“Be the Bank” – Invest in Commercial Bridging Loans – Loanpad Platform Review

“Be the bank” – not the borrower. We just flipping love owning everything; shares, commodities, property – debt. Banks own other people’s debt, and get massively rich in the process.

Peer-to-Peer Lending (P2P) is our favourite route into the world of owning other people’s debt.

We love P2P for its high interest returns, regular cash flow, safety relative to shares, that most give sign-up bonuses on platforms that we would have signed up to anyway!

Every P2P platform we’ve invested in and reviewed up until now has lent to a mix of businesses or individuals – but there’s a way to invest purely in another type of debt through P2P – commercial property bridging loans, the high-interest business property loans for property developers that are essentially short-term mortgages.

We approached a specialist platform called Loanpad to find out how they do it.

Editor’s note: If you like the sound of Loanpad, we’ve negotiated a £50 cash back deal for you when you open a new Loanpad account and invest £1,000 – on top of the 5% interest rate! The link to this offer and many others is on the Offers page.

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Loadpad, rated Excellent on Trustpilot, is the first platform that we felt warranted a review that specialises in property loans – short-term mortgages on huge commercial properties, which as a member of the platform you own a slice of and get paid the interest.

We’re excited to tell you that we interviewed the CEO and founder of Loanpad personally to get the inside scoop on how exactly this platform and their sector works, where it’s going, and the future roadmap for Loanpad.

Our testing revealed that Loanpad do several things differently to its competitors – welcome solutions to the problems of diversification and risk that are more sophisticated than on platforms such as easyMoney and others.

This type of investing represents a new asset class, a sub-sector of the Peer-to-Peer Lending market that you’ve gotta be involved in if you, like us, want to own everything. So, are Loanpad worthy of being in your portfolio?

The Dashboard - choose between a Classic or Premium account

What is a Bridging Loan?

At a basic level, if you were buying a house to renovate, often the banks wouldn’t give you a mortgage because the property would be temporarily in too poor of a condition to be lived in. So instead you might take out a bridging loan, which are generally short-term loans of 6 to 18 months, secured against the property.

It is a high-interest and costly way of “bridging” the gap in time between buying a property project, and getting that property mortgaged cheaply by a bank, once it has been renovated.

This kind of loan is very common on commercial, i.e. business properties. Think of a run-down central London office block that is being modernised. The property developer needs to free up cash to get the work done, but borrowing on a mortgage isn’t appropriate because the building isn’t habitable during the works.

Instead, they’d use a bridging loan. The high interest rate charged on these loans is great for the bank doing the lending, and an incentive for the property developer to get the job done quickly and the loan repaid and swapped out for a far cheaper mortgage.

Nobody has it better than the banks when it comes to investment opportunities, and the more like a bank we can be as investors, the better for us!

And now, we can take part in lending bridging loans to property developers on platforms like the one we’ve tested today: Loanpad.

How It Works – Loanpad

Regulated by the FCA, Loanpad teams up with large established lending businesses to bring investors in the platform commercial property loans to invest in. The platform is home to 1,200 investors – including me now – has £7.5m of loans under management, and a growing portfolio of big commercial property lending partners.

You as the investor are acting like a mortgage provider, lending money to businesses to develop commercial property with.

We love the idea of “being the bank” – the banks get rich by lending money to businesses, and now you have the ability to lend on commercial property too.

Loanpad gets the "First Charge" on most of their book

What you’re really doing is buying a part of a loan that has been set up already by a large lending business. The business buying the property puts in a deposit, and the lending company provides the loan. The lending company then sells part of that loan to Loanpad, who divides the rights to the interest and capital repayments on those loans to the Loanpad platform investors.

The 3rd party lending companies with the market experience are the ones who manage the loans, while Loanpad monitor and supervise as the senior charge holder.

Crucially, Loanpad investors are not the only lenders in each loan. The current ratio of loans across the platform are funded around 25% by Loanpad investors and 75% by the large lending companies.

This means there are other major players with skin in the game who could administer the loans if Loanpad ever went bust.

Plus, as investors, we can diversify our money across 4 times as many loans. And here’s the kicker – Loanpad have 1st charge lender rights on all loans in their portfolio, meaning if a borrower goes bust our investment gets the best protection. Let’s demonstrate this.

The First Charge is the last to lose and best protected in a recession

If the borrower can no longer repay the loan, the underlying property would be repossessed and money returned to the lenders, including us. But what if the value of the property had fallen, such as what might happen during a bad recession? Well first, the borrower would lose their deposit. If the property had fallen in value by more than this, then the 2nd charge lending partners would take the hit, leaving the lenders with the 1st charge to collect their money – on most loans in the portfolio this would be the Loanpad investors.

The Platform – Our Tests

Dropping a G

I dropped £1,000 into the platform, to give it a proper go and find out for myself how it works. The deposit was almost instant, certainly within the first couple of hours of me making the bank transfer.

I was receiving daily interest payments, at 4% in the Classic account. When you fire up the platform as a new user, you choose between the Classic Account (daily access with a 4% interest rate) and the premium Account (a 60 day access account with 5% interest).

Both of these accounts are available as a standard account, or as an ISA – in this case an Innovative Finance ISA, which you are allowed to pay into alongside your Stocks & Shares, Lifetime or Cash ISAs.

The platform has auto-lend and auto-withdraw features which you toggle on or off in the Preferences tab, which are useful for those of you, like us, who just want to invest and forget.

There’s also a free monthly newsletter and blog for members, which you may as well take advantage of – any free investing knowledge is worth digesting.

Commercial Property Bridging Loans - another string in your bow!

Withdrawals

We’re pleased to be able to report that Loanpad have a secondary market – the best platforms have to have this function, which lets you sell your investments to other investors, allowing you to exit the platform if you want to before the loan maturity dates.

That said, if there wasn’t anyone available to buy your loan parts, these loans are all short term anyway – between 3 and 18 months generally – so organic liquidity is decent.

The platform also has a cash fund to pay you out if you withdraw your investment too – they build up their cash until they can take on another loan, and expand naturally, but the cash that’s in the platform lying around can be used for investor liquidity too.

So access to cash is fairly competitive compared to other P2P platforms.

If you use the Premium account, remember that there is a 60 day wait to access your money, which is the price you pay to get that higher 5% return.

Withdrawing My Precious Cash

Now what you all want to know – how quickly could I get my hands back on my cash? I tested the platform’s liquidity by withdrawing my full capital in one go.

To withdraw money from Loanpad is a 2 stage process. Step 1; I transferred my capital of £1,000 from my Classic account to the Cash account. You can see my interest is all sat in the Cash account as this is too small currently to be auto-lent:

Step 1 of withdrawals: Withdrawing from the investment account "Classic" into the "Cash" account

Withdrawals are not immediate; but I initiated the transfer at 8am, and when I checked back in the afternoon the funds had moved into the Cash account. Remember, I had the Classic account with easy access; the Premium says it will take 60 days to release funds.

Step 2; withdraw from the Cash account to my bank account. This happens instantly on the platform, but the banking system takes 1-3 business days for the cash to move, which we don’t think is the fault of the platform. I released the cash on a Wednesday evening – by Thursday lunchtime I had received the full amount plus interest back safe and sound into my bank.

Interest

The interest rates are 4% and 5%, which is largely comparable with big P2P platforms like RateSetter, and lower than what you might expect with a platform like Assetz Capital or Lending Works which might aim for slightly higher risk businesses – higher risk in theory than Loanpad because Loanpad loans are asset backed.

Loanpad is backed by property and invests in a different area of the market to those platforms, and is more directly comparable to easyMoney’s P2P platform which offers interest of just 3.67% at the lower end.

As we’ve seen from our testing, interest is paid daily which is great for cashflow and visibility – but a problem for those who are investing small amounts is that interest cannot be reinvested into the platform until you have built up multiples of £10 in your cash account.

Your interest will simply build up, not benefitting from the effect of compounding until you’ve hit the magic £10 number.

What you could do is switch the auto-withdraw button to “on”, thereby withdrawing your interest to your bank account each month to reinvest as you please.

Loanpad have told us directly that they recognise this issue and have plans to enable sub-£10 investments within 6 months – this would hopefully resolve this issue by allowing investments from a penny upwards. Awesome!

Flick the switch to get automatic withdrawals of your income to your bank

Diversification and Rebalancing

We like the diversification method on this platform. You see, unlike other platforms where you own parts of specific loans on the platform, on Loanpad’s platform you own a small fraction of all the loans on the platform.

These are the loans I was invested in – these are all of the loans on the platform, all backed by 1st charge rights to the underlying physical property.

If one fails, all investors suffer equally, and likewise if one fails, you suffer less for everyone owning a bit rather than just you and a few of the other investors.

Every day, at mid-day, your portfolio rebalances. This takes account of new users on the platform and new loans added/closed out, and rejigs your allocation to each loan to smooth out your exposures.

Diversification and rebalancing happens automatically, and takes the decision out of loan picking.

This works for us, as we can’t be bothered over-thinking individual components of a well-diversified portfolio, but those of you who like to pick your specific investments will likely be disappointed here.

Protection

We’ve mentioned the innovative diversification method, the 1st charge rights to asset repossession, and the cash buffer to aid withdrawals, but there’s actually another couple of protections built in.

There is an Interest Cover fund, which is used to continue to pay you interest in the event that any of the loans failed to deliver. From time to time a borrower may be struggling and need an extension granted to their interest payment deadline, but you the investor would not in theory be affected.

And they have an Innovative Finance ISA option on the platform which protects your money from the greedy tax man. Hands off my cash, tax man!

Hands off our cash, you greedy, greedy tax man!

Vs the Competition

The platform most like Loanpad is easyMoney, another commercial property lending platform I already hold a decent amount of my wealth in, and I can honestly say that Loanpad is the superior platform.

easyMoney delivers and does what it says it will, but diversification doesn’t happen instantly on easyMoney; rather it takes a couple of weeks to spread. Loanpad does diversification instantly.

Compared to Peer to Peer Lending platforms in general, the simple user interface reminds us of platform RateSetter; on Loanpad too, you simply choose an interest rate and then you get paid exactly that rate, no messing.

All told, this is a great, user-friendly platform that we’re happy to chuck some hard-earned money into and forget, with the full expectation that it would still be there with interest in a few years’ time.

Bridging Loans – Added!

Well that’s another piece of the world we now own – commercial bridging loans. Another piece in the puzzle and a step further towards our ambition of owning the entire world!

And don’t forget – we’ve negotiated a £50 cash back deal with Loanpad for any new customer who signs up through our link with £1,000, so take advantage of that now while you can.

Have you found another way to invest in commercial bridging loans? Is this an asset class you want to add to your portfolio? Let us know in the comments below.

Written by Ben

ETFs Destroy All Other Investments – ETFs vs Stocks and Funds

Regular visitors to the site will know that most of the money that we invest in the Stock Market is done so using Exchange Traded Funds – more commonly known as ETFs.

But why do we rave about these awesome financial products so much? And why do we put so much of our money in ETFs over other investments such as Stocks, Bonds or even traditional funds?

We think that ETFs have contributed to much of the improved accessibility of investing in recent years due to their extremely low costs and transparency. The first ever ETF was launched only as recently as 1993 in the US, and it took a further 7 years for the first ETF to be listed on the London Stock Exchange.

Since then, money has been pouring into these products, and for good reason – they’re awesome! You may have seen our video series on ‘How to Own the World’, where we essentially bought into every single major listed company in the World. We did this with these little beauties.

Editor’s note: Don’t forget to check out the Offers page where we have hundreds of pounds of cash bonuses that you can snap up when you sign up to any of the investment stock market and P2P Lending platforms listed, including sign up bonuses on platforms that trade ETFs – Nutmeg, Freetrade and Trading 212!

YouTube Video > > >

What is an ETF?

We’ll get into the reasons why ETFs destroy other investments – but first what is an ETF?

An ETF (Exchange Traded Fund) is simply an investment fund that is traded on a stock exchange similar to shares. Most ETFs will track an index in an attempt to mirror its performance.

An index is a measurement of a section of the stock market like the FTSE 100 or the S&P 500. The FTSE 100 is the index composed of the 100 largest companies listed on the London Stock Exchange (LSE).

These companies are often referred to as ‘blue chip’ companies, and the FSTE 100 is traditionally seen as a good indication of the performance of the UK economy. In the UK whenever you hear about the Stock Market on the news, they will be referring to the FTSE 100.

An ETF will allow you to mimic as closely as possible the performance of the index. So, a FTSE 100 ETF should pretty much return the same as the largest 100 companies in the UK.

This is awesome, particularly for small individual investors like us because it allows us to not have to worry about stock picking or fund manager performance. We can sit back, relax and get awesome investment returns for an incredibly low fee.

ETFs try to copy an Index as close to exactly as is possible!

There are several ETF providers in the UK, the most popular being iShares and Vanguard who both offer numerous ETFs, which you will be able to buy and sell through any decent Investment Platform. Some other providers include SPDR, Xtrackers, HSBC, L&G and WisdomTree.

Just to get a taste of how much money is invested in ETFs, the iShares S&P 500 ETF alone has assets under management of over $40 billion!

Why ETFs Destroy Other Investments

#1 – Access to Your Money

You can sell at any time during market hours, but of course the price you get will depend on market conditions at the time. But unlike traditional funds such as OEICs and Unit Trusts, ETFs offer minute-by-minute pricing because they trade on an exchange like a stock.

This also means that when you buy an ETF you know the exact price you will pay – but this can’t be said for when you buy a traditional Fund such as a Unit Trust. This is because when you place your order for a traditional Fund you don’t know what the price will be when it is executed – during the day the price may change.

This can even make ETFs appropriate for investors who trade more frequently, but we advocate long term investing.

The live prices of an ETF make them superior to open-ended funds in this regard because you can access your money immediately. OEICS and Unit Trusts only have daily prices and orders are processed daily. By the time you can get your money the price may be far lower than you were happy with.

Buy and Sell ETFs any time duruing stock market hours! You can't do this with managed funds...

#2 – Diversification

Just one ETF can give an investor enormous diversification that is not possible if they were to invest in individual stocks themselves. In a single purchase you can with some ETFs gain a position in thousands of stocks and/or bonds.

Diversification is key to spreading risk and is considered essential in the world of investing. As we mentioned in our World Portfolio series – see Episode 2 below – we advocate owning the world, and ETFs are the easiest way to achieve this.

Some people criticise diversification but, in our opinion, only a fool doesn’t diversify to some extent.

Individual stocks often fall and then never recover, whereas this can’t be said about the whole stock market. The market has periods of decline, but the trend has always been up over the long term. You can invest in the entire market by investing in certain ETFs.

YouTube Video > > >

#3 – Lower Fees

ETFs which are passively managed have far lower fees compared to managed funds. A managed fund has to pay an expensive investment manager and trades more frequently, so therefore has higher costs. This portfolio turnover increases the transaction costs that a fund incurs, which is ultimately passed back to the investor.

At Money Unshackled like to keep fees down to an absolute minimum, and some ETF fees are almost non-existent. If we use the iShares FTSE 100 ETF as an example, the OCF is just 0.07%. That would be a fee of just £7 on a £10,000 investment.

There is also no stamp duty when you buy an ETF whereas Stamp duty on UK individual shares is 0.5%. These charges don’t sound like much but really add up when you build and rebalance a portfolio, and the effect only compounds over time.

# 4 – Huge Choice

There are literally thousands of different ETFs to choose from. You are bound to find one that tracks something you’d like to invest in.

Our preferred approach is to build a core portfolio using a handful of ETFs that track the world market.

We then like to supplement it with additional investments that we feel give the portfolio a little boost, such as REIT ETFs or ETFs that give us exposure to smaller companies, which we expect to grow faster.

For inspiration a good tool to use is the website justETF.com, which has a very useful ETF screener allowing you to filter down until you find an ETF that you like the look of.

We start with a core of world market ETFs and add "satellite" products around the edges

#5 Transparency

When we construct a portfolio, we like to know exactly what we are investing in and because ETFs track an index, they are totally transparent. You can easily see what the underlying holding are, but this just isn’t the case with managed funds. Usually you can only see the top 10 holdings.

This is a major problem because how on earth can you know what your exposure is? If you invest in 10 different managed funds – and each one holds some of the same shares – you could be massively over-exposed to these few stocks without even knowing it.

Luckily not a problem with ETFs!

In summary; ETFs are so damn awesome.

Do you agree with our view on ETFs? Or do you think there are better ways to invest? Let us know in the comments section below.

Top 10 Investing Mistakes Beginners Make in the Stock Market

Many beginner investors are keen to start investing because of the easy money that can be made. And rightly so! Those who have watched our videos before will know that it is far better to put your money to work than to work hard yourself.

Without exception the only way to make serious money is to invest. Look at any rich list and you will see a bunch of people who made significant sums in some form of investing – most commonly from stocks and property.

Unfortunately to start investing without educating yourself is a recipe for disaster – You WILL lose money. It’s imperative that you not only learn how to invest but also learn from your mistakes. Better yet, learn from other people’s mistakes, so you don’t make them yourself.

Warren Buffett has 2 rules:

  • Rule No. 1: Never lose money.
  • Rule No. 2: Never forget rule No. 1!

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

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Investing mistakes will cost you money but why is it so important not to lose money? Some of you might be thinking that it’s okay to lose money because eventually stock markets will recover, and you’ll get your money back and more.

Let’s demonstrate this mathematically:

Say you invest £10,000 and lose 50%. How much does it need to grow to get back to square one? 50% maybe? Wrong!

To grow your remaining £5,000 back to £10,000 would require 100% investment return just to get back to where you started. The more you lose the bigger the investment return that is required to recover.

Some people are even tempted to buy stocks that have crashed by say 90% because they think that it was once worth so much more.

Imagine if you owned one of these stocks and you are unfortunate enough to see it crash by 90% and have held whilst you lost all your money. To get your money back it would now need to grow by 900% – nothing short of a miracle!

Now that we’ve demonstrated why it’s so critical NOT to make mistakes, we’re now going to look at the Top 10 investing mistakes beginners make in the stock market…

Don't diversify and THIS could be you!

Mistake Number 1 – Not Diversifying

Diversification is absolutely essential to protect and grow your wealth. Beginners often fail to diversify due to lack of money, lack of knowledge or over-confidence in their ability.

These days lack of money is no excuse as ready-made diversification is easily achievable through the purchase of a Fund or ETF.

Unfortunately, many beginners dislike funds and are drawn into the excitement of picking stocks but in doing so, they almost never achieve the diversification that is so vitally important.

Lack of knowledge often leads to an investor believing they are diversified but the reality suggests otherwise. For example, a UK investor may rather foolishly only be invested in UK stocks. If the UK suffers a downturn, that investor will soon realise they had not diversified properly.

True diversification is across different geographies, asset classes, sectors, and stocks. Diversification doesn’t just protect against losses though – it boosts the chances of you achieving the investment returns that are expected.

I’ve personally made this mistake myself. For years I was overly exposed to the UK and I failed to get the enough exposure to the essential US market.

As a result, I missed out on some tremendous growth. Whatever the reason, lack of TRUE diversification is likely to hurt you.

During a downturn your portfolio will behave very differently - so be prepared!

Mistake Number 2 – Copying Other People

Everyone’s situation is different, which is why a Regulated Financial Advisor must first assess your unique situation before giving advice. This fact is often overlooked though when it comes to beginners who just want to copy someone.

We are often get asked what investment platform we use or what we invest in. There’s nothing wrong with these questions per se, but these questions terrify us because it is clear that most of those who are asking are going to blindly follow whatever we say. Our situation is different to yours and yours is different to the next guy.

It’s much better to understand the reasons why we do something rather than just what we do. For example, if you only have a few thousand pounds to your name it’s not useful knowing which investment platform we use because we are not in the same financial position.

Or if you are approaching old age retirement, it would potentially be dangerous to blindly follow our investment strategy because we are probably willing to take on more risk than you are.

Long story short – Don’t blindly follow other people, but understand why they do something.

Mistake Number 3 – CFD Trading

We covered this in a recent video about Avoiding CFD Trading, which is certainly worth checking out (see below).

Essentially, due to high fees and leverage 82% of CFD clients lose money, so beginners should pretty much always avoid this type of investing.

Unfortunately, these CFD brokers have large marketing budgets and have some really enticing adverts which lures noobie investors to their peril.

Beginners often come across these brokers first and wrongly think this is investing in the traditional sense – it isn’t. Best to avoid them and learn how to invest on a proper investment platform first.

YouTube Video > > >

Mistake Number 4 – Holding Losers and Selling Winners

Many investors sell their best performing stocks to realise the gain, despite the stock still having potential for growth.

But worse still, many people are unable to sell a loser. Preferring to hold until total collapse of the share price. There is too much emotion in the investment, and they make all the wrong choices.

Even if the Loser slowly recovers, how long have you had to wait and what did you miss out on? Many investors incorrectly believe that what goes down will go back up. This is a misconception and is often not the case.

Mistake Number 5 – Buying High and Selling Low

Everyone knows what they should do – Buy low, sell high. But people tend to do the opposite, and this is not a contradiction of the previous mistake.

When stocks crash, they become fearful and sell and likewise they buy when everyone else is, when the price is highest. The best thing you can do is ride out any crashes and perhaps buy more if the prices are cheap.

Do your research and know what you're buying

Mistake Number 6 – Trading Too Frequently

Novice investors incur substantial fees by trading too frequently. Usually they are trying to make short term gains or are just bored and therefore often come out worse due to high fees.

Consider this, you have the trading fees to buy and then to sell, you have stamp duty and you have the bid/offer spread. In case you don’t know, you can’t actually buy at the stated share price.

There is something called a bid/offer spread, which is the difference between the buy and the sell price. This bid/offer spread, and stamp duty on UK shares are unavoidable even on “free” investing platforms. Our point; trading frequently is too costly.

Mistake Number 7 – Over Confidence

Some people think they are better than everyone else.  Why some people think they can put in no investment appraisal and yet still outperform the market is beyond us.

We’re not saying you can’t beat the market because you can, but many beginners think they can pretty much just take a wild punt and outperform the professionals.

We regularly get asked about timing the market or whether a certain stock looks good. We love to talk about anything to do with investing but the reason we do better than most is not because of awesome skills but because we avoid these mistakes.

Don't think you're better than everyone else - you're not!

Mistake Number 8 – Not Starting or Starting Too Late

Investing works best when it has time to work its magic. The true power of compounding takes years. We’ve heard every single possible excuse why people don’t invest. All too often people prioritise short term gratification over their long-term future.

£10,000 invested for 35 years earning 8% will be worth £148,000. £10,000 invested for just 10 years earning 8% will be worth just £21,600.

Don’t wait to invest; Invest and wait!

Many people don’t start because they think their tiny sum of money isn’t worth investing. They fail to realise that the best way to learn is when their pot is small. If they save a large amount first, then they will be too fearful to start investing because they have a lot more to lose.

Mistake Number 9 – Short Term Horizon

The ability to sell shares at any point, what we refer to as liquidity, often leads to people thinking they can invest for the short term. But in reality, prices are so volatile in the short term that it’s way too risky.

Some short-term traders may make money, BUT you will almost certainly do better with long-term investing. This being for at least 5 years, and better yet 10 plus.

Mistake Number 10 – Buying Last Year’s Winners

People have a tendency to review the historical record and assume that it will repeat. Sometimes it might, but it might not.

When making an investment decision you need to look at the future and not just the past. If it was as simple as looking at history, we would all be millionaires.

What investing mistakes did you make or are still making? Let us know in the comments section!

 

Written by Andy

WHAT WE ACTUALLY INVEST IN – Portfolio Breakdown – Sectors and Geographies

Here it is, investors – the breakdown of Ben’s personal stocks and shares portfolio by Geography and by Sector, in what we’re sharing with you now as the current Money Unshackled World Portfolio. The £ amounts are different, but the % weightings are the same.

Viewers of our World Portfolio series will know the importance of diversifying your wealth across the entire globe, giving yourself the best chance to benefit from exposure to growth markets and ride a wave of global prosperity.

The World Portfolio that we constructed in episode 2 of this World Portfolio series from just 7 core ETF index tracking funds invests in all the key global geographies, and across all major sectors including financials, health, technology and energy.

It also has holdings in REITs, so you benefit from an exposure to commercial property markets; and in the expanded version, commodities, the stuff that underpins inflation.

Today, we’re peeling back the cover on the Money Unshackled World Portfolio on Freetrade, and showing you EXACTLY what you are investing in when you buy these 7 core ETFs, as a percentage of your portfolio. Then we’ll tweak the portfolio by adding a further 5 satellite ETFs to make this baby pop.

We’re so pumped for this one! Let’s check it out…

Editors note: The video version of this article is the third in a series on the Money Unshackled World Portfolio, which we’ve built on the zero-trading fee platform Freetrade. If you want to emulate the World Portfolio then sign up to Freetrade with our link on the Offers Page. By using this link you’ll get a free stock worth up to £200!

YouTube Video > > >

World Portfolio Overview

To recap on episode 2, we had selected 7 ETFs on the Freetrade platform that nicely covered the World in as few ETFs as possible, keeping the balance between simplicity and portfolio weighting:

Let’s see how that translates into an actual portfolio. Throughout this article, we’ve used a portfolio size of £2,000 as an illustration, but of course this portfolio would perform similarly if your pot was smaller or bigger than this.

You’ll notice that because we’re buying actual units, and not just talking theory, that the total is a little different to £2,000 – as close as we could get while keeping the weighting we wanted.

The real world necessity of buying units makes our actual allocation slightly different to target allocation – but do we really know if 35% or 33.9% was the right weighting to pick until decades from now anyway?

And check out that weighted average Ongoing Charges Figure for the whole portfolio! At just 0.11%, this simple world portfolio is a fraction the cost of even the legendary Vanguard Lifestrategy funds, which would clock in at 0.37% if you include the Vanguard platform fee. Of course, Freetrade has no platform fee, and no trading fees.

We looked under the bonnet of each of these funds to see what actually was inside them. For example, 4% of our UK FTSE 250 fund (VMID) is geographical exposure to the US, not the UK, and 25% of the Europe fund (VEUR) is geographical exposure to the UK.

Geographies – Basic Portfolio

This is the portfolio of 7 ETFs broken out by Geographical region. You see we have applied the actual weightings from earlier, and the figures in the table are as a percentage of the portfolio. Down the left here is true split by country and region within our portfolio.

Look at Europe for example, just below the arrow 12%. This means that 12% of our whole portfolio is in European countries, despite what ETFs we bought. 11.7% of this is coming from the dedicated European ETF, even though VEUR is 16.1% of the portfolio, and there’s some European exposure in the VMID and VUSA funds too.

When we were setting out the ETF weightings, we purposely chose to buy 15% of the Europe ETF and an equal 15% across the UK ETFs –because we wanted more of our money in the UK than in Europe – knowing that there was some UK hiding in the Europe fund.

So here’s what we’re really investing in by Geography. Pretty good spread. Now let’s look at Sectors.

Sectors – Basic Portfolio

Now this is what we were really interested in – you can get an idea of what geographies you are invested in by the fund names, but not the sectors.

We wanted to find out the true weighting by sector in our portfolio, so we could tweak it to reflect our predictions for the future.

Above is the split by sector on the Money Unshackled Basic World Portfolio of 7 ETFs. Now we can see the detail we see things like how the USA ETF has the bulk of portfolio’s Tech sector exposure, and also with Financials, while the bulk of our REITs are in the Asia Pacific ETF, and most of our Consumer products exposure comes from Emerging Markets. Awesome!

Above is our Basic Portfolio summarised by Sector. It looks good but we’d like to be able to tweak it. So let’s do that!

We think healthcare will be a crucial sector as the World’s population ages and gets richer, so we want to boost the weighting there. REITs might be considered low at 4.3% – we want to boost that to around 10%. And there are no commodities in the portfolio other than proxies.

We want some gold in our portfolio – not too much as gold pays no dividends, but gold is money in its purest form and is a good recession hedge. We’d also like some exposure to Oil, Gas and other energy commodities, but we get this in proxy via the Energy, Utilities and Basic Materials sectors, which already make up nearly 15% of our portfolio.

The Expanded Portfolio

The beauty of using a free trading platform like Freetrade is that you’re not constrained to having to stick to the simplicity of just a handful of ETFs like you would on a traditional platform – the fees aren’t there to stop you.

Normally platforms charge trading fees per ETF, fund, or share; so you would want your portfolio to be simple and compact.

Freetrade removes such obstacles and means we can add on some so-called satellite ETFs which orbit around our core World portfolio without incurring any trading fees!

Right. Let’s do some tweaking!

We wanted to boost REITS, boost Health, and add Gold, so we’ve added 3 ETFs to the portfolio. We are also interested in Small Caps – which are small listed companies – as they have the best growth potential, and we want to make sure we’re invested in the Technology of the future so we’ve added a Robotics ETF.

To fit new funds into the portfolio we need to tweak the target allocations

The core portfolio has been squeezed to 77.5% of the total, leaving 22.5% of room for the satellite funds in dark pink. This in turn changes our Actual Allocation when we go to buy the Actual funds.

This weighting can be changed and isn’t set in stone, but a small tweak to change the sectors can have unintended consequences on the geographies, and vice versa. We’ve carefully balanced the allocation to get the best out of both as we’ll come to shortly.

And look at that weighted portfolio cost! It’s bigger than before but still miniscule at only 0.17% – it’s barely there at all!

Geographies – Expanded Portfolio

Let’s look at how our fiddling has affected the geographical split.

ISP6 is the Small Caps ETF, and it is all in the USA. Next, IWDP is our REITs fund and is also predominantly US located, as is IHCU (the health fund) and RBTX (the Robotics fund). For this reason, we slashed our core USA ETF down by 12% in our Target Allocation to make room for these satellite additions to the US region. The SGLN fund tracks the price of Gold, and is not in any specific geography.

Now look how this compares to our Basic portfolio of just 7 core ETFs.

USA is pretty much the same, but now includes Small Caps and doesn’t only include the large S&P500 companies as before.

The other regions are pretty much the same too, Asia Pacific down by half but this region of the world which includes developed countries Australia and New Zealand is perhaps less interesting than the Emerging Markets, which have gone up a bit. And we now have Gold commodities in our portfolio!

As gold’s value is fairly speculative and it doesn’t pay dividends, we don’t want more than 5% in our portfolio, but it’s worth holding a little bit.

Bitcoin and Crypto Blockchain ETFs are not yet available on the free platforms, but Gold acts similarly and is in many ways a safer proxy. The famous Bitcoin boom that got everyone so excited happened in 2017 – in the past – and yet people still want to jump on the bandwagon.

If you wanted to invest in Bitcoin or other cryptocurrencies, you could buy some outside of your main ETF portfolio.

Sectors – Expanded Portfolio

Of the new funds, we see that the Small Caps (ISP6) are spread across all sectors. We see that IWDP is indeed a REITs fund, and contributes 6.3% of REIT awesomeness to our total portfolio.

The Healthcare fund (IHCU) does what it says on the tin, and Robotics (RBTX) contributes 3.2% to the Technology sector.

To summarise:

Our tweaking has meant the technology sector has come down a bit but largely held at over 20% of our portfolio. It fell because we had to reduce the core USA ETF (VUSA) to accommodate the satellite funds, as the USA would be too much of our portfolio otherwise. And most of the world’s tech is in US companies.

We replaced some of this lost technology with Future Tech in the form of Robotics companies, which we find more exciting for growth.

We boosted the Health Care sector by nearly 2.3% of our portfolio to account for the aging population, and we bumped REITs up to nearly 10% of the portfolio.

REITs are awesome as they have performed better than average stocks recently and pump out cash dividends – we felt the Basic portfolio was lacking at just 4.3%. Better to have closer to 10% we think. And of course, we’ve added Gold commodities.

What – No Bonds?

Most ready-made portfolios like 4 of the 5 Vanguard Lifestrategy funds and many of those sold by financial gurus include bonds. We hate bonds.

Frankly they’re boring, they rarely perform as well as equities, and their function as a cash flowing asset can be substituted with Peer-to-Peer Lending, which pays great interest and has chunky sign up bonuses.

Plus bonds in a portfolio are another layer of complexity when you’re trying to carefully tweak your equities by geography and sector – far easier to say “this collection of ETFs is my equities portfolio”, and “this separate cash over here pays me interest in Peer-to-Peer accounts”.

Bonds bore us - Peer-to-Peer Lending is far more flexible and controllable

Conclusion – A World Owning Portfolio

So there you have it – what we’ve just walked you through actually reflects my personal portfolio – the £ amounts are different, the percentage weightings are the same!

If you want to copy the portfolio and Own The World, feel free. We put hours into balancing this baby, but now all the work is right there, done for you. We’d love to know if you intend to use this portfolio, so please let us know in the comments below.

Just download the Freetrade app using the link on the Offers Page, where you’ll also be given a free share worth up to £200 when you use the link and open an account by depositing £1 or more; and start owning the world!

 

Written by Ben