he has invested in non-Vanguard funds – probably better to use the Vanguard SIPP.

This is Ben’s plan when the Vanguard SIPP arrives – he has numerous pensions dotted around, and wants to bring them all together under a single low-fee umbrella.

If you have changed jobs and accumulated many different pension pots perhaps you could also consider consolidating it all with Vanguard. Before we finish let’s take a look at what’s on offer:

Vanguard Funds and ETFs

Vanguard offer a great range of funds and ETFs that cater for pretty much any experience level. For those that want to invest and forget they could look at the range of Lifestrategy Funds that cost just 0.22% or the family of Target Retirement Funds costing just 0.24%.

Alternatively, you could opt to be a bit more selective and construct your own portfolio. We like to build a World portfolio, which can easily be done using what Vanguard have on offer.

Do you think the Vanguard SIPP is a game changer for retirement saving and will you be moving your pension to Vanguard? Let us know in the comments section.

Property Shares – Should You Invest in REITs vs Investing in Property Directly

Investing in property is a national obsession in the UK, and any way we can make that easier for investors to achieve gives us warm feelings inside.

That’s why today we’re talking about investing in property through REITs (Real Estate Investment Trusts), what they are, how you can invest in them, and whether it’s ultimately the right thing for you.

The most obvious way to invest in property would require you to raise a huge deposit of at least £20,000 to buy one house or commercial unit on a mortgage. An investment in the most popular UK REIT on the other hand can be achieved for about £6.50.

Knowing how to invest in property is a major gap in many investor’s knowledge, and any properly diversified world portfolio should have at least some exposure to bricks and mortar.

How do you get started invested in REITs? Let’s check it out!

Editors note: Don’t forget to check the Offers Page and grab free shares worth up to £200 plus £50/£75 cash backs when you open new investment accounts through the affiliate links there – including alternative ways to invest in Property!

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Equity REITs

This article is about Equity REITs, which is the type that normal people can buy into without needing to be well connected or a millionaire.

An equity REIT is a Real Estate Investment Trust – a company that you can buy shares in – and that company owns (and in most cases operates) income-producing properties.

The types of property within a REIT are generally commercial property such as offices, apartment buildings, warehouses, hospitals, shopping centres and hotels.

Also, within the past 3 years there have been a number of UK Residential REITs listed on the London Stock Exchange.

These investment vehicles offer an easy and diversified route to investing in residential property, as an alternative to Buy-To-Let, targeting returns of 8% plus!

The type of assets you might find in a REIT

How REITs Make Money

REITs own properties which they lease out to other businesses, collecting rent. In this way the company generates income which is then paid out to shareholders in the form of dividends.

REITs must pay out at least 90 % of their taxable income to shareholders by law—and most pay out 100%!

How to Invest in a REIT

Because equity REITs are public limited companies, you can buy shares in them just like any other company on the stock market – and there are some sweet buys out there right now.

Two of our favourite UK REITs on the FTSE are British Land (BLND) and Tritax Big Box (BBOX).

British Land is a London-centric portfolio with a 5.5% dividend which looks sustainable, while warehouse behemoth Tritax offers a 4.5% dividend and includes as commercial clients the likes of Tesco, Unilever, and even Amazon.

Those massive warehouses you see on the side of motorways? Likely to be owned by Tritax!

Regular followers of Money Unshackled know that we like to do our investing via ETFs where possible, to maximise diversification and minimise fees. Well, you’ll be please to know that REITs are available via ETFs!

Property inside a REIT inside an ETF

REIT ETFs

Exchange Traded Funds are collections of shares, usually highly diversified, that trade on a stock market like a company, meaning you can buy shares in it.

When you buy a share in an ETF of REITs therefore, you are buying in one transaction into multiple REIT companies, which in turn each own multiple commercial properties. Ultra, ultra-diversified property investing!

The top UK ETF for commercial property REITs in our opinion is the iShares UK Property UCITS ETF (IUKP), which includes – amongst many others – holdings in both British Land and Tritax REITs.

iShares is in our opinion one of the two best ETF providers in the UK alongside Vanguard, and tend to keep fees low. This ETF has a distribution yield of 2.95% and has returned total gains on average of 8.7% per annum over the last 10 years.

As an ETF it has an ongoing charges fee, which as a property fund is higher than a typical ETF which invests in normal stocks: at 0.4%. We assume this reflects the lower demand for REITs and the higher complexity of this type of fund. Expensive – but we think, a price worth paying.

This ETF is available on our favourite zero-fee trading apps Freetrade and Trading 212, and you’ll find links to set yourself up on these platforms on the Offers page. Use these links to get a free share on sign-up!

Residential REITs

Residential REITs

Most REITs invest in commercial property, big office blocks and warehouses used by big companies. A little-known fact is that there are now a few REITs that deal specifically with residential properties.

Residential properties are houses and apartments like the one you live in, rented to ordinary people who live there and pay their rent to a property company.

As we alluded to above, there are now a number of UK Residential REITs listed on the London Stock Exchange.

These alternatives to Buy-To-Let are in some cases targeting returns of 8% plus, without any of the stresses that come with being a landlord.

The Residential Secure Income REIT (RESI) gives shareholders exposure to UK house price movements combined with steady rental income streams.

Returns are passed to you, the shareholder, in the form of a target annual 5% dividend and total returns expected to exceed 8% per annum.

UK Residential REITs vs Buy-To-Let

The returns on Buy-To-Let are still way better. This makes sense from an effort-in/return-out point of view, as buying a few quid’s worth of REIT shares is far simpler than saving a £20,000 deposit, project managing a renovation and sourcing and managing tenants.

But the main reasons Buy-To-Let gets better returns are Leverage, and that they are Undiversified. Let’s take leverage first.

REITs are great for steady rental income as long term leases are standard

Leverage

A standard Buy-To-Let will be financed 75% by debt – a mortgage – with a 25% deposit from the buyer. This means that any growth in the property value will be multiplied by 4 in returns to the investor.

A £100,000 rental property that grows by 2.5% to £102,500 is a return of £2,500; that is, £2,500 return on the £25,000 deposit the investor actually paid for the house. A 10% return – and that’s before rental income profits, which could easily be another 10% on top.

Interestingly, the Residential Secure Income REIT aims for a 50/50 debt to equity ratio, so profits should still be leveraged – but in this case only by a factor of 2.

Diversification Averages Out Returns

Diversification from a REIT means you are getting the returns from many average properties. A properly researched Buy-To-Let that you’ve put some effort into setting up yourself could easily make you better than average returns.

However, you have the risk that it is a single unit; and could yield zero rental income if the property were empty.

Get a £50 bonus when you open a Loanpad account through our link on the Offers page

Tax Benefits of REITs

Taxes on Buy-To-Lets are varied and can be in many ways manipulated to suit your own personal circumstances, but REITs have some tax benefits too.

REITs benefit from a benign tax regime. For example, UK REITs don’t pay corporation tax or capital gains tax on their gains from property investments!

Rather, investors are taxed on the distributions as profits of a UK property business, treated as income tax rather than as a normal dividend receipt – typically taxed before you receive it.

Considering dividends from normal companies are always after-corporation-tax, REITs being able to avoid being taxed pre-dividend is a win for most investors.

Getting Started

Understand the specific REIT ETFs and individual commercial and residential REITs we’ve reviewed and get started by adding this asset class to your portfolio – and why not get started investing in UK property ETFs on a zero-fee platform like Freetrade – and get a sign up bonus on when you use the link on the Offers page. And while you’re there, check out other ways to invest in Property like Loanpad, who’ll give you a £50 sign up bonus when you use our partner link. You’re welcome.

 

Dave Ramsey is Wrong – Don’t Blindly Follow If You’re from the UK!

Dave Ramsey is an American radio show host, author and businessman. If you’ve ever been on YouTube before and looked up anything remotely related to money, no doubt you have come across him. He has 1.4 million subscribers and is seen as a personal financial expert.

His advice is generally good and certainly entertaining. For those that have never seen it, it is essentially a radio show where financially inept people call up and get shouted at for running up huge amounts of unnecessary debt and in return he quickly tells them what they need to do to solve their money problems.

As one of the main guys in the personal finance space, Dave Ramsey has a lot of support but he also gets his fair share of criticism as does anyone who achieves success.

For anyone outside of the US, a major problem with YouTube and the Internet for that that matter is that much of the information that we are fed is based on a different market that is often unsuitable.

Not only largely irrelevant, but dangerous too!

Here in the UK if you do a Google search or regularly watch your favourite money YouTube channels the information that is regularly served is US specific and so is either irrelevant for the UK market or worse extremely dangerous should you follow it.

This is really concerning, which is one of the reasons why we started our own YouTube channel.

In this article, we’re going to talk about some of the key areas where Dave Ramsey is wrong from a UK perspective. Let’s check it out…

Editors note: Don’t forget to check the Offers Page and grab free shares worth up to £200 plus £50/£75 cash backs when you open new investment accounts through the affiliate links there!

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Cut Up Your Credit Cards?

Dave Ramsey pretty much hates all forms of debt but utterly detests Credit Cards. He promotes the use of cash and claims that the use of credit cards, even when paying off and avoiding interest, encourages consumers to spend more.

The problem we have with this is that it assumes you are useless with money, which is probably a fair assessment for many people and those people should follow his advice.

The argument goes that credit cards create frictionless spending, so it’s far too easy to spend more.

But as you are probably actively seeking content on the subject of money then we will assume that you are better than the average person when it comes to managing money. Personally, we try to spend everything on Credit cards for a variety of reasons.

Credit cards make for frictionless spending - bad for the financially illiterate, but we're guessing that's not you?

One of those reasons came to save me recently when Thomas Cook spectacularly collapsed leaving 1000’s of customers out of pocket. I could have been one of those customers, but thankfully I paid by credit card as we have always encouraged you to do.

We have no idea if the US has a similar credit card scheme but here in the UK, we have what’s known as section 75 protection, meaning that I was refunded by my credit card issuer.

Anybody who paid by cash or debit card would have lost everything.

Credit Cards can also come with many other benefits such as fee free spending abroad and lengthy interest free periods. Bear in mind that not all credit cards are created equal, so absolutely do ensure that your card is not a card from hell.

The Thomas Cook collapse hit those who did NOT use credit cards to book their flights

Pay Down your Student Loans?

No, No, No. His baby step 2 of paying down all debt including student loans does not apply to UK student debt.

In fact, in most cases it would categorically be bad advice. UK graduates should not follow his advice here!

This is because UK student debt is structured in a way that it’s not really debt – more like a graduate tax.

After all what other debt gets wiped after 20 odd years even if you haven’t paid a penny? We have a dedicated video on whether to pay off your student loans early, check that out on the YouTube channel.

In the US however, our understanding is that student debts attract punitive interest rates like any other debt and should therefore be repaid. Whereas in the UK the interest rate on student loans is largely irrelevant as it’s your earnings that dictate what you pay back.

If you choose to overpay then you are probably throwing thousands of pounds down the drain, which could have gone towards your house, your business, your retirement or whatever you value most. Please, please, please research this before making overpayments.

Pay Down your House Mortgage?

Another one of Dave’s baby steps is to pay off your home early. In our opinion we don’t think this should be a priority of yours depending on your age.

Certainly, the younger you are the lower down the pecking order this should be for a number of reasons.

A strong positive cash flow can give you the breathing room to grow your earnings further by starting a business or even a side hustle.

However, should you instead decide to plough all available money into overpaying your mortgage then you are in danger of a significant emergency derailing your plans.

We don’t think your life goals should be to plod along and live a mediocre life. When you’re sitting on a large cash pile you have the freedom to chase dreams and make a difference and ultimately live a more fulfilling life.

Of course, this depends on your age and attitude to risk. As you get older paying down the house is probably a good shout.

But if you are young don’t settle for mediocre. And right now, interest rates are really, really low.

In his book, Total Money Makeover, Dave argues that the tax deductible does not compensate you for the large interest payment to the bank. In the UK we don’t even get this tax-deductible expense, so it would be even worse for us here in the UK.

But critically, Dave does not seem to consider the opportunity cost of paying down your house.

Your money could be making you more money, rather than being trapped in your house

On a £200k mortgage, instead of paying that down that money could instead be invested to easily generate additional income in excess of £10,000 per year – just by investing in a simple stock market fund. That’s £10,000 profit after tax!

Just imagine how that could compound over a few years and what difference that would make to your life.

Invest using Actively Managed Mutual Funds?

Once you’ve made the decision to begin investing you need to decide on how exactly you will invest. Dave recommends that you simply pick 4 actively managed mutual funds and you will receive 12% returns per year.

He even suggests that you pick these mutual funds based on their past record over at least a few years – if only it was that simple!

The problem with using past performance as a means to pick investments is the false assumption that yesterday’s winners will continue to be tomorrow’s winners. If it was that simple, we’d all be multi-millionaires.

It’s also highly unlikely that a portfolio consisting of mutual funds will give you an annual compounded growth rate of 12%. It’s definitely not the average despite what he says.

It’s not impossible but would be a stretch even if you chose particularly high risks funds.

Our final objection is with using mutual funds as the basis of your portfolio. It is well known that actively managed funds tend to underperform due to excessive fees and portfolio churn.

We believe the core of your portfolio should be built around low cost index trackers like ETFs. For us this would ideally track the world market and would not be overly exposed to your home country’s stock market.

Freetrade is a great place to build a World Portfolio for free - and you get a free stock at this link!

Saving For Retirement

Dave suggests saving 15% of your gross household income into retirement accounts. For American’s this will be into 401(k)s and Roth IRAs. It’s safe to assume the UK equivalent of the 401k would be your company pension scheme.

We’re not going to be overly critical of retirement saving as it’s always a good idea to have a plan B but should it be your main goal?

In the UK we have the amazing ISA or Individual Savings Account, which gives us tax-free investments that can be accessed at any age. This gives us another weapon in our arsenal that our friends across the pond don’t have.

Going into a full retirement strategy goes beyond the scope of this article but we thought we should point out that advice meant for the US market may not be suitable for investors elsewhere.

Another fantastic feature of the ISA is that any income you take from it does not form part of your taxable earnings. It’s taxable on the way in but not on the way out.

We have both always paid into company pensions to whatever the maximum our company would match, but any excess would go towards other ways to save and grow wealth including ISA’s and property.

Don’t blindly follow the advice from the US financial gurus.

What do you think of Dave Ramsey and other financial gurus? Let us know in the comments section.

FIRE vs MORE -Multiple Income Streams for Financial Freedom

If you’re into personal finance, you’ve probably already heard about the FIRE movement. FIRE stands for financial independence, retire early.

Usually, the people who follow it are in their 20s and 30s, see a lifetime of drudgery in the workplace ahead of them, and have decided to do something about it by cutting back, saving hard, and retiring long before their hair turns grey.

They’re having a reasonable human reaction to a truly awful time – the pensions we pay into are no longer worth the paper they’re written on, the state retirement age gets pushed further and further back, and where once a job was for life, now companies don’t expect you to hang around for long and pay you accordingly.

The FIRE warriors march onward, paying down credit cards, cancelling nights out to save that beer money for the retirement pot, and living on rice and beans.

But is there another way? Achieving financial freedom by cutting back is one way, sure, but we aren’t doing it this way, and we’re almost certainly closer to financial freedom in our early 30s than most FIRE disciples at that age. FIRE vs the Multiple Incomes philosophy: let’s check it out!

Editors note: Don’t forget to check the Offers Page and grab free shares worth up to £200 plus £50/£75 cash backs when you open new investment accounts through the affiliate links there!

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FIRE vs MORE

In place of “Financial Independence; Retire Early”, we’d change it to MORE: “Multiply Opportunities; Retire Early”.

We just made this acronym up, but it sums up nicely our philosophy for financial freedom: more effort, more people helped, more income streams, more enjoyable retirement! Multiple growing income streams.

Multiply opportunities means having your fingers in a lot of pies; multiple efforts in multiple projects creating you multiple income streams.

Multiply Opportunities; Retire Early

Where FIRE Falls Down

The FIRE movement uses cutting back and limiting your expenses as its main levers to achieve the goal of financial freedom. We agree that this can be really useful when saving for your first few investments, but isn’t sustainable long term. FIRE can take many years, maybe decades, to run its course. The problem with living an enforced life of poverty and drudgery is that it will change you, and you won’t be the same person at the end of the journey.

You probably want to retire young to allow you to live a life of exploration, travelling, days out and enjoying the finer things in life without being chained to a desk. But 20 years of severe scrimping could leave you mean, friendless, and poor in experiences. So let’s see how our Multiply Opportunities philosophy compares…

Side Hustles/Passive Income Assets/Property

A job just won’t cut it as your only income source if you want financial freedom without the enforced poverty. You need to work a job during the day, come home, and work on money-making side projects in the evenings and weekends.

Known in the money world as side-hustles, these small businesses are meant to grow to make you a decent income alongside your job, one day replacing the need for it. The money you save from your job and from your side projects should be invested into assets that pay you an income NOW, instead of investing solely in growth assets like some stocks.

Passive Income assets include high dividend ETF portfolios, as well as Peer To Peer Lending and REITs. REITs are companies that own and manage properties that have to pay the shareholders 90% of their property profits by law. Investing into property directly in the Buy-To-Let sector can be another very lucrative income stream if you set it up right, though it’s not without its problems.

Ben gets a big chunk of his income from buy-to-let properties, which took effort to set up and continued small amounts of effort to manage. Assaulting financial freedom from many angles by directing our efforts into creating multiple growing income streams of jobs, side-hustles, passive paper assets and property is our way of reaching financial freedom.

Peer to Peer Lending is one great form of passive income. £50 cash bonus through this referral link

Unlimited Upside of Multiple Incomes

Extreme cut-backs under the FIRE ideology sets a ceiling on how much you can save each month towards retirement: the difference between your job income and your outgoings.

Alternatively, putting your efforts into establishing multiple growing income streams has no such ceiling. By shifting the focus from money-out to money-in, your potential is unlimited.

Harder to Achieve

Setting up income streams is hard and takes a lot of time. You don’t have enough freedom already, and now we’re asking you to give up your evenings and weekends too. What are we on?

It’s up to you. Sacrifice and hard work now for faster retirement and better living later. But your time doesn’t need to be wasted.

Setting up a rental property or scaleable business takes time and effort, but once it’s established and making money you can hand it over to a manager or agent to run all the time-consuming bits for you. Or it might even be something you enjoy doing, in which case do you even need to retire at 30? Was your goal of retirement centred around escaping a career you hate?

Running your own business, investment portfolio or property empire might be the answer for you.

Cutting back is good at the start - but not the answer

FIRE Still Has Good Points

We think FIRE takes it too far, but cutting back in a sensible way on excessive spending is a good thing. If you can save hundreds a month by swapping Sky TV for Netflix, holidays to Australia for package trips to Majorca, your new BMW 3 series for a used Ford Focus, then do it.

The true FIRE warrior would sell their car and walk everywhere, but time is money and who has the time to walk home from work when you have a side-hustle to set up?

Keep your debt under control, but don’t cut up your credit cards if you can manage debt sensibly. Debt can be useful. Avoid the extremes, don’t make your life miserable, build those multiple income streams, and get the financial freedom the direct way!

How to Own the World with Freetrade – A Global ETF Portfolio with Zero Trading Fees

We recently produced a popular video called How to Own the World with 6 ETFs, but we have since been asked how to construct a similar portfolio with one of the free investing apps such as Freetrade. One of downsides of the free apps is you obviously don’t get as wide a choice of ETFs as you do with the more expensive investment platforms. But this is not to say you cannot achieve a similar, if not the same result.

At the time of writing, Freetrade offered only 59 ETFs but they have clearly handpicked some of the best on the market, so we can still build a decent portfolio with what’s on offer. We suppose the real question is “does the zero-fee trading vindicate the limited ETF choice”. We think it’s a worthy sacrifice for many people especially those new to investing,  who otherwise might be overwhelmed by the choice.

Why should you own the world? Hint- It’s all about diversification! Plus… owning the world is cool.

YouTube Video > > >

When constructing the last portfolio, we built it based on the premise that we wanted to limit the holdings to 6 ETFs. One of the main reasons to do this is reduce the amount of trades required – not only when buying the ETFs but also when rebalancing. As we all know, buying and selling investments was and often still is very expensive and so we had to keep it to a minimum. However, Freetrade removes this limitation allowing us to technically build a portfolio with as many holdings as we want.

We also don’t want to get carried away as it can still be an administrative burden managing a large portfolio, but at least we don’t need to worry about the cost anymore. In this article we’re going to build a core portfolio of ETFs within the Freetrade Investment App, in order to own the World. This should maximise investment returns, and minimise risk. Let’s check it out…

Editors note: If you like the look of Freetrade then sign up with the affiliate link on the Offers Page. By doing so you’ll get a free stock worth up to £200!

USA

Ideally, we would be able to invest in the entire Northern American continent but unfortunately this is where our choice is partially limited. Not to worry though as we still have plenty of S&P 500 ETFs to choose from.

The S&P 500 is the index that tracks the 500 largest US companies and, in our opinion, many of these stocks are an essential part of any investment portfolio. Think Apple, Google, Amazon and Microsoft. The main notable absence would be exposure to Canada, but this would have only made up a very small allocation of any North American ETF anyway. Mexico is also missing but we’ll get some exposure to Mexican stocks with another ETF in the portfolio, which we’ll get to shortly.

So, the ETF we will opt for is the Vanguard S&P 500 UCITS ETF (VUSA)

This beauty has an almost non-existent ongoing charge of just 0.07%. That would be a charge of 70p per £1,000 invested.

Mind. Blown. To think that you can invest £1,000 in 500 of the largest US stocks for less than the cost of a packet of crisps is extraordinary. Out of the few S&P 500 ETFs on the Freetrade platform, we chose this one because it distributes income quarterly and we always tend to opt for Vanguard whenever they are competitively priced, which they usually are.

Vanguard have earned our trust but there are some iShares equivalent ETFs on Freetrade, which will be just as good. FYI, the current market price at time of filming is about £45.32 and the dividend yield is 1.56%.

The offer for new customers - click here

UK

In the previous ‘How To Own the World’ episode we opted for a FTSE All Share ETF but one of the key reasons for that is that we wanted to get as much exposure to the UK Stock market in as few ETFs as possible in order to limit the number of trades.

Freetrade do have a FTSE All share ETF on offer but as we don’t need to worry about trading costs with Freetrade we will instead opt for 2 ETFs instead:

1)         iShares FTSE 100 ETF (ISF), which will track the FTSE 100 – the largest 100 stocks on the London Stock Exchange

2)         Vanguard FTSE 250 ETF (VMID), which tracks the next largest 250 stocks aka. FTSE 250 index

We can even choose to invest more into the FTSE 250 than what we would naturally get in the FTSE All Share index. We might want to do this because we like the prospects of smaller companies and anticipate them to grow faster than larger stocks found in the FTSE 100.

Both these ETFs distribute income quarterly, which is what we prefer over the accumulation variety as we like to choose how we reinvest. The iShares FTSE 100 ETF comes in with an incredibly low fee of just 0.07% and the Vanguard FTSE 250 ETF at just 0.10%.

This FTSE 100 ETF has a whopping yield of 4.60% and is priced at £7.15. Whereas the FTSE 250 yield is 3.12% and is priced at £33.07. These are both superb cash returns, with the FTSE 100’s yield being explained by the fact that it contains many mature companies such as Shell, Glaxo, HSBC, etc, who return a lot of cash to their shareholders as they are past their rapid growth phases.

Owning stocks in every region of the World lets you ride global growth

Europe

We want to invest in Europe and we already have UK exposure, so ideally, we would go with a European ETF that excludes the UK. Unfortunately, the limited ETF offering on Freetrade caused us a problem here as the closest ETF we could find is the:

Vanguard FTSE Developed Europe UCITS ETF (VEUR)

Don’t get us wrong – this is a great ETF. We didn’t want the additional UK exposure, but we can still opt for this one as long as we adjust the portfolio allocation accordingly, which we’ll get to shortly. As always, this Vanguard ETF comes in at a very low cost of 0.10%, distributes income quarterly and yields 3.41%. It contains 614 stocks and is priced at about £26.79.

Asia Pacific Ex Japan

To cover this region, we only have 1 choice on Freetrade, which is the:

iShares Core MSCI Pacific ex-Japan UCITS ETF (CPJ1)

This ETF is predominantly invested in Australia, Hong Kong, New Zealand, and Singapore. When you choose any fund you really ought to look under the bonnet to familiarise yourself with what you’re actually investing in.

We want to invest in South Korea as they have some great global companies such as Samsung. This ETF doesn’t do that but fortunately this is covered in another ETF we will be investing in. It’s a shame Freetrade don’t offer a wider choice for this region as there are cheaper ETF’s available that do the same thing. In this case the ETF costs 0.20% which is still cheap enough, but this is the accumulation variety.

It contains 145 stocks but is quite an expensive ETF at about £115.

Japan

Next on the list is Japan and we can invest using the:

Vanguard FTSE Japan UCITS ETF (VJPN)

Its price is £24.21 and costs just 0.15%. This is another distributing fund, yielding 1.76% and contains 505 stocks.

The Emerging Markets ETF covers so many cool regions!

Emerging Markets

Freetrade offer a few emerging market ETFs and we will opt for the:

iShares Core MSCI EM IMI UCITS ETF (EMIM), which is priced at £21.59 and costs just 0.18%.

We have chosen this one over the Vanguard alternative as the Vanguard Emerging market ETF is a tad dearer and does not have any South Korean exposure, whereas the iShares ETF does.

This means that you’ll get a position in Samsung by investing in the iShares ETF. Also remember that earlier we said we were looking to get a small position in Mexico – we’ll get this with this ETF.

Investing in this ETF will give us 2,731 stocks across many geographies.

Other

If you follow this portfolio you are very likely in our opinion to beat the majority of investors. You could even use this as the core of your portfolio and use a small allocation to try and beat the market by picking more exciting ETFs that are on offer or even try your hands at stock picking.

Portfolio Weighting

Our Freetrade World Portfolio weighting

If this was our portfolio we would allocate it something like this:

35% S&P 500, 7.5% in the FTSE 100 and 7.5% FTSE 250, 15% in Europe – remember this one contains some UK exposure as well – 10% in Asia Pacific, 10% in Japan, and the remaining 15% across the Emerging Markets.

You can easily adjust this allocation to reflect your own predictions and risk profile.

What other ETFs or even shares would you add to this portfolio from the Freetrade Universe and why? Let us know in the comments section.