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Problems with Day Trading | Short Term vs Long Term Investing

The stock market is one sexy playing field right now – not only are markets down to historically cheap prices for buying, but volatility is through the roof. The markets are all over the place!

Good news sees a tick upwards, bad news sees a tick downwards. The draw towards day trading in such times is strong – check out what happens if the stock market moves up and down by 2% over a 10 days period. If you always bought at the bottom of down day preceding an up day, you’d make 5 lots of 2% – 10%! In 10 days!

That would be a good return for a whole year for a long-term investor, and you could do it in 10 days by day trading. Keep that up for a whole year and you’d return 3700% with compounding. £1,000 would become £37,000.

So why isn’t everyone doing this? Well, it’s not as easy as you might think to get it right…

Editor’s note: Start investing with a freebie – investment app Freetrade are giving a randomly chosen free share to each new customer who opens an account using the link on the Offers page – it could be worth up to £200, and all you have to do is open an account and top up by £1 – what are you waiting for?

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Why Day-Trading?

Short-term investing has the potential to be highly rewarding; it’s more exciting and hands-on, and the potential for high, fast returns just may attract some investors. Who doesn’t like fast, easy money?

So why isn’t everyone chilling on their private yacht in Miami having played around with day trading for a few weeks? Well, market timing is very difficult to do.

You have to be right twice — once when you buy the stock, and again when you sell it.

Day trading does have the chance to make you very rich, and we’ll get to the best way to go about doing that – but let’s first briefly cover the problems with it.

What Stops You Winning at Day Trading

Day traders are focussed on return, not risk. But day trading is riddled with risk.

The risks involved mean that for most people, on a risk/reward ratio it is likely to be less rewarding than long-term investing into a decent global portfolio.

There are 2 major problems for Day Traders:

#1 – Trading Fees

The traditional stumbling block for a day trading strategy is trading fees. At around £10 per buy and £10 per sell, trading fees on the premium platforms such as Interactive Investor and Hargreaves Lansdown make day trading almost pointless for all but the richest of investors.

Even if you use CFD’s or spread betting to trade these are riddled with all manner of fees.

The free trading platforms such as Freetrade do not have this problem. There are no trading fees, but even on these platforms, you still have to contend with stamp duty, and the Bid/Offer Spread.

All stock trading platforms have 2 prices: a buy price, and a sell price.

The difference is called the Spread, and this is the amount of money you would lose if you bought a share and immediately sold it.

High Street retailer M&S has a fairly tight spread of 0.15%, while smaller companies on the UK AIM index can have much chunkier spreads like the 6.25% of City Pub Group. It’s the kind of cost that stacks up if you trade frequently, but which long term investors might barely notice.

#2 – Timing the Market

Let’s imagine a day trader who sunk his fortune into shares in the FSTE 100 on 26th February 2020, after markets crashed massively from around 7,500 in the days prior to 7,042. This would be a reasonable action from a Day Trading perspective.

But day traders can no more see the future than the rest of us, and could have no idea that the months following this day would see the markets drop off a cliff:

This day trader would have gotten half of his equation right at least – he did buy low, relative to recent highs.

But unfortunately, you have to get the “sell high” part right as well.

If You Insist on Day Trading – How to Lower Your Risk

How we would approach Day Trading is the same way we’d approach poker – we’d never put more than a twentieth of our total pot into any one transaction. Definitely don’t draw on all of your savings to Day Trade. Only trade what you can afford to lose.

The “risk” to a day trader is that the market doesn’t go up further than the price you paid for it for a long time, effectively becoming a long-term investment. We like to invest for the long term, but the kind of volatile stock you might pick as a day trader is probably not something you’d pick as your first choice for a long-term investment.

So; you could pick a stock that you think is volatile enough to rise quickly in the short term – buy it when it is lower than in previous days – and put in no more than a twentieth of your pot. If you’re right, a quick win is made. If you’re wrong, you have to decide whether to hold it for the long term, or to sell at a loss.

And selling at a loss is an emotional hurdle to overcome. You may end up selling your winners straight away but holding duds for a long time. By dividing your total pot into at least 20 parts, you could spread your risk over at least 20 trades.

Day Trade Using ETFs

The biggest risk with shares is that they can go all the way to zero, and this is particularly so for traders who are looking to make a quick win from a falling share price they think might recover.

Maybe there’s a reason the price has fallen. Maybe what you’re buying is a company on its way to going bust.

When we look to make profits on a falling market, we buy ETFs. These are diversified across many companies, so the risk of it going to zero are slim-to-none. And we hope to make our profit when they revert back to their intrinsic value.

Maybe if a meteorite hit the earth wiping out all those companies at once. But then we’d have other things to worry about.

Long-Term Investing Advantages

We like to model our shares investing strategy on that of Warren Buffet, legendary long-term investor.

He returned around 20% per annum over his investment career.

There are 3 key advantages to investing for the long term over day trading. These are:

#1 – Passivity

Being a Day Trader is a career. You need to constantly hooked into The Matrix, aware of price movements happening in real-time and poised over your keyboard ready to take advantage of multiple micro-gains to make your profits worth the effort.

We can’t be bothered with all that. We’d rather be sat chilling at letting our well-balanced global investment portfolios do the work for us. And we can do this happily because of point #2.

#2 – Long-Term Does Better on Average

Long-term investing weighs risk against return, and does better on both counts.

Risk is reduced if you drip your money evenly and at regular intervals into the market, as the highs are offset against the lows and you invest at an average price.

In a famous study of individual investors’ behaviour, Berkeley University professors Barber and Odean found that the most active traders realized the lowest returns.

Their 2017 study found that 80% of active traders lost money and only 1% of them could be called predictably profitable – maybe some of our viewers fall into this 1%? If so, let us know!

Whereas long-term investors should average the returns of the global stock market, which has always gone up over the long term – and up big.

#3 – Dividends

Dividends are what turn a long-term investment portfolio into a passive-income generating machine, and are a key reason why long-term investing beats day trading.

No matter the swings in stock prices, dividends across your portfolio will likely continue to get paid.

Investing during a recession gets you the best of both worlds. You’re buying when the market is down, locking in a cheap price, and can hold on to your asset for the long-term, reaping sweet dividends as you do so!

Do you trade frequently, or hold for the long term? Let us know your success stories in the comments below!

Stock Market

Are Your Investments Protected If The Investment Platform Fails?

If we forget the performance of our investments for just one moment, and instead let’s look at how safe your stock market investments are, should the investment platform or fund fail.

The first question we need to ask is are our investments protected at all if the investment platform fails?

There no point making an absolute killing on your investment if you would lose the lot should the investment platform go bust.

Many of you reading will either have or will have massive investments pots. If you’re anything like us and hoping to achieve financial freedom, then you will be building up an enormous investment pot that will generate you an income while you enjoy life – the way life is meant to be! You’ll never enjoy it fully if you are always worried about losing it.

You might not have put much thought into how safe your investments are because you may have assumed that the UK government wouldn’t abandon you if the investment platform did go bust. Surely, they wouldn’t?

Or perhaps you know that your investment pot is below the FSCS limit and therefore you think you’re safe. Well… it’s not that simple!

We’re not financial advisors – just investors! – but we did carry out a lot of research to corroborate all of the points in this video. It would be worthwhile doing your own due diligence before applying this info to your own portfolio, but everything we do say is believed to be accurate at the time of writing.

This article is about protection for stock market investment platforms – Peer to Peer Lending is not covered by these rules.

Editor’s note: Investment platforms are giving away free stuff! Open a new investment account on any of the many platforms listed on the Offers page, and scoop up freebies including cash back of up to £100, free stocks worth up to £200, or management fees cancelled on your portfolio!

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Financial Service Compensation Scheme (FSCS)

The FSCS is the protection scheme that will likely save your bacon should your investment platform or fund go bust. It’s essentially a completely free insurance policy as it’s funded by the financial service industry.

Actually, its not really free because it’s funded by levies on authorised firms and they will of course pass those costs on to their customers via their fees. So, you indirectly pay for this protection.

Taken straight from the FSCS website, the FSCS exists to protect customers of financial services firms that have failed. If the company you’ve been dealing with has failed and can’t pay claims against it, they can step in to pay compensation.

In 2008 they recovered £20 billion, so based on that history we can consider it to be reliable protection.

The First Thing You Need To Do

Before making any investment, you need to check that your investment provider or adviser is authorised by the Prudential Regulation Authority or the Financial Conduct Authority to carry out the type of regulated activity that FSCS can protect.

How Do You Check?

If you’re going with a well-known company like Interactive Investor you can just assume it is, but to check it’s very straight forward and it’s better to be safe than sorry. Every company that is regulated will say it somewhere on their site but obviously don’t trust that because any company that is hoping to defraud you would pretend to be.

To check properly yourself you need to find their FCA’s reference number. If we use Interactive Investor as an example, they publish their FCA number on their Disclosures page – a page only people as sad as us would care to visit.

Take that number and bang it into the FCA’s site to check yourself, and boom! – there you have it. This is a firm that has been given permission to provide regulated products and services.

Companies like Freetrade tend to be very transparent about their authorised status and protection. Freetrade have a dedicated page detailing this and even link straight to the FCA’s page:

How Much is Protected by the FSCS?

Your investments are protected up to £85,000 per eligible person, per firm. This seems like a paltry amount, but this protection works alongside other protections, so in practice the protection is much higher.

According to an article from MoneyWeek magazine, their conclusion was that if your investment account is worth twice the FSCS limit, losses would be very unlikely. And even if it was ten times the limit, the risks are probably still low. Let’s now look at why this is the case.

Client Money and Asset Rules

Investment platforms are required to separate client money and assets from their own resources.

This is a crucial piece of protection because they are not permitted to use client money and assets in operating their own business.

Your investments (including any uninvested cash) are ring-fenced and in event that the platform became insolvent – they would be unable to touch your investments or money. However, if the platform did become insolvent the appointed Administrator is entitled to claim their costs for distributing client money and assets from the client money pool.

We wouldn’t worry too much about this though as any money you lose as a result of this would be covered by the FSCS up to a limit of £85,000 per client.

From what we have seen from past broker failures (Beaufort Securities, Pritchard Stockbrokers, Fyshe Horton Finney, SVS Securities), the FSCS protection on top of pooled client money has been adequate compensation for almost all clients.

What About Funds and ETFs?

This subject has the potential to cause confusion, but we’ll summarise in simple terms. Most ETFs are not domiciled in the UK and tend to be in Ireland for tax purposes, but this throws a spanner in the works.

Many popular ETFs on the London Stock Exchange (such as the Vanguard FTSE 100 ETF VUKE) will be authorised in Ireland.

So, what does this mean? Firstly, it means that your collective investments domiciled outside of the UK are NOT protected by the UK protection scheme.

We did lots of research here to try and determine whether the Irish equivalent protection scheme covered Irish domiciled ETFs but could not find anything conclusive – with various sources contradicting each other.

From what we found it seems that Irish ETFs are NOT protected by the Irish equivalent of FSCS.

The saving grace is the ring fencing rules and if we quote some Vanguard documentation:

“In practice, for all UK and EU authorised funds, the underlying investments must be held separately from the fund manager by an independent trustee or depositary. With both Ireland and UK authorised funds, in the event that a fund provider defaults, the underlying investments will remain intact.”

In any case the Irish equivalent protection scheme is pretty lacklustre anyway, with the maximum protection a dismal 90% of your loss up to a max of just €20,000 per investor.

How Can You Reduce Risks?

The larger the investment firm the safer your money should be. The firms themselves are likely to be more profitable and therefore safer.

For many of the big platforms you will be able to check them yourself as they are publicly listed companies, such as AJ Bell and Hargreaves Lansdown. You will want check their accounts, history of its key people and news about its past activities. These checks won’t be as easy for private firms.

The bigger the platform the more the FCA will monitor its activities and hopefully therefore reduce the chance of mismanagement.

As your investment pots grow into the hundreds of thousands, you might want to start purposely splitting your money across multiple platforms for added peace of mind.

This currently is a nuisance, in part because you benefit from reduced fees on larger investment pots, but we see a time in the not too distant future when platform fees are eliminated.

Should You Be Worried If You Have Less Than £85k?

The short answer is yes you should be partially concerned. You won’t lose any money as you would be compensated, but to reclaim the money from the FSCS could take many months. At time of writing they are saying it will take 7 months to reimburse claims relating to investments.

There is an opportunity cost of having your money tied up for that length of time. You may need the money to live, there might be a crash in the markets that you need to take advantage of, or you may miss out on huge growth in the markets.

At least you will be compensated for the amount lost due to broker failure. Don’t forget that this compensation is not to protect you from poor investment performance.

But on the whole, don’t worry about too much – it’s almost always better to hold investments than to not – and cash is riskier to hold in our opinion because you don’t get the ring-fencing protection that an investment gets.

The protections are there should the worst happen. Until then, keep investing with confidence.

How do you reduce investment risk associated with broker failure? Let us know in the comments section.

Stock Market

Oil is Low – Buy Buy Buy! | Best and Easiest Way to Invest in Oil

Oil prices have collapsed in 2020 following the outbreak of the corona pandemic, down a mega 63% since the start of the year at time of filming in April.

The West Texas Intermediate oil price has just fallen through the floor. At time of filming it was around $23 a barrel – incredibly cheap when we consider it was at $135 in 2008, its historical high. We filmed this video mid-April, and by release date it had fallen even further… into historic negative territory! Buy Buy Buy!

Below we cover why Oil prices are so low, the easy ways you can invest in Oil, and how we just invested in Oil the MoneyUnshackled way – layering in cashflow and diversification into this classic growth asset.

Editor’s note: Invest in Oil while getting a freebie – investment app Freetrade are giving a randomly chosen free share to each new customer who opens an account using the link on the Offers page – it could be worth up to £200, and all you have to do is open an account and top up by £1 – what are you waiting for?!

YouTube Video > > >

Why Oil Prices Are So Low

2 things happened in early 2020 to push Oil prices to record lows – The Oil Wars, and about 2 weeks later, the coronavirus and resulting lockdowns.

The drop in demand from recession and lockdown would normally be enough to reduce oil prices, but the price was artificially lowered further by the activities of a major global player in the industry, Saudi Arabia.

The Saudis decided that they didn’t like the way Russia were looking at them at an Oil conference in March 2020, and announced that they would flood the market with cheap oil – a form of mutually assured destruction for both economies.

At time of filming, Trump had just backed an international deal to get prices back up, but the next day they’d actually gone down further!

Oil as an Asset

Oil fits into the core of our investment portfolios. The core is reserved for cash flow generating assets like rental property, Global dividend-paying ETFs, and high interest Peer-to-Peer Lending, and Oil stocks are the biggest and most dependable dividend payers out there.

Oil itself is a commodity, and we also hold these in our core portfolios as they help us to Own Inflation and so Own The World.

We’ve previously mentioned that commodities like Oil and Gold might make up 5-10% of your total portfolio.

Oil, as a commodity, is a growth asset – meaning it doesn’t generate cash flows, so you invest in it because you believe the price will grow.

Whereas shares that go up and down in price still pay dividends – it’s nice to get regular cash injections from your dependable shares holdings regardless of the ups and downs of the market, but your commodities do not pay you a cash tribute.

So, by investing in oil commodities we are banking on the assumption that oil prices will go up in the future. Now let us tell you 3 easy ways to buy Oil, and which is best.

The Different Ways You Can Buy Oil

#1 – Invest in Oil Directly with an ETC

The purest way to invest in Oil – outside of actually buying a barrel and storing it in your garage – is through an ETC (Exchange Traded Commodity).

We decided this one was as good as any other: the WisdomTree WTI Crude Oil ETC (CRUD) which has an OCF of 0.54%, at the top of the fee range that we consider to be acceptable.

This Crude Oil ETC works like an ETF in that it tracks an index – the WTI Crude Oil price index in this case, and we can see that it has fallen around 63% from $9.0 to $3.6 since January 2020:

To buy this ETC, you need to have an account on a premium investment platform, such as Interactive Investor.

The free trading platforms Freetrade and Trading 212 Invest have too small of an investment universe to offer this.

Interactive investor is the platform that Andy holds the vast majority of his portfolio in, because it is relatively cheap if you hold a large portfolio, and in our opinion is the best of the premium platforms.

There is no way to invest in Oil directly through the free platforms. But there are extremely close – and in some ways better – proxies to investing in Oil directly, which they do offer.

#2 – Buy Oil Stocks

With any good investment platform including the Freetrade app, you can invest in BP, Royal Dutch Shell, ExxonMobil, and a whole bunch of other Oil companies.

Oil companies’ share prices tend to move in the same direction as world Oil prices, though movements are not necessarily on exactly the same scale.

While crude oil prices fell 63% YTD, an index of the top oil companies (World Energy Index) fell 42% – still a huge drop. By comparison, the FTSE 100 fell only 23% over the same time period.

The reason an index of oil companies hold their value better than the oil price is because many of them are absolute goliaths in the stock market: cash-rich mega-companies.

They are accustomed to the crazy twists and turns in the oil price, and are well protected with their gargantuan cash reserves.

They are so stuffed full of cash that they find it easy to adapt to tough market conditions by cutting their investment expenditure, and have incredible dividend paying records.

That’s the beauty of investing in Oil via company proxies – companies pay dividends and can smooth out returns.

Shell has managed to deliver an uninterrupted and uncut stream of dividend pay-outs since World War II – ExxonMobil haven’t missed a dividend in 138 years.

Staying Power

We expect they really are too big to fail. The Oil companies of today will be the hydrogen and fusion companies of tomorrow.

Those sandal-wearing hippies who harp on about the evils of the Oil giants fail to understand that it is these very Oil giants who are investing the most cash into new clean energy alternatives.

The Oil companies won’t allow themselves to end up like the fossils that they burn.

It won’t be Greta Thunberg who turns the world green – it will be BP, ExxonMobil, Total and Shell.

#3 – Using an ETF

This is the best way in our opinion. ETFs are diversified, low-fee, and mostly track indexes that can be easily monitored.

To invest in Oil companies, we’d invest in an ETF that tracked an index of global Oil companies.

The index that we want to track is the MSCI World Energy Index. The ETF I invested in is called the SPDR® MSCI World Energy UCITS ETF (WNRG), which has an ongoing charges fee of just 0.3%.

This ETF is listed on multiple stock exchanges, but we’ll pick one that’s traded on the LSE.

Here’s the listing of holdings within this baby:

It’s near perfect for what we’re trying to achieve, stuffed full of Oil super-giants from across the world.

In one neat little package this ETF tracks Oil as closely as it is likely possible to get by using stocks rather than tracking the oil price.

It is an accumulating fund, which means that all the dividends are collected from those legendary dividend-paying companies and reinvested into your fund’s value as they arise.

The index dividend yield at March 2020 is an incredible 8.28%! No matter the ups and downs of oil prices, you’re still getting an amazing boost to your investment off the bat, even if some companies in the index do cut their dividends during the current recession – we expect many will not.

An Oil ETC is unlikely to compete with this ETF’s growth power that comes from layer upon layer of accumulating dividend pay-outs, boosting the underlying value from the Oil assets.

To buy this ETF, you again need to use a premium platform like Interactive Investor.

Portfolio Tip

Remember not to put all of your eggs in the Oil basket – If you’re buying ETCs, we say that commodities shouldn’t take up more than 10% of your portfolio.

If we include Oil stocks and ETFs, we wouldn’t put any more than 15% of our portfolio in Oil and prefer to diversify across sectors.

Will you be taking advantage of Oil’s historic lows? What platform are you buying on? Talk to us in the comments section!

Written by Ben

Oil Stock Market

Vanguard | Invest In Which Global Tracker Fund | Vanguard LifeStrategy vs Vanguard FTSE All-World ETF

On this site we’ve talked a lot about the importance of owning the World when you invest. But there are many ways to achieve this, and we ourselves utilise many of these methods.

We recently released a very popular video on the Stock Market Crash and briefly mentioned a Vanguard global fund I was using to capitalise on the cheap stock prices. There’s a compelling argument that the only equity fund you need is a total world equity tracker.

It seems that some of you who watched that video were interested in knowing why we had chosen The Vanguard FTSE All-World ETF (VWRL) over a Vanguard LifeStrategy fund or even over our own handmade World ETF portfolio.

This is perfectly understandable considering we often mention the LifeStrategy fund as a great way for beginners (or the uninclined) to own the World.

There are loads of global funds available to investors and even Vanguard themselves offer several, which all appear on the face of it to do the same thing.

This obviously isn’t particularly helpful when all you want to know is what you should be investing in right now. The enormous choice just clouds our judgment. Under the hood, most of these funds are very similar and any difference is minute enough to probably bear little importance in your decision making.

In this article we are going to mention what we invest in and why, explain the difference between The Vanguard FTSE All-World ETF (VWRL) and a Vanguard LifeStrategy fund, why we might invest in each and what truly matters when looking for a global tracker fund.

Editor’s note: Take advantage of the stock market crash with a boost when you open a new investment account using one of the links on the Offers page! Freebies include free shares, cash bonuses, or money off your fees.

YouTube Video > > >

What We Invest In?

Let’s start this video with disclosing which global tracker funds we invest in and when, and then we’ll get to the reasons why. While our portfolios are not identical, they do follow the same design methodology.

The bulk of Andy’s SIPP is invested in The Vanguard LifeStrategy 100% Equity Fund and Ben will be soon consolidating all his pensions into a SIPP in this very same fund. So, our pension investments will be pretty much the same.

Regular followers will know that we prefer to invest the majority of our money in accessible accounts such as a Stocks and Shares ISA or general investment accounts – that means not in Pensions and Lifetime ISA’s which tie up your money until you are too old to enjoy it.

For these accessible investments we both build our own World portfolios consisting of a core of about 6 ETFs – 1 for each major region – US, UK, Europe, Japan, Asia Pacific and Emerging Markets.

Andy also invests a portion of his wealth with the Robo-investing platform Nutmeg, which itself creates its own World portfolio.

And in addition to this has recently been buying The Vanguard FTSE All-World ETF (VWRL) during the recent Stock Market panic.

Why We Invest in These?

#1 – Vanguard LifeStrategy 100% Equity Fund

First and foremost, we think the Vanguard LifeStrategy 100% equity fund, or even its Bond variations, offer excellent one-stop shops for owning the World. It does however overweight the UK with about 23% of the fund, which a normal world tracker would not do.

In fact, this is one of the things we like most about it. We are obviously UK based and an income in sterling is very important to us. Technically this home bias means the LifeStrategy funds are not really global trackers as it’s based on Vanguard’s own proprietary view.

With that said it does hold investments in all the major global markets and does it all for an extremely low cost of just 0.22%.

This makes it perfect for our pensions as we don’t want to be managing a portfolio that we cannot access for decades. Vanguard handles all the rebalancing while you get on with living life now.

This also makes it a perfect ready-made portfolio for those who can’t be bothered to manage investments but perhaps know enough to be able to assess their own risk appetite.

We aren’t financial advisors so don’t offer an advice service but will point people in the following directions:

One aspect of the LifeStrategy fund, which we feel is important, is its type – it is an Open-Ended Investment Company or OEIC, which is the most common but not necessarily our preferred fund type. That accolade goes to the Exchange-Traded Fund (ETF).

An OEIC only has 1-day pricing, so you don’t know the price you pay until when the order is executed.

We love ETFs so much because they offer live pricing; so like Stocks & Shares you know the price you pay before the order is executed. Which leads us nicely into:

#2 – The Vanguard FTSE All-World ETF (VWRL)

This ETF holds an incredible number of stocks – 3,365 at time of filming, which is a representative sample of the World’s listed companies.

Unlike the LifeStrategy fund, which in one way was actively managed by Vanguard, the FTSE All-World ETF seeks to track the performance of the FTSE All-World Index. This index includes approximately 3,900 holdings in nearly 50 countries, including both developed and emerging markets. It covers more than 95% of the global investable market capitalisation. Now that truly is a global investment!

So, why is Andy investing in this ETF over his usual self-built portfolio? Firstly, for simplicity. It’s so easy to buy and regularly monitor just one fund. He’s still continuing to invest in our own World portfolio on a monthly basis, but can more easily monitor the price of this ETF during the global crash.

We are always optimistic about the long-term future of the World economy, so it makes sense to put your money in a World investment that is market-capitalisation-weighted.

That means if Microsoft make up 2.6% of the Worlds capitalisation then 2.6% of your money is invested in Microsoft.

That also means that a very small amount of money is invested in companies that you have never heard of, which is awesome. But at such small percentages of the fund they will have practically zero impact on the fund’s performance.

You have to wonder whether that level of diversification is necessary but at least it doesn’t cost much at all. The OCF is the same as LifeStrategy at 0.22%, so cheap as chips as we would expect.

Another reason Andy’s choosing this fund over the LifeStrategy right now is that he’s been investing quite frequently and free investments apps such as Freetrade don’t offer OEICs but they do offer ETFs including, yep you guessed it, The Vanguard FTSE All-World ETF.

This has allowed him to buy regularly without incurring trading fees, which is awesome. By the way Freetrade are giving away a free stock to new customers if they use our special link, which can be found on the Offers page. You need to use the link to qualify for the offer.

This fund also distributes income on a quarterly basis, which we love as we like to see income flowing into our pockets regularly – I mean who doesn’t?

The LifeStrategy range distributes income yearly if you buy the income share class and offers a similar yield of around 2% – probably because they hold much of the same underlying holdings.

Granular Detail

Okay so you’ll be glad to hear we’re not going deep dive into each fund in this video because most of you will switch off but for those that want to do this themselves some good resources include Vanguard’s own site. Morningstar is another fantastic site, and so is Hargreaves Lansdown. Have fun.

What Matters When Looking for A Global Tracker Fund?

3 key things:

#1 – Make sure it tracks the World – many fund providers will give a fund a misleading name, so it’s worthwhile to check the detail. Quite often they will just track the developed World and even miss out big guns such as China.

#2 – Diversification – Always check how many holdings it has. The more the better as this will represent more of the World even if the percentage in the smallest holdings become seemingly insignificant. You can’t accurately track the World if the fund doesn’t own the World.

#3 – Cost – Our viewers know that fees are vitally important. Don’t pay high fees unnecessarily and remember that the higher the fees the less well it will do at tracking the World!

Do you invest in the World and if so, how? Let us know in the comments section.

Stock Market

Why You Should Care About A Stock Market Crash

A stock market crash affects all of us, whether we invest or not.

Your non-investor mates in the office don’t care about the recent market crash, because they don’t educate themselves in personal finance; but we’re sure you know better.

In this article we show the ways that both investors AND investors are affected by a stock market crash – just like the one we are in right now.

Editor’s note: Take advantage of the stock market crash with a boost when you open a new investment account using one of the links on the Offers page! Freebies include free shares, cash bonuses, or money off your fees.

YouTube Video > > >

“I Don’t Invest” – Of Course You Do!

Let’s touch briefly on pensions.

Almost everyone who works invests in the stock market without knowing about it via their defined contribution pension.

£600bn is held in defined contribution pensions – simplistically, if a quarter is shaved off the stock market, £150bn of our pensions just went “poof”.

However – don’t be too alarmed by this. By the time you retire the current slump will likely be forgotten.

Though worryingly, most let experts manage their pension pot for them; and experts are stupid.

Experts can’t help but fiddle, and during a financial crisis will try, but likely fail, to improve the situation.

Ideally your pension will invest in market trackers that do not require experts to manage, in which case you simply ride out the current market slump.

If You’re Over 50

People approaching retirement are in more trouble. As you approach your agreed retirement age, pension managers will de-risk your portfolio by selling shares and buying bonds, liquidising losses.

The “experts” will do this for you. Thanks experts.

If you are planning on buying annuities with your pension pot, the worst time to do this is during a crash.

Your pot will be a lot smaller than it could have been, and so will be the annuity income that you lock in for the future.

But if you’re not bothering with annuities and plan simply to live off your portfolio’s dividends – like we would – the stock market will eventually recover so your income will likely go up once the crash is over.

Ok that’s pensions – but that’s way off in Future Land – what about right now?

Non-Investors

Ignoring pensions then, if you “don’t invest” in the sense that you have neither a stocks portfolio, investment property, nor high interest bonds or Peer to Peer Lending, you should be deeply concerned right now that you have earned the disrespect of everyone in the investing community for continuing to NOT invest during the biggest bargain sale on the stock market in the last several years.

You’re making a conscious decision right now to stay poor; to have your wealth and your health affected by staying sat at your office desk for the next several decades; to miss out on being able to retire relatively young and make life about having fun – all by refusing to take advantage of low, low prices.

Ok, maybe it’s just that you don’t know how to get started? If that’s all it is, don’t worry! Investing has never been easier.

Mobile phone apps and the internet remove all possible excuses for not having a shares portfolio – for a full explanation of how I opened an investing account and immediately set up a balanced and diversified portfolio of thousands of shares in the global market, go put the kettle on, make a brew and settle down to watch half an hour of our World Portfolio playlist.

Interest Rates

The stock market doesn’t directly affect interest rates – however, when governments and central banks see markets crashing, they also can’t help themselves but to fiddle.

Indeed, this is what we’ve just seen, with the Bank of England having just slashed interest rates from the lofty heights of 0.75% to 0.1%.

The simplest mechanism a country can use to prop up a falling market is to lower interest rates – the cost of borrowing. This tends to encourage spending by the population, which in turn boosts company profits and share prices.

Usually the stock market has fallen for a reason, like the current health scare, and the stimulus from lower interest rates is introduced to combat that reason – but governments don’t like to see their stock markets falling in any case, as it self-perpetuates panic and a country’s stock index price is seen as an indicator by us consumers as whether we should be panicking or not.

Mortgages and Savings Accounts

Falling interest rates don’t really matter anymore for savings accounts – they were so pathetically low before anyway. You weren’t getting rich from your savings account.

Anyone with a mortgage will be celebrating the stock market crash however, as the resulting slash to interest rates could save them hundreds a month.

Peer to Peer Lending

We are massive fans of Peer to Peer Lending, and have partnerships with many providers that you can check out on our website to give you cash back bonuses when you sign up.

But will these high interest investments be giving out lower interest rates now that central banks have lowered rates?

We assumed they would, but we’ve received emails from many Peer-to-Peer Lending platforms this last fortnight saying that they will not be reducing their interest rates – that it will be business as usual. I guess time will tell.

We think they’re seeing this as an opportunity to attract new customers, as the difference in return between pathetic bank savings accounts and P2P high interest investing is now more stark.

And maybe that justifies them being still able to offer the same high rates.

Jobs

Many companies will be smashed into oblivion by a major stock market crash, as wider economic panic dries up sales to a level where they have to close down. This leads to redundancies.

Flybe was the first major company to go down this time around, and in the weeks since there have been reports of branch closures at banks and lots of mid-sized companies going tits-up.

If our employers were to tell us we had to be let go, we’d shrug it off because years ago we decided to be investors; and have built up portfolios that we can live off.

But many choose NOT to be financially free and instead choose job “security“, and sadly these people will have little protection during a jobs-cut. Hopefully their qualifications allow them to get another job quickly.

What to Do to Protect Yourself from A Falling Stock Market

#1 If You Have A Portfolio Already

Don’t sell – investing is a long-term game, and a loss is only a loss once you crystallise it by selling. Buy more while the price is low!

#2 If You Don’t Yet Invest

Start! Buy now while prices are low, and capitalise on hysteria in the markets. Non investors are scared away from the stock market during downturns, when they should be paying the most attention.

#3 Don’t Panic About Your Pension Falling – unless you’re nearing retirement age

If you’re retiring soon, take control of your pension and make sure the “experts” aren’t selling off your wealth at just the wrong time. And be wary of annuities.

#4 Don’t Settle for Low Interest

Consider taking refuge from the stock market volatility in more stable Peer to Peer Lending platforms for high interest monthly income now.

Always remember to invest across platforms to minimise risk.

#5 F-Off Fund

Build up a F-Off fund, or “emergency fund”, so you can better cope with a job loss.

#6 Diversify Incomes

Take steps now to diversify your income streams away from just the one job, with interest, dividend or rent paying investments and side hustle home businesses, and you’ll be better prepared to deal with a crash when it happens.

How are you feeling about the stock market crash? Disaster, opportunity, or irrelevance? Tell us in the comments below!

Stock Market

5 Easy Life Hacks to Massively Boost Your Disposable Income

Disposable Income is what you have left from your pay after you’ve tossed the rest up the wall on bills, basic foods to live, essentials, and given the tax man his due.

For most people in the UK, this number will be around zero – hopefully, on the positive side of zero – while for many the number will be deep in the red – payday loan time.

We are comfortable financially because we are investors – and we can afford to be investors and buy stocks, property and other people’s debt because we make sure our disposable incomes are well above zero each month.

This video covers the basic life hacks you can use to ratchet up your disposable income by several hundred quid a month, so that you can be in a position to be a serious investor – or if the fancy takes you, to have a load more money to toss up the wall.

5 easy life hacks to massively boost your disposable income… let’s check it out!

Editors note: Links to many of the cash boosting bonuses mentioned below can be found on the Offers page, including one of the top Peer-to-Peer Lending platforms in the UK: open a new account with RateSetter for as little as £10 you will get a £20 cash bonus!

YouTube Video > > >

Life Hack #1: Take Advantage of All the Free Money on Offer

By far the easiest way to crank up your disposable income is to take advantage of all the free money being given away by companies vying for your custom.

If you regularly take advantage of this type of deal, of which there are always more and more of, you will have more disposable income to play with.

Investment Platform Bonuses

Including all of links that are on MoneyUnshackeld.com, linked below – you can sign up to an investment platform and they give you £50/£100/£200 cash reward for your trouble.

This is making extra money from a thing you should be doing anyway – investing for future financial freedom.

Switching Banks

At time of writing, HSBC are giving away £175 to new customers who open an account with them, and First Direct are giving away £100 for the same thing.

These deals may not be live by the time you are read this, but this proves our point – there are constantly new deals of this type on the market, and in theory you could switch your bank account every month and scoop up those wicked bonuses.

£175 just for switching a bank account one month – that’s more than most people’s disposable income to begin with!

In fact, while writing I thought, “really it’s criminal that £175 is just sitting there crying out to be taken”, so I actually did take 5 minutes to switch my bank account to HSBC. £175 headed my way for doing jack-all!

Change Your Providers

Not only to save money on the cost of bills, but also to take advantage of more sweet cash hand-outs. Octopus Energy, who I have also signed up with, give you a £50 cash reward when you switch your gas and/or electricity to them.

There will be other similar cashback offers all over the internet that could also be taken advantage of!

More cash for doing practically nothing. Plus, they happen to be one of the cheapest providers on the market, and rated Excellent by 92% of people on Trustpilot for their customer service.

This offer is only available through special links like the one on our website – don’t sign up direct or you’ll miss out!

Credit Card Stoozing

A way to start saving more now – you get a 0% credit card and use it to pay for all of your expenses.

This leaves your current account balance healthier, and you have more cash to play with. Stoozing could even be used for investing for those who are brave.

This is only a strategy for the financially confident and should not be tried if you have had problems with debt in the past, or aren’t good with money management generally.

You will have to pay back the credit card balance eventually, before it slips from the 0% rate to something far higher, usually after 2 or so years.

The brilliance of credit card stoozing is that you can invest the money you would have spent on expenses now, and make interest or dividends from it. So long as you have a plan to pay that balance back at the end of the deal term.

Andy took advantage of a 0% interest period for 4 years when he purchased his sofas. By investing the money he otherwise would have had to spent upfront he effectively reduced the cost of the sofas by around 25%. Sweeeeet!

Earn While You Spend

Many websites offer you cash back on your receipts, or when you take out a subscription or other purchase online.

The site we use is called TopCashback – Andy actually made £1,200 on this site by buying things that he was going to buy anyway. Some people have reportedly made many thousands!

Life Hack #2: Cashflow Investing

Can it be that we are only on Lifehack Two? There’s just so much free money lying around!

This lifehack involves investing in cashflowing assets – if your aim is to invest your disposable income anyway, start with this type of investment instead of focusing on capital gains – then you can choose how to reinvest or even spend the income.

And those of you who haven’t thought about investing before – get thinking!

Assets that Cash-Flow

Cash-flowing assets include rental property (also known as buy-to-let), Peer to Peer Lending, and dividend paying stocks and funds. Anything that pays out cash regularly, instead of you having to sell it to get the gains.

For most starting out, it will be P2P Lending and high-dividend paying funds that will be within your price range, as buy-to-let property usually needs upfront investment of £30,000+ for the deposit.

It is these types of asset classes that pump out cash to supplement your disposable income.

Peer-to-Peer Lending

P2P works by you lending your savings to businesses and individuals who want to borrow them, and you get paid a high interest rate. There is usually some form of protection built into the system to defend your investment from defaults, such as a provision fund, or being backed by business property.

If you had savings of £9,000 in a P2P Lending platform in active loans paying 6.5% interest, it would pay you £50 a month in interest. Sweet!

This is an investment, so capital is at risk, but in our view the risk is low compared to shares and many other asset classes when properly diversified across platforms.

Again, this is one way that both of us significantly improve our monthly disposable incomes.

Property

Buy-to-let might be expensive but it’s not to ignored. I get around a third of my income from rental property, hundreds from each. Maybe this is something you can benefit from too.

Life Hack #3: Affiliate Marketing and Advertising

Online

Fans of South Park may have seen an old episode where the guys make 1 million “theoretical” dollars on YouTube when a video they make goes viral. The episode when it was released in 2008 was making the point that back then people couldn’t make money online even when their content is great.

This is happily no longer the case! Affiliate marketing and pay-per-click advertising is the answer to how millions of ordinary people can make extra money online from their channel, website or blog.

If you have a space on the internet that people want to visit, you can supplement your disposable income by letting other companies advertise on there, just like the 3rd party advert you’d probably skip past at the start of the video version of this article!

Or you can put a link on your website to a product that you think your readers may be interested in purchasing from a 3rd party.

The most commonly used affiliate links are from the Amazon Affiliate program, where if people buy a product on Amazon via a link you provided, you get a small share of the sale proceeds.

The key to making a success of affiliate marketing is volume. You usually get a pittance per click, so you need a big audience doing the clicking.

How do you get a big audience? By being genuinely awesome, and providing useful or entertaining value. Let us know how we’re doing on that front in the comments!

Physical

Getting paid for advertising other people’s stuff isn’t limited to cyberspace. Car Quids are a company who will pay you to display company logos and slogans on your car.

If you drive regularly through a city or population centre, or major motorway, your chances of being selected as an advertising partner are improved.

Life Hack #4: Side Hustle

Perhaps taking the previous Hack to the next step, a side hustle is a business that you set up and run in your evenings and weekends outside of the grinding hours of work.

You need to be committed to the money-making cause to invest your free time like this!

A home business could be a website selling products you’ve made, a blog/YouTube channel reaching the masses with an online store similar to what we do, or again could be in the real world selling things locally.

This last one could bring the fastest immediately results, actually selling things or time locally. But the beauty of an internet based business is scalability – your customer base is the planet Earth.

Life Hack #5: Requalify

Requalify can mean 1 of 2 things:

Official Qualifications

Wage-slaves toiling in the mine of a job they hate will usually seek out a new nationally recognised qualification that will allow them to step up in their career or step sideways into a new one.

You might even seek a new qualification to escape the rat race and start a small business, such as a Receptionist deciding that she’d be happier and make more money as a self-employed fitness instructor. Even that would require her to have specific recognised qualifications.

Unofficial Levelling Up

Do you think anyone cares what qualifications Bill Gates has? Or Jeff Bezos? Of course not!

The internet is littered with spaces that you can level up your skill base for a small fee: Udemy; Khanacademy; Codeacademy; Google Digital Garage; or better yet for free on YouTube. By learning new skills you can make more money.

Bill Gates taught himself programming. He used it to create Windows, which in turn created him 110 billion dollars.

Learning new skills is never a waste of time, and ideas for starting businesses aften come as a result of having a unique skillset that makes you a gap in the market.

What business might you have started if you’d taught yourself Spanish, programming, barista coffee making, carpentry, and engine repair? We have no idea! But we’re betting your skillset would be unique and show you ways into a market niche.

Get that disposable income flowing, starting by scooping up all that free cash lying around that we covered in Life Hack #1 – go back and take notes because it adds up to a tidy sum! And get thinking about levelling up as well as adding extra income streams onto your life.

What’s your disposable income, the amount left over each month that you can invest or save? Let us know in the comments section, along with what you’ll be doing to increase it!

Written by Ben

home finances

What to Do When Stocks Crash – Don’t Panic

Stocks and shares are constantly going up and down in value. If you can’t stomach this volatility, then you need to keep away…well away. But if you do this you will regret it. Having your money invested in the stock market is the easiest way to make your money work hard for you, rather than you having to work hard for money.

We wrote this during the beginning of the Coronavirus stock market crash and time will tell if it was a flash in the pan – or conversely – far worse. Either way we are confident that this is just another minor blip on the stock market’s march to ever greater heights and gives you an awesome buying opportunity. Price volatility is your friend if you are brave enough to strike.

We don’t know whether stock markets will be down further in 1 years’ time but in 5 years’ time it’s likely to be higher, in 10 years it’s almost certain to be higher and in 20+ years it’s practically guaranteed – and you will of course have collected some juicy dividends along the way.

And in a way it’s these dividends that reduce the risk of investing. The FTSE 100 hasn’t had the best 20 years, which is why it’s so important to diversify and why we have always encouraged world-wide investing as seen in our ‘How to Own the World’ series. Other indices around the world have fared much better over this time period, which highlights just how important it is to own everything.

Anyway, we’ve done some serious analysis on the FTSE 100, and our findings demonstrate that selling after a crash is the worst thing you can possibly do. Let’s check it out…

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 and P2P Lending platforms listed – including on the Nutmeg robo-investing platform; one of the easiest ways to buy into and take advantage of the low market right now!

YouTube Video > > >

FTSE 100 Over the Last 20 Years

Below is the FTSE 100 for almost 20 years, which shows a pretty bleak picture. But it at least shows that that after every crash it does eventually climb above its previous high.

And to be honest unless you had bought in at the peak of the market it’s not a problem at all.

And by buying regularly, known as pound or dollar cost averaging, you average out your purchase price meaning your average purchase price is never the top of the market.

By this logic a big price fall such as what we’ve seen in February 2020 due to Coronavirus gives us an incredible buying opportunity. It is this reason why Ben and I are always ready to pour more money into the market, which is exactly what we have been doing recently.

The market had crashed by about 10%, so we buy a little. If the market continues to crash, and we’re very happy if it does, then we will buy big. We consider a 10% fall to be a nice gesture from the market but 20% or more is a time to splash the cash big time. Everything is on sale!

The problem many people face is the emotional hurdle that a stock market crash creates, which is why many successful investors automate their investing. I take advantage of Interactive Investor’s free monthly investing service, so I don’t need to worry about exact timing. But I also buy big when everyone else is panicking.

If we look back at that FTSE 100 graph, we can see that it always recovers when people realise that it’s not the End of the World. We’re just showing you the data we could get our hands on, but we know this story goes back until the beginning of time – or at least the beginning of the FSTE 100.

FTSE 100 Total Return

Over time we know that dividends, particularly when reinvested, are the biggest drivers of investment performance. So worrying over short-term price fluctuations is completely unnecessary.

Above we’re looking at the FTSE 100 vs. FTSE 100 Total Return Index for about 7 years. Total return means that it also factors in the effect of dividends reinvested. From this graph we can’t really see too much. It appears that the Total return index just perfectly tracks the main FTSE 100 line.

However, we want to see relative performance so a technique we can use is to rebase the graph. Each line now starts at the same point, which will show us the real story.

We can now see that although the Total return line still mimics the FTSE 100, it quite quickly powers ahead and therefore the impact of small price fluctuations become less important as the end point is leaps and bounds ahead of the starting value and your original investment.

This is a key reason why we can both handle large price declines comfortably because we know that just by being invested in the market it is going to make us lots of money in the long term due to the power of dividends compounding our returns. We wish we had been able to show you a longer time period because the gap compounds even more and would become enormous but unfortunately, we couldn’t get our hands on the data.

Nevertheless, even in this 7-year period the difference is still significant with the FTSE 100 showing a return of just 10% but the FTSE 100 TR index returning around 50%.

Why Selling Immediately After A Crash is Stupid

Neither of the graphs we’ve looked at so far really demonstrates the size of the crashes and speed of recovery.

The next graph shows the week-on-week percentage movements of the FSTE 100. What we can see is that whenever we see a period of sharp decline, this is always followed by a quick reversal soon after.

What we can see is large drops around 2001 relating to 9/11 and huge drops around 2008 due to the financial crisis. Then there’s a crash in 2011 due to the debt crisis. The last 20 years is littered with crashes and we’re sure the Coronavirus crash is just another blip on the graph as all that proceeded it have been.

What shocked us the most from this graph is the speed of the reversal in the weeks that followed a crash. The end of September 2001 saw the FSTE rally 10.59% in one week. In 2008 there was a week where it climbed 12.72% and another week shortly after rallying a further 13.41%.

The graph shows this pattern throughout the 20-year period. We’re betting the same will happen again now and in future.

If you sell immediately after the crash, you will miss out on these incredible price rallies. Shockingly people have very short-term memories and previous impending dooms are long forgotten.

When putting together this graph we had to look up the reasons for the crashes as we couldn’t remember either, but at the time they would have been all front-page news predicting the end of the World!

What About Individual Stocks?

We are very confident that overall markets will continue to climb until the end of time. However, we cannot say the same about individual stocks. The financial crisis saw the destruction of the banking sector and on the most part it never recovered.

When an index such as the FSTE 100 falls that’s fine by us but individual stocks fall and often never bounce back. Stocks have their own unique characteristics that can mean they become permanently damaged by whatever caused the price to decline.

For example, travel companies have had a particularly tough time recently. Who knows what a Pandemic could do to the long-term prospects of a travel company? A ban on travel could cause losses to spiral and the company could go bust before any chance of recovery. The difficulties of predicting the outcome is a major reason why we both limit our involvement with investing in individual stocks.

What You Should Do About The Crash

#1 Do Nothing

Assuming you own well-diversified index trackers, do not sell. If you’re the type of person who has an itchy trigger finger, then sometimes the best thing you can do is just not monitor financial news and these events will blow over before you even notice.

#2 Buy Buy Buy

If you’re a little braver like us, then start buying when everything is on sale. As we’ve just seen in the graphs, very large downwards swings don’t happen very often. Make sure you’re ready to take advantage when they do. It is times like this which give stocks a huge advantage over less liquid asset classes such as property because you can take advantage of lower prices before they rise.

#3 Rebalance

Big swings will often leave your portfolio out of line with your intended allocation. This might be the time to rebalance. What this does is move money from the assets that have performed well, which perhaps have little room to grow, and allocates more to the past underperformers, which may have better opportunities.

How do you react during a stock market crash? Let us know in the comments section.

Written by Andy

Stock Market

Robert Kiyosaki: Legend or Con Artist? Cashflow Quadrant – Rich Dad

Assets, assets, assets. Buy them, hold them, get rich from them. This is the philosophy of Rich Dad Poor Dad author Robert Kiyosaki, distilled to few words, and yet he has a lot of detractors who like to call him a con man who doesn’t understand what an asset is.

A lot of the hate comes from the probably correct perception that his fortune was made from the books that described his fortune, rather than the assets which he writes about.

Take a step back from the man and look at the words in his books however and you are left with a treasure trove of sound advice – an investors’ Bible which both of us have used to plot the course of our lives over the last 5 years, culminating in massive increases to our portfolios as well as the creation of the Money Unshackled business.

It is no small exaggeration when we say that we owe our own successes in part to the teachings of the likely fictional Rich Dad in the books, whose words on the Cashflow Quadrant and the power of Assets we both took to heart.

Robert Kiyosaki – Legend or Con Artist, or both? Let’s check it out…

Editor’s note: People interested in investing in Peer to Peer Lending now have a new way to ease into it with our latest offer – open a new account with just £10 in the RateSetter platform and you will get a £20 cash bonus when you use the link on the Offers page!

YouTube Video > > >

Asset Theory – We Like

The core concept of the Rich Dad series is that Assets are things that create a positive passive cashflow without any further input from you, and that everyone should own a whole bunch of them.

We absolutely love this simplified view of investing, and it inspired each of us to new investing heights. Appraising an investment for its cashflow potential is how we pick investments to this day.

We took this concept and ran with it by buying assets such as rental property, dividend stocks and ETFs, and Peer-To-Peer Lending portfolios.

And now we can each draw good cash incomes from our assets every month. Winning advice from Robert there.

Fiction Sold as Truth? – We Find it a Little Dishonest

The “Rich Dad” story of Robert as a young boy and having 2 father figures who taught him everything he knows about money has widely been ridiculed as fiction, despite the author insisting it happened word for word as he said it did.

But as a parable it holds its own truths – all the advice given by the (likely fictional) Rich Dad is sound advice that we and many other investors live by.

And much of it was out of step with the thinking at the time that investing should be for long term growth rather than income creation.

We still find the majority of the investment media encourage a long-term growth strategy aiming at freedom in old age, rather than the “investing for passive income generation” method that we promote.

In this regard, the story of Rich Dad talks truth to power by going against the grain of common investing theory. But Robert should really stop pretending that the story is literally true.

Financial Freedom – Our Reason for Being

MoneyUnshackled.com is an investing site unlike most others because we promote Financial Freedom now, while we’re young, instead of the freedom in old age that most leading gurus including Tony Robbins and countless others around the investing world promote.

The story of Rich Dad Poor Dad is one of building up a portfolio of cash-flowing property assets and start-up businesses that Kiyosaki could then live off of, instead of employment.

By all means build a sweet global portfolio of shares to grow your wealth – we do this too. But alongside that have cash flowing assets like Peer-to-Peer Lending and Rental Property or REITs to pump out regular cash that you can start living off.

Then we say to use your freed-up time to start businesses that can be turned into passive income streams. This is also what Robert Kiyosaki says.

Courses – An Absolute Con

When I started out buying investment properties, it was to the Rich Dad University that I turned to get an introduction to the world of rental property.

I’d read the books and concluded that Robert Kiyosaki and his team must know their stuff. I paid to attend an online seminar, which cost me £120, and came out the other end more confused than when I went in.

And this course was a precursor for further courses, all of which would have cost a fortune. Many other players in the financial education market charge their loyal fans thousands for courses that are nowhere near worth it, so Kiyosaki is not alone in this regard. But it still strikes us as either a con or certainly not value for money.

We may one day create some paid-for courses, but these would be affordable, complete packages, with the aim to educate rather than to up-sell further courses.

The reason we give our tips away for free on YouTube is because we passionately want to change the country and get individuals to take care of their financial futures – because nobody else will do it for you.

Cashflow Quadrant as a Concept – Life Changing

The Cashflow Quadrant, Kiyosaki’s second book, opened our eyes to the truth, Matrix style. At school we are told there is one place to find income – a job.

The Cashflow Quadrant shows that Employment is just 1 of 4 ways to make money, and the 4 ways are equally weighted as there is no reason why Employment should be any more important or worthy than the other 3:

The Quadrant is further split down the middle, with those who work a 9-5 on the left, and those who don’t have to work anymore on the right.

This concept is eye opening in so many ways that we can’t stress enough how much we love this book. It’s there on the MoneyUnshackled website in the Top Books section along with a load of others that we consider essential reading – check it out book lovers!

The Downplaying of Small Business Owners – A Bit Misguided

Kiyosaki is very critical of small business owners who work in their businesses day to day – in his words, all that they own is a job.

We see his point, but there is a world of difference between being told what to do every day by a line manager, and owning your own little empire.

Plus, Big Businesses do not appear overnight. They start as small businesses, whose owners have to be very hands on.

We find the Cashflow Quadrant makes more sense as a line than a grid – the most common route to fast Financial Freedom follows a route from Employment, to save money to start a Small Business, to develop through time and effort into a Big Business, that ends in a passive income stream being established.

The Investor quadrant is really more of an overlay, that sits behind or around the other 3. Investing compliments and enhances your wealth and income streams throughout your working life.

Your House is Not an Asset – Yes We Totally Agree With This One

Your house in itself does not produce income, in fact it costs a fortune in mortgage payments, council tax, bills, and regular maintenance.

When your boiler blows up, is your house an asset, or did it just cost you several grand?

Kiyosaki has taken more stick for this idea than any other over the years, in fact it’s what made him famous in the first place. His declaration that people’s precious homes were not assets upset millions of people; and intrigued many more.

People don’t want to be told that the thing they’ve spent years overpaying a mortgage on and adding new kitchens and new bathrooms to is not an asset; but is really a liability costing them a fortune.

Kiyosaki’s main point is that you can’t spend a house – because you’re living in it. Its value might go up, but you can’t retire on the value of your home.

Not unless you sell up and move to a poorer city or country where you can buy a far cheaper house and live on the difference for a bit.

But even that is likely to be unsustainable for retirement. The hard truth that your house is not an asset is one that people need to understand, and then start investing in real assets instead.

Your House is Not an Asset – oh, yes it is! – wait…

Although we totally agree, we also disagree completely 😉

I am far better off and further on my investing and financial freedom journey for having bought a house.

I had a lodger for nearly 2 years, paying by nearly £500 a month, and I have remortgaged my house twice, withdrawing equity to the sum of £50k to help finance 2 of my rental properties.

We’re not saying you should do this – it of course carries risk. A lodger may be dodgy, or an equity release could be invested in an asset that loses money.

But it goes to show that your home can be of financial use, and not always a total liability!

What have we missed? Is Kiyosaki wrong in any other regards, or is he just at the end of it all, a total legend? Let us know your thoughts in the comments below.

Written by Ben

home finances Property

“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?

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.

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.

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.

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:

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!

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!

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

P2P Lending

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!

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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.

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.

#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.

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#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.

#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.

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