Top 10 Investing Mistakes Beginners Make in the Stock Market

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

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

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

Warren Buffett has 2 rules:

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

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

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

Let’s demonstrate this mathematically:

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

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

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

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

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

Don't diversify and THIS could be you!

Mistake Number 1 – Not Diversifying

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

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

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

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

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

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

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

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

Mistake Number 2 – Copying Other People

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

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

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

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

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

Mistake Number 3 – CFD Trading

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

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

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

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

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Mistake Number 4 – Holding Losers and Selling Winners

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

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

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

Mistake Number 5 – Buying High and Selling Low

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

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

Do your research and know what you're buying

Mistake Number 6 – Trading Too Frequently

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

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

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

Mistake Number 7 – Over Confidence

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

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

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

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

Mistake Number 8 – Not Starting or Starting Too Late

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

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

Don’t wait to invest; Invest and wait!

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

Mistake Number 9 – Short Term Horizon

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

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

Mistake Number 10 – Buying Last Year’s Winners

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

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

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

 

Written by Andy

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

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

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

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

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

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

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

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

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World Portfolio Overview

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

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

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

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

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

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

Geographies – Basic Portfolio

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

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

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

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

Sectors – Basic Portfolio

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

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

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

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

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

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

The Expanded Portfolio

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

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

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

Right. Let’s do some tweaking!

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

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

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

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

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

Geographies – Expanded Portfolio

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

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

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

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

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

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

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

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

Sectors – Expanded Portfolio

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

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

To summarise:

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

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

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

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

What – No Bonds?

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

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

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

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

Conclusion – A World Owning Portfolio

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

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

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

 

Written by Ben

Retire Wealthy – Vanguard SIPP is Coming to The UK

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

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

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

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

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

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

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

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

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

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

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

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

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

What is the Vanguard Personal Pension (SIPP)?

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

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

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

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

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

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

It's just so flippin' cheap!

Is a Personal Pension right for you?

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

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

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

What Do We Do?

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

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

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

This benefits us in a number of ways:

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

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

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

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

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

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

Vanguard Funds and ETFs

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

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

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

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

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

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

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

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

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

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

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Equity REITs

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

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

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

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

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

The type of assets you might find in a REIT

How REITs Make Money

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

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

How to Invest in a REIT

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

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

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

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

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

Property inside a REIT inside an ETF

REIT ETFs

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

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

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

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

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

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

Residential REITs

Residential REITs

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

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

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

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

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

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

UK Residential REITs vs Buy-To-Let

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

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

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

Leverage

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

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

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

Diversification Averages Out Returns

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

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

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

Tax Benefits of REITs

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

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

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

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

Getting Started

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

 

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

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

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

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

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

Not only largely irrelevant, but dangerous too!

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

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

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

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

YouTube Video > > >

Cut Up Your Credit Cards?

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

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

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

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

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

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

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

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

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

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

Pay Down your Student Loans?

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

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

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

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

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

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

Pay Down your House Mortgage?

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

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

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

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

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

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

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

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

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

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

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

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

Invest using Actively Managed Mutual Funds?

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

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

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

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

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

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

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

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

Saving For Retirement

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

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

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

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

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

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

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

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

FIRE vs MORE -Multiple Income Streams for Financial Freedom

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

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

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

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

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

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

YouTube Video > > >

FIRE vs MORE

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

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

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

Multiply Opportunities; Retire Early

Where FIRE Falls Down

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

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

Side Hustles/Passive Income Assets/Property

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

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

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

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

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

Unlimited Upside of Multiple Incomes

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

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

Harder to Achieve

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

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

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

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

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

FIRE Still Has Good Points

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

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

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

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

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

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

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

YouTube Video > > >

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

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

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

USA

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

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

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

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

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

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

The offer for new customers - click here

UK

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

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

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

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

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

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

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

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

Europe

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

Vanguard FTSE Developed Europe UCITS ETF (VEUR)

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

Asia Pacific Ex Japan

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

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

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

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

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

Japan

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

Vanguard FTSE Japan UCITS ETF (VJPN)

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

The Emerging Markets ETF covers so many cool regions!

Emerging Markets

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

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

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

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

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

Other

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

Portfolio Weighting

Our Freetrade World Portfolio weighting

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

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

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

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

Vanguard Lifestrategy vs Robo Investing with Nutmeg

The Vanguard LifeStrategy Funds are amongst the most popular funds out there, being ultra-diversified, ultra-cheap, and managed by Vanguard – our favourite fund provider.

Vanguard products are great if you know a bit about investing and can make an informed decision about which one to go with. But even the LifeStrategy funds come in multiple forms; accumulating, distributing and at various equity levels – and a beginner and experienced investor alike might want a more tailored product without having to do the research.

That’s where robo-investing comes in. Nutmeg is the most popular robo-investing platform on the market and takes the hard decisions of investing out of your hands, while giving you the investment spread you wanted.

Both LifeStrategy and Nutmeg encourage regular monthly investing, to compound gains over time while avoiding the worst of the market’s dips, keeping costs low, and diversifying your money across a wide range of assets.

Vanguard LifeStrategy – the most popular fund out there – versus Nutmeg, the genius robo-investing all-in-one portfolio solution. Which wins? Let’s check it out!

Editors note: If you like the sound of Nutmeg, feel free to get your platform fees cancelled for the first 6 months when you open your account via our referral link on the Offers Page.

YouTube Video > > >

The Vanguard LifeStrategy Funds

LifeStrategy is a fund of funds, a portfolio in its own right. There are 5 versions of the LifeStrategy fund in the UK. These are split down the lines of proportion of equities to bonds in the fund, with equities being considered higher risk but with greater upside for returns.

Bonds are about as close as you can get to cash savings whilst still being a risk-bearing investment. As the graph shows, shorter term goals are better served by fewer equities, which are more prone to swings in valuation in the short term.

We invest for the long term, so would and have chosen the 100% Equity LifeStrategy fund,

But deciding which is best for you is part of the problem of knowing what to invest in now to bring the results you want in the future.

It might be to your benefit to own some bonds – maybe you don’t know your needs as well as you think you do.

The 5 Vanguard Lifestrategy Funds

Robo-Investing

Nutmeg is one of the major robo-investing platforms, and the one we’d go to first due to it’s ease of use, range, past record and that you can save yourself the first 6 months of fees when you sign up through our referral link.

A robo-investing platform is a digital wealth manager that offers an extremely low-cost way to build an entire portfolio of stocks and bonds, along with access to basic investment advice from the inbuilt AI.

On signing up, you will be asked a small number of fact-finding questions with risk-profiling to help decide on a suitable investment portfolio.

Most investments require you to make all your own investment decisions and to take responsibility for your own portfolio. Nutmeg is a blessing for novice investors as it will make all those decisions for you based on your answers.

This is the digital equivalent of paying an expert financial advisor to interview you and construct a portfolio of shares and bonds on your behalf – except that rather than costing the earth, it’s ridiculously cheap, with fees being either initially free, or around than half of 1 percent of your pot per year.

No need to hand over your life savings to a financial advisor - Nutmeg has one built in

Both Vanguard LifeStrategy and Nutmeg build their portfolios from a base of ETFs and index tracking funds, of both equities and bonds, so are both ultra-diversified and ultra-cheap.

We have built our own portfolios from ETFs in the past, and done a pretty good job too – but investing consistently into multiple ETFs can still be problematic on a traditional platform due to transaction fees.

The zero-fee trading platforms Freetrade and Trading212 are great to use to construct your own ETF portfolio without these pesky fees, but the range of choice is limited.

With one monthly investment of say £100 into LifeStrategy or Nutmeg, your money is instantly spread across many ETFs without incurring trading fees – true in the case of LifeStrategy if you purchase it directly through Vanguard’s own trading platform, that is.

Which is Simplest?

Nutmeg is simplest for 2 reasons: the whole package is in one place, i.e. Nutmeg creates and holds your portfolio; and it does all the research for you.

Vanguard LifeStrategy, while a portfolio of funds, is itself a fund that you can buy on a wide range of third-party platforms, meaning you need to work out the platform with the best fee structure for your circumstances, and then buy LifeStrategy through it. And you have to decide for yourself which one of the 5 fund types to invest in for your risk profile.

If you’re only interested in investing in LifeStrategy and perhaps other Vanguard funds, the cheapest and best place to do this is on Vanguard UK’s own online platform.

Click here to save money on fees when you invest

Which has the Cheapest Fees?

Vanguard LifeStrategy, assuming you buy on Vanguard’s own platform. The funds have an ongoing charges fee of 0.22%, and the platform is amongst the cheapest with an account fee of only 0.15%. This sums to 0.37% in total.

Nutmeg is an all in one package and has 2 standard fees, the main one being an ongoing charges fee of 0.45% for a Fixed Allocation. If you want to go Fully Managed the fee increases to 0.75%.

The Fixed Allocations with a lower fee are probably going to work out better in the longer term because fees usually do matter. There is also a 0.17% fund fee to factor in.

So LifeStrategy is slightly cheaper at 0.37% compared to Nutmeg’s 0.62% including the fund fee – but remember that Nutmeg fees are cancelled for the first 6 months if you use our link.

Which has the Best Returns?

These are stock market investments so we can’t say with certainty what their future returns will be. But we can look at past performance as a guide.

Comparing the highest risk options from each provider, Nutmeg 10 vs LifeStrategy 100% Equity, we see two excellent investment options.

Nutmeg comes in with a historical average annual return of 8.9% since 2013, smashing the stock market average which we might expect to be around 7%. We love to see a graph tick upwards!

While Vanguard has done even better, with historical average annual returns of 10.0% since inception in 2011! If you’d invested £10,000 back then you’d have more than doubled your money by now.

Both funds average returns are since inception, so slightly different time periods, but Vanguard on the face of it wins the best historical returns test – but it’s so close as to not make much difference for future expected performance.

Your investment is looking like it’s in safe hands with either of these legendary providers.

Conclusion

Both options are excellent for diversification and returns. If you’re looking for simplicity as a new investor, choose Nutmeg.

If you are already set up on a premium stocks and funds trading platform, consider simply buying LifeStrategy through it and – boom! – you’re all set.

If your objective is to reduce fees, both are very cheap and therefore both are great choices, and Nutmeg has no fees whatsoever for the first 6 months when you use the link on the Offers Page.

Robinhood is Coming to the UK – What We Can Expect

Robinhood! The app that changed the investment landscape for ordinary investors in the US is finally coming to the UK. It’s been talked about for some time, but it’s just been announced that its going to land in early 2020. It really is exciting times in the investment world right now.

Being based in the UK we’ve not had the pleasure of using the app ourselves but have heard endless stories from those across the pond about how revolutionary Robinhood has been.

For those wondering what these two guys are babbling on about – Robinhood is of course the pioneer of commission-free investing.

This is not just a claim. They’ve got over 6 million customers in the US and changed how investing is done forever; essentially forcing all the major US investment platforms to follow suit and laying to rest those much-loathed trading fees.

Here in the UK we’re always a little behind the pace but we’ve already seen a few investment apps bring commission free trading to the UK including Freetrade and Trading 212.

When it comes to the UK market is Robinhood too late to the game? And what can they do differently that the likes of Freetrade aren’t already doing?

Here we’re going to look some of the cool things we can expect from a Robinhood UK Investment app.

Editors note: For those who can’t wait, check the MU Offers page and grab your free shares worth up to £200 when you open an account with Freetrade, the current king of free investment apps in the UK.

YouTube Video > > >

What Can We Expect?

Looking at an article from Techcrunch, Robinhood are claiming,

“It starts with our core platform: unlimited commission free trades, no account minimums, and access to a huge range of equities from both the US and from across the world,”

“Secondly, we will enable instant deposit, instant trading, without any foreign exchange fees. Users can fund very easily from any U.K. bank using a phone or debit card and withdraw just as easily”.

That all sounds great but doesn’t appear to be much more than what we currently have. Freetrade and Trading 212 are already offering most of this after all, and are very good Free-Trading apps.

Nevertheless, we welcome Robinhood with open arms as the increased competition can only be good for us investors.

The current free apps in the UK are lacking additional features, so it will be interesting to see what Robinhood offer. Although it is still very early days and improvements are being made all the time.

He's on his way, folks!

According to Techcrunch, Robinhood will also include information to help with trading, including videos from the Wall Street Journal, CNN and Reuters, along with features to help users keep track of their investments, such as price movement alerts, analyst ratings, earnings, and being able to dial into earnings reports.

This sounds awesome and we think the current assembly of free apps is not yet excelling in this area.

However, we doubt that even Robinhood will be able to deliver as much as a fee-based platform but we’re eager to find out.

We might be wrong here and let’s hope we are. How great would it to have an all singing and dancing investment platforms that doesn’t charge?

According to CNBC, Robinhood have a valuation of $7.6 billion, so they certainly have the financial backing to make this a possibility.

Commission-free investing in the UK is going to be massive

New Investors

Here at Money Unshackled we’re on a mission to get more people thinking and talking about money… actually not just talking – we want people taking action with their money.

Young people in UK don’t invest, which is a travesty. It is so easy to make a fortune in the markets over the years, but nobody is doing it.

Apps like Robinhood and Freetrade are not just stealing customers from the existing platforms but they are democratising investing and opening it up to new and young investors, which otherwise may have felt that investing was inaccessible.

The ability to buy shares in exciting companies like Apple and Google using your mobile without being charged is so incredible.

Join the Waitlist?

At the moment you can join their waiting list. We think the idea here is to pretend that there’s some sort of urgency to join up in order to get more people to rush to their app.

We remember Freetrade doing something similar when they launched but we’re confident that when the app becomes available, they will let everyone use it pretty much straight away.

We are even tempted to say that you shouldn’t rush to the app because they could even offer you a free share to join because of the tough competition.

Almost all the apps and platforms are trying to entice you to join and so are giving away free money. You can check the offers page to see what offers we’ve managed to find for you.

We would expect that Robinhood will initially be giving nothing away but once the initial early adopters have signed up, we would then expect them to join the ‘refer a friend’ revolution.

We’ll certainly be getting in touch with them to see if they can offer anything to our viewers, so look out for this.   

Should you join the wait-list?

FSCS Protection?

Normally UK citizens are protected against platform failure by the Financial Service Compensation Scheme, which is a UK protection scheme.

However, according to Robinhood UK’s own website it seems that protection will instead come from a US scheme. This does seem unusual as all the investment platforms we’ve dealt with previously were either UK protected or occasionally European protected via the EU passporting laws.

Is it just US Stocks?

Again, according to Robinhood you can trade 3,500 US stocks plus over 1,000 global stocks listed on NYSE and Nasdaq. This isn’t clear on which stocks will be available, but it seems that it is only US listed stocks.

Let’s hope that this is just for the launch and UK listed stocks and ETFs are just around the corner.

If not, then we think this would put them at a massive disadvantage when compared to Freetrade and Trading 212.

Do you think Robinhood is the gamechanger we’ve all been waiting for or is Freetrade and Trading 212 already doing way more? Let us know in the comments section.

The Best Way to Invest In Peer to Peer Lending (P2P) – Is Orca Any Good?

Peer to Peer Lending is today what the high interest savings account was a decade ago – 5%/6% interest returns on your deposited cash – actual cash in hand returns instead of pennies!

The only difference is that savers must now become investors, meaning they take on some risk – you are lending your money to people and businesses after all, and some may go bust – but some of the platforms and services like Orca seek to minimise this risk as much as possible.

It is simply fact that in the modern age of ridiculously low interest rates, to win in life some risks now must be taken to get those life changing returns.

But is there a best way to invest in P2P Lending?

Editors note: Don’t forget to check the MU Offers page when signing up to P2P platform – you could miss out on a £50-£100 cash bonus!

YouTube Video > > >

Avoid the Large Returns

Counter intuitive? Not at all. There are some P2P platforms out there that advertise returns on investment of 20% or more – what they don’t advertise is that such high returns on a zero-effort investment means risk must be sky high.

20% of nothing is a 0% return – these platforms tend to invest in one big project that may or may not succeed.

Think about it – a P2P platform is a middleman for 2 parties, a borrower and an investor, also known as the lender. The other side, the borrower, must therefore be willing to pay at least 20% of interest on their loans, meaning banks (which tend to lend more around the 7% mark) probably have considered them uncreditworthy.

Peer To Peer Platforms are a middleman for Borrowers and Investors

Focus on business and personal loans

A lot of P2P platforms deal specifically in new build commercial property projects, of the type that tend to be left part finished or made into car parks if a recession hits.

Whereas the P2P platforms we use lend to mostly small and medium sized businesses, with loans split across hundreds of borrowers.

Diversified by business activity, by amount and by project, this type of loan portfolio will include some businesses who invest in property anyway, but these become a smaller and diversified element of a wider portfolio.

Stick to the Big Names

Sticking with the big, established players in the market is in our view a sensible move.

Ratesetter and Funding Circle for example are to the P2P world what HSBC and Lloyds are to the banking world – big established platforms that are good at what they do.

There are maybe 10 really good P2P platforms that we would rate for providing a professional service with decent returns in the 5%/6% region, most of which we each have significant deposits in.

They’re always evolving and trying to improve their services and returns, but of these, our 3 favourites currently are:

RateSetter

Offering you a choice of rates around 4%-5.5% depending on whether you want instant access to your cash or don’t mind fixing it, you can set your own acceptable rate to give you greater control over your finances.

Ratesetter has a £100 sign up bonus for new users when you invest £1000, so an immediate 10% boost to your returns in year one. Ratesetter also has a provision fund, to protect users from defaults on loans, on the rare occasion when one of their carefully vetted borrowers goes bust.

To date, nobody has lost money to bad debt on Ratesetter thanks to this provision fund: it has a 100% track record over 9 years ensuring that no investor has lost a penny.

We feel our money is in safe hands with these guys, but of course there always has to be some small risk of future losses.

Assetz Capital's Great British Business Account offers one of the best returns of the Top Platforms

Assetz Capital

Another great platform, Assetz Capital offers a higher interest rate of 6.25% on its Great British Business Account.

It also gives you a £50 sign up bonus if you invest £1000 with our link, so another 5% boost in year one. All these sign up links are on our website, linked below.

Remember, on these decent platforms your investment gets split into hundreds of loan parts, lending to many, many businesses at once.

Some of these will go bust, but these losses tend to represent a sub 1% hit to your returns.

The last 7 years have seen Assetz Capital evolve from 10% borrowing rates with 5% defaults, to lower 7% borrowing rates and tiny 0.1% defaults over the past 3 years.

They’ve clearly de-risked the portfolio as they’ve grown and are being more selective about the businesses they accept as borrowers.

We can testify that in the couple of years we’ve each been using it, we have been receiving the target return.

Lending Works

Another sign up bonus, £50 for £1000 invested, another big interest rate of 6.5%. That’s on Lending Works, again with a provision fund to protect your losses (called the Shield).

Lending Works make a big deal about their Shield, which has resulted in every payment of capital and interest being paid to lenders on time since they launched in 2014.

Once you have more than an emergency fund, why would anyone leave their savings languishing in a bank savings account? 0.1% interest rate? No thanks – we’ll be using Lending Works, Assetz Capital and Ratesetter.

Many of the best platforms, including those mentioned here, have Shield Funds - Provisions that protect you from bad debt

Minimise Your Platform Risk

The reason we each started investing our wealth into multiple P2P platforms (aside from receiving multiple sign up bonuses), was to massively dilute our risk, without sacrificing returns.

You could just invest in Assetz Capital for a 6.25% return, and spread your loans automatically amongst hundreds of businesses, but what happens in the unlikely event that Assetz Capital goes bust?

This is called Platform Risk, and the way to mitigate it is to use multiple platforms.

The risk of one of these platforms actually going bust without a contingency plan is small, but why take the risk in the first place when we’re talking about thousands of pounds?

You could invest £3,000 across the 3 platforms mentioned earlier – £1,000 into each – and if one did collapse during a nasty recession, only a third of your pot is at risk.

Orca is a cross-platform service that seeks to tackle this platform risk on your behalf, but is it any good? Let’s take a look at Orca.

Orca Money

Orca Money is a platform of platforms, or put another way, when you deposit money into an Orca account it invests on your behalf into multiple P2P Lending platforms.

This is a great innovation, but falls short of the best way to invest in P2P in our opinion. The most diversified offering requires a minimum investment of £7,000, which spreads your investment across 4 platforms.

Orca: A Platform of Platforms

We’re actually annoyed that the platforms you see below are the only platforms on offer – no Ratesetter, no Lending Works, no Funding Circle.

If you invest less than £7,000, you get less diversification: £3,000 diversifies across just 2 platforms, most of which is in Assetz Capital (which we love), and the rest in Landbay (which we’re sceptical of as it is a higher risk property projects platform).

It’s the same mix when you invest £1,000. For £1,000 you are probably better off just picking one platform and being diversified across many businesses rather than putting £300 into Landbay – and scooping up a sign up bonus by going direct.

If you have £2,000 or more to invest, we say split that money across 2 or more platforms directly instead of through Orca – and achieve better diversification.

One good thing though about Orca is you can invest through an ISA, into multiple platforms.

This is not possible going direct, as you only are allowed one ISA per year. It is on you to weigh up if an ISA is important to you, versus the benefits of going direct.

The Orca Platform, which invests in up to 4 other platforms

Double Fees

Finally, diversifying your P2P investment through a third-party platform like Orca results in a double layer of fees – fees are already built into the returns of the individual platforms, but then you have Orca fees on top!

It may be worth it for the all-in-one approach, with an ISA wrapper around the whole portfolio, though it is not our preference to pay extra fees, and an ISA only comes into its own once you are making over £1000 of interest each year.

We appreciate what Orca is trying to do by addressing platform risk, but you can just go direct and open accounts with your favourite platforms.

Best Way to Invest in Peer to Peer Lending

Diversify across multiple platforms to limit your risk and scoop up all those juicy sign-up bonuses in the process.

As well as the 3 platforms we mentioned above, we also invest funds into Funding Circle, Zopa, Growth Street, and Lending Crowd – most of which also have sign up bonuses. The links for all of these are on the MU Offers page.

There's a time to double-up... and it aint with fees!

Don’t keep your money wasted in the bank. Get it working for you!

How much do you have in P2P and do you use any of the big platforms mentioned in this article? Which one do you think is best? Let us know in the comments below.