Top 3 Dividend Stocks For Summer 2021 (Trading 212 Dividend Pie Update)

Now that things have settled down a bit in the economy, we can see more clearly through the fog of uncertainty with regards to dividend stocks. What are the best dividend stocks to buy this summer for long term stability, yield and growth?

Back in February, we put on our analyst hats and used a set of rules and data to automatically select 20 dividend stocks while removing the human element from the decision – and it’s done great!

It’s well documented that institutional stock pickers underperform indexes 85% of the time. The thinking was to remove our instincts to second-guess which dividend stocks will and won’t do well, by building a portfolio of dividend stocks using rules.

We’ll show you how well the dividend portfolio performed, and the essential changes we’ve just made to the portfolio for Summer 2021.

We also go on to single out from this pool of rules-based stock picks what we think are the 3 best placed dividend stocks to outperform over the next year. Let’s check it out!

Our dividend stock portfolio was made possible by the innovative investing solutions offered by Stockopedia and Trading 212. Get a free stock worth up to £100 when you open an account with Trading212 (at time of writing there’s a waiting list you can join which secures your free stock), and 25% off a Stockopedia subscription after a 2-week free trial. Don’t miss out.

Alternatively Watch The YouTube Video > > >

You can find our updated dividend stocks Pie on Trading 212 here.

The MU Dividend Aristocrats Pie

We originally built this portfolio on the Trading 212 app, specifically chosen because of their awesome Pies feature, which lets you build a portfolio of stocks with specified percentage allocations.

The app lets you invest on a percentage basis as much as you want into each stock or ETF in your Pie.

We chose 20 stocks, equally weighted at 5% each. Their values of course drifted over time, but today we’ll be resetting the pie back to 20 stocks at 5% each. This is super easy to do, and we’ll show you exactly what we did in a moment.

The methodology we followed is fully documented in our previous episode/article, linked here.

But briefly, we cross analysed the best dividend stocks as per Stockopedia’s StockRanks, with the best stocks according to the S&P Global Dividend Aristocrats Quality Income Index, which in our view is the ultimate index for dividend stocks. The top ranking 20 from our model made the cut into the Pie.

MU Dividend Pie: The Last 3 Months

When we built this dividend pie 3 months ago, we dropped £1,000 into it as an experiment to see how well this approach would work. Performance since inception has been fantastic, with total returns of 12.51% in just 3 months.

1.00% of that came from dividends, and the other 11.51% from share price growth. We had set the app to reinvest dividends, but it looks like the pound amounts were too low for this function to kick in. Returns would therefore have been marginally higher if we’d invested more money.

We got 15 dividend payments over the period – some of the stocks pay dividends twice yearly, some quarterly, and so on.

Some of the individual stocks did amazing, with 4 returning around 30% and several others with really good hauls. 4 performed negatively, but only 2 did really bad. Watch the video version of this article for more details.

How does our return of 12.51% compare to a benchmark? The best benchmark to use for comparison is the returns on the SPDR S&P Global Dividend Aristocrats UCITS ETF (GBDV).

This ETF tracks the index that we are selecting stocks from, and the returns are what you could really have gotten if you had bought this ETF instead back in February.

The growth in the ETF price plus the quarterly dividend distribution paid in early May would have given you a total return of 10.41%. Our Pie has returned 2.10% better than this, at 12.51%! So, we managed to achieve what we set out to – we beat the index. For now at least!

Now We Need To Rebalance

A lot can change in 3 months. Especially as we’re coming out of one of the biggest periods of uncertainty for dividend stocks. After the markets crashed in 2020, cash flows became tight, and many companies had to cut or cancel their dividends.

But not any of our champion stocks. Below is how the Pie stood at inception – now 3 months later, 6 have to go. Not because they couldn’t survive the pandemic (all remain in the Dividend Aristocrats index), but because even better stocks have come along to take their place.

The Pie when it started (3 months ago), showing today's cuts

2 had to go because we only allow 5 stocks from any one sector in the Pie – it’s one of our rules to ensure we get adequate diversification – and there were 5 Financials that ranked higher than these this time around.

The others’ Stock Ranks fell out of the Top 20 this time around. These 6 will be cut, despite some of them doing ace – People’s United grew 20% and United Bankshares grew 14%. Verizon, Moneysupermarket and B&G Foods all did poorly over the quarter and are amongst the cuts.

But the main reason we’re having to swap as many as 6 stocks out on this rebalance is that, as we’ll soon see, Trading 212 recently massively updated their available range to now include almost all of the Dividend Aristocrat stocks from the US, UK and Europe. 5 of the 6 replacement stocks were not available back in February.

If they had been, this rebalance would be a lot smaller. For this reason, we’re not overly concerned about the temporary increased impact of transaction fees from FX, Bid-Offer Spreads, and Stamp Duty.

The Updated Pie

The updated Pie, showing today's additions

Here’s the details of the new Pie, updated as of the end of May 2021. This is what the data and algorithms are telling us are the best dividend stocks for Summer 2021.

The process has added 6 new stocks, 5 of which are due to Trading 212 adding them to their available range since we last carried out this exercise, and Exxon Mobil because it has staged a miraculous comeback from a prior Stock Rank of 50.

Most of the other stocks are more or less where they were 3 months ago, but with big improvements in Stock Rank for Pfizer and Swisscom.

We added the 6 new stocks into the Pie on Trading 212 at 5% weightings, removed the 6 that our data is telling us must now to be dropped, and rebalanced the whole Pie back to equal 5% weightings for all stocks. This also redistributes our existing gains amongst the new mix of stocks.

You can find our updated dividend stocks Pie on Trading 212 here. Feel free to copy it or to use it as inspiration for your own portfolio. If you previously copied the original Pie you will have to use the new link as we will be closing the old version.

Top 3 Dividend Stocks For Summer 2021

If you don’t fancy building an entire portfolio using rules, then we’ve hand-picked our Top 3 Dividend Stocks for Summer 2021 from within the MU Dividend Aristocrats Pie.

That’s because we know that these stocks:

[a] – all have 10-year consecutive records of maintaining or increasing their dividends, courtesy of being on the Dividend Aristocrats index;

[b] – all are ranked highly by Stockopedia for the overall average of their Value, Quality and Momentum; and

[c] – are all available on Trading 212, and hence anyone can trade these stocks without having to pay commissions.

See the video above for a full walkthrough of these stocks on Stockopedia.

Top Dividend Stock #1 – Janus Henderson Group

Being top of the list in terms of Stock Rank, the fact that this Dividend Aristocrat was excluded from the Trading 212 available range until only recently is, in our view, almost criminal.

It is the best rated stock from the Financials sector in a Pie where 5 of the top 9 entries are Financials. The sector, known for its value stocks, is making a big comeback after covid.

Janus Henderson is an independent global investment manager, focusing on the United States, Europe, Asia and Australia.

It scores amazingly in Stockopedia across all ranking areas. At a market cap the equivalent of just £4.6bn it has plenty of scope for growth. Its forward PE ratio looks very tempting at just 10.5, suggesting this US company is valued on the cheap side, both within the market as a whole and within the finance industry.

Its growth momentum over the last year gives it the feel of a growth stock, but it’s a strong dividend payer too with a forecast yield of 4.0%.

It qualifies for 4 Stockopedia Long Screens, which is impressive – more screens means more ways by which it is considered a good stock and likely to get the attention of other investors. That puts them in the top 350 stocks by screens of the 19,000+ US, UK and European stocks that we have access to with our Stockopedia memberships.

Its revenue and profits are forecast to grow, as are its dividend per share and dividend yield. And there’s a big sign of safety – negative debt. This means the company has more cash than debt, which means it has fantastic liquidity. After poring through their accounts we can also confirm that they have negative debt after excluding ring-fenced client cash.

Want a dividend aristocrat stock with growth potential, which ticks all the right boxes? Then look at Janus Henderson Group.

Top Dividend Stock #2 – Exxon Mobil

The pandemic took a hammer blow to the Oil industry, but the story of 2021 so far has been one of recovery. As the world opens up again, oil is once again going to be needed.

That said, investing in the old energy companies is still a contrarian position to take.

A play on Oil is a bet that the harsh economic reality of going green will come home to roost, and the switch away from fossil fuels will take longer than wished for by the global elite.

One good thing about investing in an old-fashioned energy company is that you’re not investing directly in a commodity like Oil.

Rather, you’re investing in a multinational operation stuffed full of cash, patents, and research scientists; and you can bet your bottom dollar they won’t be sitting around meekly waiting to become redundant.

They might be the companies who lead the market in the energy technologies of the future, like hydrogen and fusion.

Back to Exxon then, what’s so good about this stock in particular?

Despite being one of the worst effected industries by covid, Exxon maintained its dividend payments throughout the pandemic, despite fears that it would have to cut them.

Exxon didn’t make it into the Pie back in February because it was rated terribly at just 50 out of 100. Since then, it has shot up to a ranking of 88, meaning fears for this stock may have been misplaced.

If you’re looking for price growth potential, it’s still there in spades in the oil industry, and Exxon has a strong run of momentum in price growth since October 2020.

Revenue is forecast to return to strength in 2021 and 2022. It increased its debt throughout the pandemic, but only to 3x its 2018 profits – not yet a red flag issue.

With a yield touching 6%, this is a consistent dividend payer that’s cheap to own, and unloved as a stock due to the negative press around the industry.

If you feel you can ignore the peacock feathers of the clean energy industry and the showboating politicians, you might find you can get a few more years of value out of Exxon Mobil.

Top Dividend Stock #3 – Pfizer

If Exxon Mobil had a rough pandemic, Pfizer has found a lot to be cheerful about.

The Pfizer vaccine was the first on the scene at the end of 2020, and has led the way in the US, UK, Europe, and elsewhere in the world as the vaccine of choice.

Pfizer has so far managed to avoid controversies on the scale of those which have dogged AstraZeneca, and their brand and profile have been vastly improved by being perceived as heroes of the pandemic.

If you search Google Trends for the word “Pfizer”, you’ll see its journey from a non-entity to a household name since the end of 2020.

Pfizer are ranked very high in Stockopedia for Quality, reflecting their stability as an established pharmaceutical giant with a market cap the equivalent of £152bn.

Revenue and profits are forecast to be up massively in 2021 and 2022, obviously a result of its recent success with the vaccine. Its dividend per share and dividend yield are increasing and this is forecast to continue.

Sales have grown 44% in the last year, but that can be put down to the vaccine rollout. The real question is, will Pfizer’s success continue in the post-pandemic era?

We think it will. People will remember Pfizer’s role in this pandemic, and so long as the vaccines don’t cause long-term side effects, Pfizer’s brand should retain a permanent boost.

They are well placed to take advantage of a world that now cares a lot more about virus control.

What do you think of the stocks in the Money Unshackled Dividend Pie? Will you be investing? Join the conversation in the comments below.

Written by Ben

Featured image credit: jittawit21/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

10 Outdated Money Rules That Just Aren’t True

In todays’ post, we’re looking at 10 outdated money rules that just aren’t true anymore or in some cases never were. Forget this nonsense and instead live by the new money rules that apply today.

Money plays such a pivotal role in our lives that it’s essential to be playing the game of money properly. Some of the outdated rules mentioned here have not stood the test of time and others only lead you down the path of mediocrity.

If you’re living by any of these outdated rules you’ve probably picked them up from your parents and society, but are they living the life that you want for yourself? Let’s check it out…

Keeping your investment fees down is vitally important. Make sure you have the best investment platform for your circumstances. Don’t forget to check out the curated list of the best Stocks and Shares ISAs, along with free stocks and other discounts.

Alternatively Watch The YouTube Video > > >

#1 – Don’t Talk About Money

Financial losers don’t like talking about money, which means most people don’t like talking about money – making it a taboo. You can’t talk about money with your colleagues, with your friends, or even your loved ones. But this relationship and attitude with money keeps you broke.

Your employer may even actively discourage you from talking about salaries and bonuses with your co-workers. Why would they do that? They know knowledge is power and putting you in the dark about how little they’re paying you compared with others makes you less likely to kick up a stink and demand more readies.

Winners talk about money all the time with anyone and everyone that is willing. They love it! They talk about salaries, income, expenditure, tax, investments, pensions, stocks, property, gold, crypto, budgeting, business ideas, money making schemes, the economy, and everything in between.

The fact is, money flows from those who value it least to those who value it most, so the new rule is: Don’t stop talking about money!

#2 – Rent Is A Waste Of Money

This might be the rule that we hear most frequently. Young people often refuse to rent because – in their words – “rent is just throwing money away.” Of course, this is total nonsense, but we reckon the majority of people believe this.

Renting gives you somewhere to live, independence, flexibility to move at a whim and hence opportunity, and saves you the hassle (and costs) of buying and maintaining a property.

Long-term home ownership is likely to be better financially than renting. However, young(ish) people who are likely to want to move home every so often – due to say moving from a city to a more rural area, or the need for a bigger home due to becoming a family – are likely to be better off renting for a short time.

Moving costs like surveyors, solicitors, mortgage arrangement fees, and stamp duty, can make short-term home ownership a financial disaster. Most people aren’t aware of this because they’ve been saved by increasing house prices, which is not guaranteed to continue every year.

The new rule should be: Buying for a short timeframe is likely to be a waste of money.

#3 – Pay In Cash

Now, this rule has two meanings. The first is you should pay in cash because you’ll be able to knock the purchase price down, saving you money.

The second meaning is that physically paying in cash has a psychological effect on you. Those who pay by card statistically spend more money – probably because it’s so effortless. Actually digging into your wallet and handing over those crispy notes is more noticeable and more likely to be resisted.

Let’s first address point one. In some situations, cash might get you a cheaper price. If you’re selling your home a cash buyer is more attractive because there is no chain and risk of mortgage decline. However, in most other circumstances credit is better than cash. It used to be believed that a car salesman would prefer cash and be willing to mark the price down, but this isn’t true today. They make a good chunk of their money selling you the car on expensive credit.

On point two about the physical handing over of cash – there are more downsides than advantages. Card payments offer payment protection, an audit trail of transactions, make budgeting far easier, and is much safer – you’re less likely to be mugged for a useless card that will be blocked within the hour.

We think reckless spenders are skewing the figures. Those that live to an intentional budget – which we all should – are unlikely to spend more. In fact, we actively avoid places that don’t accept card, so not carrying cash saves us money.

The new rule should be: If you’re good with money – pay on credit card, if not – pay by debit card.

#4 – Don’t Pay Someone Else When You Can Do It Yourself

Poor people think they must do everything themselves. They mow the lawn, do the cleaning, do the ironing, cook meals, decorate their house, and some even install their own new kitchen and bathrooms.

Whereas if it doesn’t bring them joy, rich people pay someone else to do it. You might think this is because rich people can afford to pay and poor people can’t, but this isn’t true.

Doing everything yourself can only save you so much money – but saving the time that would have been spent on these boring, and in some cases difficult and high-skill chores, has potentially an unlimited upside. Rich people outsource all low value tasks, so they can work on higher valued income generating tasks.

You might be thinking that your spare time isn’t worth anything because you can’t bring in extra money during that time. This might be true now, but it will always be true unless you make the decision to start working on income generating tasks.

Not that long ago most people would have had very limited opportunities to bring home extra bacon outside of a day job. Thankfully, the internet has revolutionised how we can all make money. The world doesn’t sleep, so you can make money at anytime from anywhere.

From now on the rule should be: Outsource all low value tasks.

#5 – Overpay The Mortgage

This was probably a very good rule back in the day when interest rates were much higher.

Back in the 70s and 80s the Bank of England interest rates were in the double digits, so you can expect the rates by the mortgage lenders to be slightly higher. Even in the 90s and 00s they hovered around 6%.

Rates like this would have meant paying down the mortgage was a good idea because it would have been far more difficult to get a return greater than this elsewhere – at the very least it wouldn’t haven’t been worth the risk.

This is not the world we find ourselves in today – with interest rates being almost zero for a decade.

Unfortunately, there are influencers and self-proclaimed experts in the media still preaching this rubbish and telling everyone to pay down their mortgage as fast as possible. On YouTube, we’ve seen these misguided souls foolishly telling their audience that by overpaying their mortgage you can shave a few years off its life and save thousands in interest.

While that is true, this money has an opportunity cost. You would have been much better to have invested the overpayments instead.

With interest rates looking like they will remain low for a very long time the new rule is: Pay as little as you can on the mortgage and invest the surplus.

#6 – Buy Low, Sell High

Buy low, sell high could well be the most overused phrase in investing. If it’s not obvious it means buy investments when they’re cheap and sell when the price is higher.

The problem with this rule is that it’s notoriously difficult to do. So difficult in fact, that barely anyone on the planet can do it. Buying and selling incurs fees and taxes, and theory says that markets are mostly efficient, and so already factor in all known information into the prices.

Moreover, the long-term trend of the stock market is that it’s always climbing ever higher. Waiting for lower prices is likely to result in you sitting on the sidelines and missing out on years of stock market gains.

We analysed the S&P 500 going back to 1988 and we discovered some fascinating insights. See that post here.

One interesting nugget that we found was that in 99.3% of cases, an all-time high was followed by another in less than 6 months.

The rule should be: Buy whenever and hold forever.

#7 – Money Is There To Be Spent

People see money and they spend money. Consider any gameshow. The host always asks what the contestant will spend the money on if they win. Every time, without exception the answer is a holiday, new car, or a house extension.

We’ve never heard any contestant ever respond with “investing in income generating assets”

Likewise what people refer to as savings is really just ‘delayed spendings’. They call it saving but the reality is they are just putting money aside for an expensive infrequent purchase like Christmas or a new TV.

Money that is invested or saved for your long-term future gives you options, opportunities, and freedom.

A healthy pile of cash gives you the freedom to tell your boss to do one if you don’t like the way he talks to you, or perhaps you need the financial breathing space to start a business but can’t because you squandered that money on a new conservatory.

Some people argue that you don’t want to be the richest guy in the graveyard, but we’d counter this with it’s not a waste to die with some money if it provided liberty while you were alive.

The new rule should be: Money kept gives you options, opportunities, and freedom.

#8 – Investing Is Risky

We blame the terrible education system (including the financial regulators) on why this rule is so pervasive. People believe that investments are risky because they can lose money.

The reality is cash stored in a bank loses value. The figure you see – known as the nominal value – might be the same or even slightly more than what you deposited due to interest, but the real value has declined. This explains why your grandad could buy a house for under £10,000. The average person doesn’t understand this.

Real returns are calculated after inflation and is the only thing that matters. The formula is dead simple. Real return = nominal return – inflation. As the interest rate your bank pays is likely zero, and the target inflation rate is 2%, your bank savings fall in value in real terms by 2% every year.

Investing doesn’t guarantee real growth but at least it gives your money a fighting chance.

The new rule should be: Not investing is risky.

#9 – Buy The Most Expensive House You Can Afford

Another rule that is total nonsense and potentially very damaging. This is perhaps built on the belief that house prices always go up, so the mortgage leverage will make you rich.

Long-term we do think house prices will continue to rise but if you want exposure to property, it should be through a proper cash generating buy-to-let investment.

Owning the most expensive house you can afford will cripple your cashflow and limit the opportunities that you can seize as your mortgage payments will always be overbearing – you become a mortgage slave.

A buy-to-let investment on the other hand will get you same market exposure but you’ll also receive cashflow in the form of rent.

The new rule should be: Buy the house you need, and invest the rest.

#10 – Reduce Investment Risk As You Age By Buying Bonds

Bonds have their uses – such as being great at stabilising portfolio returns. Back in the day you could quite happily switch from stocks to bonds as you age to reduce investment risk without sacrificing too much return.

This strategy worked well because you were forced to buy an annuity with your pension pot, so you wouldn’t want the value of your investments to tank right before buying the annuity. An annuity is an insurance product that pays a guaranteed income until you die.

Today though you are no longer obliged to buy an annuity, which is handy because their rates are woeful in today’s low interest environment. The alternative is to leave your investments more heavily allocated to stocks.

This is necessary as the return on bonds is likely to be low, causing your retirement pot to run down to zero before you die and leaving you broke in old age.

The new rule should be: Maintain risk as your portfolio needs to out survive you.

What other money rules do you think are outdated? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Andrew Rybalko/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

Investors With Kids: What You Need To Do To Secure Their (& Your) Financial Futures

At some point during your financial journey, chances are you’ll end up having to factor in kids.

The media is full of scare stories with huge numbers about how much kids cost you during a lifetime, and it’s enough to make any investor think twice about saddling yourself with these little liabilities.

But these stories are more often than not just using silly assumptions to get you to click. And let’s face it, the decision to have kids comes down to so much more than just finances.

But once you have them, you need to change your approach to investing and financial freedom. Suddenly you’re now also responsible for someone else’s financial future.

You want to give them the best possible start in life, while balancing your OWN money goals. You need to make sure they’re provided for if the worst were to happen.

You want them to respect the value of money and investing, and to give them a little monetary head-start when they reach adulthood, so they aren’t tied to a desk for their whole adult lives.

We’ll show you how little changes now on your part can make a life-changing difference to your child by the time they hit 18-years-old. We’ll cover the investment vehicles to use for kids, and the other considerations you need to have in place.

You might even be trying to retire young yourself, in which case, we’ll show you how you can do this with kids without necessarily being tied to one location, and how much longer you might have to hustle before you can retire. Let’s check it out!

Alternatively Watch The YouTube Video > > >

Investing For Kids

If you’re into investing, it’s probably because you want to give yourself the best future. Well, when you have kids, you also want to give them the best future.

Which means you need to be investing for them too.

Arguably the best way to invest for a child is to use a Junior Stocks & Shares ISA.

You have to invest in assets like stock market funds instead of say using a Cash ISA, as holding cash long-term is like burning money – left over 18 years it would massively devalue against inflation.

The simplest Junior Stocks & Shares ISA we’ve come across for those who don’t know how to invest or don’t want to do it themselves is with Nutmeg. It’s no more complicated than opening an account and setting up a monthly direct debit, and checking back in 18 years’ time.

Check them out on the Best Investment Platforms page – if you do open an account with them using our offer link, you’ll pay no management fees on the account for the first 6 months.

Unless you have your young uns’ out cleaning chimneys to earn their keep, you’re going to have to cut back on your own monthly regular investments to give them a slice.

Do you want to give your kid £100,000 on their 18th birthday? Invest £300 a month with compounding for 18 years. What about £200k on their 30th birthday? Invest £250 a month with compounding for 30 years.

I don’t know about you, but I could have really done with an extra £200k on my 30th birthday!

The MOST you can invest for your child in a Junior Stocks & Shares ISA is £9,000 a year for the tax year 2021/2022, which is £750 a month if you want to make it a regular investment. £750 invested with compounding over 18 years is £266,000. Over 30 years it becomes £628,000.

These are big numbers, making for big life opportunities. All these figures factor in inflation and are given at today’s value of money.

2nd Generation FIRE

Imagine having the investing knowledge and the skills you have now, but being 18 again, and also having a large starter pot built up since your birth by your parents.

You might have a 10-year path to guaranteed freedom ahead of you. You could be financially free before your 30th birthday!

This is entirely possible for your child and is called 2nd Generation FIRE. FIRE is the goal of being Financially Independent and Retiring Early.

Many of our viewers are pursuing this path for themselves, but how much easier would it have been if you’d been raised to be an investor?

FIREing If You Have Kids

Is your investment endgame goal to be able to retire earlier than what’s considered “normal”?

If so, you probably have a figure in mind for how much money you’d need to have built up in your portfolio before you can sack off the day job. If you haven’t calculated this yet, do so now using the early retirement calculator that we’ve built for this very purpose.

The problem raised by inserting kids into the equation is that your “expenses” boxes are very likely to now be higher, which has a ripple effect both on your required pot size to be financially free, and also on the number of years it will take to reach it (because you are saving at a slower rate). But how much do children really cost?

Ridiculous sensationalist numbers fly around the media every so often like in this article from the Guardian, which claims kids cost their parents over £230,000 each.

How could anyone with 2 or more of these little money leeches ever afford to retire?

The True Cost Of Children

Well, the truth is that kids don’t need to cost anywhere near £230,000. For a start, there are economies of scale which mean that having two or more kids can cost much the same as having just the one, at least until they hit their teens.

If one of the parents has left work to look after the kids, that’s one lost salary regardless of how many kids you have.

For the first several years, hand-me-downs mean you only have to buy clothes, toys and equipment for the first child. And food doesn’t have to cost too much, especially relative to the other costs.

So if we could trim that cost down from the reported £230,000 per kid to more like £230,000 for all of them, would that be a more realistic figure?

Well, no. You could spend that much, but there’s no real need. Let’s look at some of the costs.

Tax-Free Childcare

The nursery my daughter goes to costs £800 a month for full time care after childcare tax credits, and is needed from age 1 for the next 3 years – before age 1, maternity/paternity leave removes the need for childcare.

If you or your partner have a low salary, you might quit the day job to look after your child yourself instead until they go to school at age 4.

If both parents are in work, even part time, you will be given money towards the cost of nursery for pre-school children. If there’s only one parent living with the child, only they have to be in work. Other rules apply, but most people will qualify for this unless one of you earns over £100,000.

For every £8 you spend on childcare, the government spends £2. It means childcare that would cost £1,000 a month in reality costs you £800.

The Other Costs

Then there’s food, and you can spend as much as you want on food – if you want to be frugal, it’s possible to be frugal. You could probably get away with £40 a week.

I get all clothes, equipment, furniture and most of our toys from hand-me-downs or family friends, or you could use Facebook Marketplace or Freecycle instead. And again, holidays cost as much as you want to spend.

Your gas, electric and water bills will go up by maybe £20 a month – mostly independent of how many kids you have. They share the same central heating, and in the early years, the same bath.

Kids don't HAVE to cost the Earth...

Here’s what 1 or 2 kid might cost you if you’re careful, if you make the choice to live outside of the expensive hubs like London which have excruciating early-years childcare costs, and if you’re sacrificing a low salary and making economies of scale. If your family’s number for FIRE is £1m, an extra £150k isn’t going to set you back by that many years.

Maybe you think these numbers are being overly optimistic, but remember that many people do manage to raise well-rounded kids while on minimum wage salaries. The point is, kids don’t inherently have to cost the earth – a lot of it is personal choice – and you have a lot more control over the costs than the newspapers would have you believe.

For the record, neither of us have the intention of raising kids on the bare bones, but there is definitely some sort of balance that can be achieved.

And as for FIREing while your kids are still under 18 – don’t forget that for 8 hours a day they are safely imprisoned in school, meaning you can still get on with enjoying your hard-earned freedom!

World Schooling

Here’s a wild idea for those wanting to retire early with kids – World Schooling.

It’s basically home-schooling or digital remote schooling done while you’re travelling the world as a family, often with other families doing the same thing so the kids have a peer group.

It’s an answer to the problem of being tied to one location so your child can go to school, when all you want to do is see the world now that you’re retired.

We won’t go into it any more here, but just be aware that an international network of travelling home-schoolers exists, and that you can find out more about it starting with this World Schooling article.

Teach Them What School Won’t

Wherever your kids go to school, you will have to personally take a firm grip on their education around money. Financial education is appalling in this country – let’s be fair – in all countries.

Around the world, kids are pushed towards entering the workforce as young adults, to trade time for money from the day they leave education until the day they slump down defeated into their armchair in old age.

It needn’t be this way for your kids. But they won’t learn in school how to manage money and how to become a successful investor, so you’re going to have to teach them yourself.

If you are building them an investment portfolio, why not show them what you’re doing and get them involved?

Let them apply what you teach them about money to their early spending and earning decisions, rather than leaving them to discover the idea the hard way after a decade or more of miserable 9-to-5 graft and a string of avoidable financial mistakes.

Insurance

There are 2 stages in your life as an investor that should be approached entirely differently when it comes to insuring your family’s future.

The first phase is during the accumulation years of your investment portfolio, when it’s not yet big enough for you and your family to draw-down on, should the need arise.

It might be sensible during these years to take out income protection insurance to keep money coming in each month if you lose your capacity to do your job.

You might also consider life insurance to cover you in case of death, and health insurance to cover you if you become incapacitated.

The second phase comes during the draw-down years of your investing career, when you probably no longer need any of these insurances.

If your pot is large enough, you can afford to self-insure against mishaps, meaning your investments will be providing your family an income in perpetuity, regardless of any further input from you.

Check out the Lifestyle Insurance page for more information on the relevant insurances that you might want to consider with Assured Futures. This is the very insurance broker that Andy uses for his income protection insurance.

Wills

Finally (in a very real sense of the word), you need to write a will. An investor’s financial situation is likely to be far more complicated than a normal person’s.

Where normies might keep their wealth in a high street savings account, YOURS might be spread across pensions, multiple properties, stocks, gold, artwork, and so on.

Take the time to properly document where all of your assets are, how they can be accessed by the appropriate people, and how they should be divided up.

For your kids, and hopefully one day your grandkids and great grandkids, the decisions you make here might help change the course of their own financial futures for the better.

For those of you with children or planning to one day, how do you invest and manage your finances? Join the conversation in the comments below.

Written by Ben

 

Featured image credit: Sharomka/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

UK Retirees At Risk Of Running Pension Pots Dry

We spend a lot of time looking at ways to become financially free and retire early should we wish. We regularly look at ways to slash unnecessary spending, boost income, invest better, reduce taxes, implement early retirement strategies and more.

And today we’re looking at an in-depth review of the current batch of retirees to see if we can learn anything that will help our own finances and retirement preparations.

Standard Life Aberdeen, an investment company, have surveyed 2,000 UK adults who were either due to retire in the next 12 months, or had retired in the past 12 months.

The report they’ve published is a treasure trove of information looking into the minds and finances of those retiring. In this video we’re going to share with you all the key points, so we can learn from those who’ve done it. Let’s check it out…

And don’t forget: we have hundreds of pounds worth of offers, like free stocks with Trading 212 and Freetrade, plus many more, up for grabs on the Offers Page.

Alternatively Watch The YouTube Video > > >

Redefining Retirement

Only a few a years ago, before 2011, employers used to be able to force workers to retire at 65 (known as the Default Retirement Age). A few years later saw the most radical changes to private pensions for a generation, as everyone was given more choice in how they take their private pensions – previously they were almost always forced to buy an annuity.

These, plus many other factors have contributed to the changes to what it means to be retired.

We’d say there used to be a perception that retirees were sitting around and waiting to die – let’s not forget that it wasn’t that long ago when they were frequently called old age pensioners, which isn’t the most flattering of terms.

According to the Standard Life Aberdeen report, there is a noticeably growing trend towards flexible retirement and continuing to work in SOME capacity.

56% of the 2021 retirees don’t plan to give up work altogether, and 27% will work part time to support themselves. It’s not clear whether they are doing this out of necessity, but we suspect that many want to work a little.

We’ve long said that work is not the problem. It’s the number of hours of forced labour that you have to endure every week that’s the issue. It leaves no spare time to relax and enjoy yourself, but working on your own terms is a very different story.

If we apply this logic to our own early retirement plans, then maybe we don’t need to build such a large freedom fund after all. Maybe we should be looking to partial FIRE instead. FIRE stands for Financial Independence Retire Early.

Back to the report, 6% of the retirees want to set up their own business and 45% are looking forward to learning new skills. We can totally relate to this having ourselves always wanted to start a business, and the fact that these retirees now have more time and far less financial risk should they fail, means they can finally do what they always wanted.

What Does It Mean To Retire In 2021?

The average age of the retirees in the survey was 60. Three quarters were married or in a relationship, and the rest were not.

The average value of their pension pots is £366,000, which in our opinion seems a very good haul considering most people are very lax when it comes to retirement planning. Worryingly though, a third have less than £100,000, which has no chance of lasting for any meaningful amount of time.

On average, the retirees plan to spend £21,000 per year in retirement, so £100,000 for sure wouldn’t go far. £21,000 is almost £10,000 less than the average UK household income. Presumably as the average age is 60 most of them will own their home outright, so don’t have the largest household monthly expense to worry about.

So, what does it mean to retire?  The quintessential meaning is “spending time doing what I want”. That sounds like freedom to us and that is also exactly how we describe it.

44% see retirement as giving up work completely and 30% see retirement as never setting an alarm again – now that sounds good. And 19% plan to do charity work or volunteering.

We think it’s fair to say that retirement is about living life on your terms. No more doing soul-destroying work for a boss and job you hate, no more commuting in darkness bumper to bumper, and no more losing friends and relationships due to lack of time.

Will Their Pension Be Enough?

Ok, so far, we’ve mostly looked at the positive side of retiring but is all that affordable?

We’ve seen that the average planned spending is £21,000 a year, and according to Standard Life Aberdeen retirees would need around £390,000 in savings to retire at 60 on top of their future State Pension income, to cover their expenses over the course of a 30-year retirement.

Presumably that’s based on holding most of their investments in low risk, low return assets such as bonds and on running the pot down to zero, which differs from what we need in the FIRE community who might need our pots to last 50 years or more.

So, they need £390,000 but the average as we’ve seen was just £366,000, meaning some of them are in serious trouble. We can’t imagine what it might feel like to be 80 and broke.

The report says, two thirds of the retirees risk running out of money in retirement based on the average spend of £21k a year. It was a similar dire story no matter where they live in the UK.

We hate to say this as ambassadors of financial freedom but some of them – like the ones with only a hundred grand – should probably struggle on working a few more years. Every extra year worked is more time contributing to your retirement fund, more time for it to grow, and less time withdrawing from it. This might be easier said than done as things always seem to get harder when success is in touching distance.

For the rest of them, and assuming they’re invested in lacklustre assets, they just need to accept more investment risk to reduce the chances of them outlasting their money.

These are the estimates of what someone today might need at different levels of retirement as quoted in the report:

The minimum looks to be impossible, and we wouldn’t wish this on our worst enemy. How anyone can live off £850 a month in the UK is a mystery to us.

What’s being considered a moderate retirement is £20,200 a year for a single person. We might just about agree with this, but it really depends on whether the retiree owns their home.

The current state pension is just over £9,000 a year, so goes part of the way to covering their essential bills but that still leaves a lot that needs to be covered by their own savings. Disturbingly, 1 in 20 plan to rely the state pension alone.

Do They Feel Financially Confident?

37% are worried about not having enough money to last throughout retirement. And we think they’re right to worry.

As we’ve seen, most of them have not collected enough nuts for winter. Most of you reading this post still have potentially decades to correct this. Personally, worrying about money is one thing that we don’t want eating away at us, so we’ll certainly be aiming to overprepare.

48% plan to reduce their spending habits to support themselves in retirement. We don’t think this is as easy as they might think it is. Free time is often spent, literally. While you’re at work you probably aren’t spending much money, but when your diaries clear you will likely be out spending more – a lot more.

27% will work part time to support themselves in retirement and 21% plan to sell their property or downsize to fund retirement. We think downsizing is a great way of freeing up some money if needed. As the kids will have hopefully flown the nest, you don’t need to have all that capital tied up in a 5-bed castle if there’s just 2 of you.

Sources Of Income

The report only briefly covers this, so we don’t get that much insight. Almost one in five retirees say they plan to rely on one form of income. Not surprisingly pension pots are without a doubt the most popular option. We put this down to a few reasons:

  1. The government push pensions as the main retirement vehicle. This is truer today than it’s ever been with policies like auto-enrolment.
  2. Most people have a lack of financial discipline, so any money available in accessible accounts such as ISAs or savings accounts is probably spent on cars, holidays and house extensions long before retirement approaches.
  3. Most people never consider establishing multiple sources of income. Throughout their lives they’ve only ever had one – usually from a job, and so having one in retirement is normal to them.

If you watch our YouTube channel or read these blog posts regularly, you’ll know we always encourage having multiple streams of income.

How To Know If You’re Financially Ready?

The report gives some good advice about how to calculate when you’re ready to retire and it’s essentially the same as what we say here at Money Unshackled. Although, one major exception is everything they say is geared towards the retiree getting financial advice. Whereas we think most people are fully capable of running their own finances if they are prepared to do some research.

The 3 steps are:

  1. Estimate your annual cost of living. Take what you spend now and make some adjustments for the things you will no longer have – goodbye expensive slave unforms and commuting costs, and hello new costs like world cruises, or maybe more likely care costs.
  2. Calculate how much you have. Check all your pensions, ISAs, savings, and insurance products, and don’t forget to check what state pension you’re entitled to. You might even have the potential for an inheritance.
  3. Plan your estimated income. Here they encourage you to check out online calculators or speak to an advisor. If you’re hoping to retire young as WE do, we suggest you read up on the 4% safe withdrawal rate, which we’ve covered on our website and YouTube channel numerous times before.

What Are They Most Excited About?

The 3 things they’re looking forward to most are all forms of freedom:

  1. The freedom to have their own schedule.
  2. Simply not having to work.
  3. Spending more time with their family and friends.

Who Gets Retirement Advice?

Before we read the figures from the report our perception was that most people feel overwhelmed with investing and managing their personal finances, so when it comes to a big life event like retirement, they think a financial advisor can do it better.

The report found that 40% of soon-to-be retirees have already sought financial advice and 16% say it’s on their to-do list. Only 44% don’t intend to get advice at all.

Before the internet, learning about investing or anything for that matter was much harder, so professional advice was probably a good idea. Nowadays, you could spend a little of your time and learn everything you need to know and probably do it better yourself.

55% of the retirees research their options online, 30% ask friends and family for advice, and 23% get support and information from their employer. Just be careful getting advice from friends and family. It might be the blind leading the blind.

Words of Wisdom

And finally, is there anything we can learn from last year’s retirees? Their words of wisdom include:

  • “Theres a whole new happier world out there.” – we knew this all along.
  • “Factor in a little bit more [money] for the unexpected items” – sound advice for retirement and through life.
  • “Have a plan B” – again, invaluable advice. That’s why we aim for multiple streams of income.
  • “Have projects to keep you busy” – this one really is important. Make sure you have a plan as boredom really is a killer.

What are your retirement plans? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Timofey Zadvornov/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

How To Get £1000 Cash Fast – 10 Ideas

So you need an extra £1,000, and you need it quickly. How can you do that? In this article we’re brainstorming 10 ideas to get your hands on £1,000 as fast as possible.

We’ll cover a bunch of legitimate ways for you to earn that money swiftly – often from the comfort of your own home – plus the smartest ways to borrow a grand without screwing up your finances. Let’s check it out!

Alternatively Watch The YouTube Video > > >

#1 – Cashback Offers

The internet is littered with cashback offers, and we’ve collected a whole bunch of them into one place on the Money Unshackled Offers Page.

This page has hundreds of pounds of cash bonuses, mostly for opening investment accounts, or switching energy or home insurance provider.

You can also get cashback offers by switching your bank account, the best current deals being on moneysavingexpert.com.

At time of filming, HSBC were giving away £125 cash plus a £20 Uber Eats voucher just for switching, and First Direct £100 cash – why not take advantage of both over a couple of months?

After exhausting these, you can take a deep dive into topcashback.co.uk, where you get cash back from purchases when you shop online. Obviously, this should only be used to get paid a little back for things you were going to be buying anyway.

#2 – Matched Betting

Matched Betting is risk-free, unless you don’t follow the instructions correctly, and these can be found in our guides here.

You use the bookies’ websites against them to milk them of their cashback bonuses by placing bets on both possible outcomes of a sporting event. That’s why we say it’s risk free – you can’t lose!

But you can make a lot of money – when I tried it I was able to make £500 a month in the first 2 months by spending just over half an hour a day placing bets.

If I had doubled up my efforts I have no doubt that I could have made £1,000 in the first month.

Indeed, that’s exactly what lots of people do. Matched betting is an easy way to make extra income each month in your spare time, and a fast way to earn £1,000. And if you now work from home, there’s nothing stopping you doing this on your boss’s time!

To do it properly you need to sign up to a matched betting site, like OddsMonkey or Profit Accumulator.

We have introductory offers for the top matched betting, including 60% off the first month or the first 12 days for just £1 (normal cost £19.99 a month), which more than pays for itself if you do the maths.

For more information about how you too can profit, check out our full video guide here.

#3 – Credit Cards

These next two ideas discuss ways to get your hands on £1,000 or more quickly, but by borrowing it over a long, low interest repayment period, rather than earning it.

As such, they should be approached with proper respect and financial literacy. Debt is like fire – if you don’t know what you’re doing you’ll get burned, but if you can use it effectively it will both cook you a steak and run you a hot bath.

Not all credit card debt is created equal.

The way we’ve successfully got money out of credit cards in the past is to use either 0% Money Transfer Credit Cards, or 0% Purchase Credit Cards. Both typically have long interest-free repayment periods of 20 to 36 months.

A Money Transfer Credit Card is good for accessing money immediately, as they literally transfer thousands of pounds into your bank account.

It’s like a 0% loan, but there is a small fee to do the transfer which gets added to the debt.

I have held a balance as high as £15k on this type of card at one point, as I used the cheap borrowing to help me to buy rental properties with.

A Purchase Credit Card might have a similarly long interest-free repayment term. But the way you get cash from it is you use it to buy your everyday outgoings – things like your food shop and petrol – and pocket the cash you would have spent.

In both cases, you need a plan for how you will pay back the balance before the end of the interest-free period.

Putting a few grand in your pocket at a key financial crossroad in your life might make all the difference to your future. It’s a balance of risk you have to weigh up for yourself.

#4 – Cut Back Without Cutting Out

One obvious way to get £1,000 fast is by selling some of your stuff. This is aften a non-starter for most people as they don’t want to sell any of their trinkets, and in any case, they need their Louis Vuitton clutch purse with Damier Ebène canvas and natural cowhide trim.

But we’re not suggesting that you go without – but think about the cash you could claw back quickly by switching out your existing stuff like-for-like with less expensive alternatives.

One easily tapped area is cars. Can you trade in your 3-year-old BMW for a 3-year-old Mazda? You might make several grand on the transaction.

Can you sell your iPhone 20 Pro Max on the second-hand market, and buy a second-hand Samsung Galaxy S9? You could be up several hundred quid.

Also, go through your house and single out things which no longer give you joy, and whack them on Facebook Marketplace. Do you need 3 sofas? Is that £500 of home gym equipment still doing it for you?

#5 – Trading Stocks

Next up is stock picking, and the tool we use for this is Stockopedia. While long-term investing seeks steady long-term returns of around 8-10%, stock picking CAN result in 100%, 1000%, or even higher returns.

Stockopedia works by first serving you up a series of stock suggestions based on specific criteria – such as growth, dividends, mirroring an investing guru’s methodology, and more – and then tells you pretty much everything you need to know about a stock’s financials all on one page.

Stocks are ranked by Value, Momentum and Quality out of 100, and you can easily find stocks that excel in all areas.

While highly ranked individual stocks are by no means guaranteed to be winners, historical rankings have had a high correlation overall with whether stocks performed well or did badly.

Try Stockopedia for free for 14 days using this link, and see what you think. The link gets you a 25% discount too, if you stick around for more!

#6 – Crypto Mining

Now here’s a way of taking advantage of the crypto craze without feeling the need to buy speculative investments. All you need is some graphics cards, a computer, and an internet connection, and you can set your computer to mine cryptocurrencies while you go off and do something more fun,

Mining crypto can pay hundreds or even thousands of pounds a month, and scales with the number of graphics cards you own.

You might already have the equipment if you have a gaming or video editing machine. With just one graphics card you might make a couple of hundred quid a month. Add this on to some of the other ideas in this article and you’re on your way to 1 grand. Invest in several more graphics cards and you’re already there.

For a more in depth look into crypto mining – check out this article next on the 3 Big-Money Side Hustles To Start In 2021.

#7 – Use Your Assets

Do you own a driveway? Rent it out for someone to park on. Do you own a car? Get paid up to £100 a month for placing an advert on your car at carquids.com.

Do you own your home, whether outright or with a mortgage? Then rent out a room or two to lodgers, for hundreds of pounds a month each.

I once rented out a room in my home for £400 a month over an 18-month period, netting me over £7,000 tax free.

An asset doesn’t have to be physical, or even something that costs money. Do you have a risqué story to tell, that a magazine or newspaper might pay good money for?

Gossip magazines love this rubbish. According to frontpagestory.co.uk, you can get £10,000 or more for a good bit of goss.

Similarly, if you’ve caught a unique video or photo on your phone, someone in the media might want to buy that too – preferably of a politician eating a sandwich in an unusual manner (sorry, Ed!).

#8 – Online Jobs

Next up are a whole bunch of ways you can make money online from your sofa, while reruns of 90s sitcoms play away in the background.

Anything you can do online that trades your time for money is really a second job, but there’s nothing stopping you having several online “second jobs” at the same time, and anyone can qualify for them.

PeoplePerHour is a popular site which matches paid project work with people who want to do the job. Here’s some current trending examples of work on offer.

Do you have a skill that you can use in the evenings and weekends to bring home some extra cash from doing online project work? This might range from being able to type to being able to code. The rarer your skillset, the bigger the bucks.

Then there are sites like usertesting.com, who pay you to test websites and apps.

You might also try your hand at designing stuff for sale on Etsy or teespring.com – stuff like this sweet MoneyUnshackled Wage Slave mug. Of course, people would actually have to want to buy your products for you to make any serious money fast…

Finally, you can make fast money from online surveys and market research video calls. Someone we know who does this in their evenings in front of the telly made over £1,600 over the last 12 months, split out like this. The pay-out rate varies wildly, with household name YouGov amongst the stingiest.

12 months of actual returns from various Survey sites

#9 – Physical Side Hustles

And then, there are real world physical side hustles that almost anyone can sign up to and start making decent money fast in their spare time.

These include gig economy jobs like Deliveroo and Uber that you can do in your own time, product testing where you get sent stuff in the post to report back on, being a mystery shopper, and cat sitting.

#10 – Medical Trials

People are also paid good money to take part in medical trials – a quick google cites numbers of £100 a day to £4,200 per trial.

Medical trials don’t normally get to the testing on humans phase until they’ve been thoroughly laboratory tested in all other regards, and can range from initial human testing through to a box ticking exercise before a new product goes to market.

The medical testing companies all cite ensuring your safety as their main concern of course, but that’s a judgement call for you to make.

What other ways are there to make £1,000 fast? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: Inked Pixels/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday: