Runaway Inflation – Will The ‘New Normal’ Ravage Your Portfolio

Since 2008, major central banks have pumped over $25 trillion into the global economy, with over $9 trillion in response to Covid-19 alone. Around half of that has come from an America that is addicted to money printing, doubling their magic money tree from $4trn to $8trn during the pandemic.

These are astonishingly huge sums. The thinking goes that all that extra money sloshing around, along with record low interest rates, may have already pushed stocks to unsustainable highs. But is this the calm before the storm?

The UK consumer price index, which measures the cost of a typical basket of goods and services, flew up from 2% in July to 3.2% in August, and it’s forecasted to keep climbing.

In America, the Biden money-printing could “set off inflationary pressures of a kind we have not seen in a generation,” wrote a prominent figure in Biden’s own party. Bank of America estimates that the U.S. government will have spent $879m every hour in 2021. The results could be devastating.

The shut-down of the global economy and subsequent policy responses have us teetering on the brink of a period of runaway inflation. Whether or not it happens will depend on the competency of Western politicians to fight it – the same politicians, incidentally, who got us into this mess in the first place.

So, assuming they cock it up, what impact will runaway inflation have on your investments and home finances? Let’s check it out…

And the end of the article we cover the best investments to defend against runaway inflation, along with the best places to buy them. Offers for all of these investing platforms are available on the Money Unshackled Offers page.

Alternatively Watch The YouTube Video > > >

Panic In The UK

There are lots of reasons to be startled by the latest inflation figures. A CPI of 3.2% in August not only puts it at the highest level in nearly a decade, but the month-on-month change from July to August is the biggest increase since the CPI was introduced as a measure of prices in 1997.

That’s high, but fine if it’s a temporary thing. We know the world has gone mental recently, and crazy economic statistics are becoming the norm in 2021.

But what if it’s not temporary? There are still inflationary pressures heading down the tracks, including a massive shortage of truck drivers set to result in food shortages and increased prices over winter. There’s even talk of Christmas dinner being cancelled for all but the wealthiest of families due to the shortages. All this continuing pressure on prices may cause high inflation to become “sticky” – meaning it hangs around for the long-term.

It’s now looking like the best outcome would be inflation rising to just 4% by the end of 2021. And that’s double the target rate of inflation desired by the UK’s central bank.

Across the board, prices are rising far faster than usual. In the past few months, the wholesale price of electricity in the UK has almost quadrupled from £40 to £160 per Mwh, spiking in the past fortnight to the highest level on record.

It is widely predicted that due to a shortage of gas and greater reliance on expensive green energy that we are facing further sharp increases in both electricity and gas bills in the coming months.

The Bank of England warned earlier this year about a “nasty surprise” coming our way. They’re right to be worried. An inflationary spiral, where prices rise ever higher, is what inflamed the economic instability and high unemployment in the 1970s, an ordeal which took many years, if not decades, to recover from.

House Prices Through The Roof!

The CPI measure of inflation doesn’t include the cost of buying homes. If it did, we would see a far higher figure for inflation.

The latest house price inflation data runs to July 2021, and shows house prices up a massive 8% annually, reported as a good thing by the press because that’s down from an even higher 13% in June.

“Ah, but this is due to the meddling of the UK government in temporarily relaxing stamp duty”, I hear you say. But that’s not the whole story.

Over in America, the median sale price of a home rose 22.9% in the year from June 2020 to June 2021, smashing all records. And this obviously has nothing to do with relaxing stamp duty in the UK.

The so called ‘new normal’ of home working, combined with low interest rates, has massively increased the demand for homes.

Where before 3 or 4 people would be content in a house share, they all now want their own space. But new houses are not being built fast enough.

These same economic forces are at play in the UK. House prices are creeping up, and up, and up, stamp duty holiday or not.

Is Inflation Good Or Bad For Investors?

Inflation means the prices of things go up… so good if you own assets… right? Well, inflation typically refers to the price of consumer goods, not investment assets, and is in fact one of the main reasons you need to invest – to try and beat inflation. A higher rate of inflation makes that task more difficult.

There is inflation itself; and then there is the government response to it.

If inflation gets too high, governments will try to squash it back down. This could include raising interest rates or cutting back on the money printing… or both. Doing either is bad for investors.

Increased Interest Rate

Increased interest rates are bad for leveraged investors, such as landlords with mortgaged properties, because their loan interest costs go up, and there are fewer people in the market who are able to afford to take on debt to buy your assets from you, reducing their market prices.

Increased interest rates are bad for owners of stocks too, because the businesses they are invested in have increased costs of borrowing, reducing profits, and with them, dividends and stock prices.

Cutting QE

It’s widely accepted that ridiculous levels of quantitative easing are responsible for record high prices in the stock and other asset markets.

Pumping cash into the economy makes cash less attractive, and pushes up the prices of assets like stocks, bonds, property, gold, crypto, and so on.

To fight inflation, central banks could claw back some of their money printing. When they magic money from thin air, central banks like the Fed typically lend it to the government in return for government bonds. In 2019, the Fed was selling down their holdings of these securities, reducing the amount of cash in the economy. They would need to try doing something similar now if inflation got out of hand.

Taking cash out of the economy would make cash more attractive again, moving money out of stocks and other investments and reducing their market prices.

High Inflation Impact On Stocks

High inflation itself also drives down the profitability and growth potential of companies, and hence share prices. Fewer customers can afford to buy products, and the costs of materials and labour go up.

And if inflation suddenly goes from 2% to, say, 4% very quickly, investors will want a higher return to compensate. The stock market will likely drop as a result to give investors that extra value.

Is Inflation Ever Good For Stocks?

Inflation is not all bad. Some inflation can be beneficial. Mild inflation is generally good, because it’s a sign the economy is growing, and businesses can raise prices.

“When examining S&P 500 returns by decade and adjusting for inflation, the results show the highest real returns occur when inflation is 2% to 3%,” says Investopedia. That’s about where we are now. So, a modest amount of inflation is in fact a good thing.

High Inflation Impact On Investment Property

We’ve mentioned how a government response to inflation could push up interest rates, putting the boot into the ribs of hard-pressed property investors and homeowners alike.

But the run-up period of inflation before this will likely send your properties’ prices soaring.

As an owner of multiple properties, I’ve been rather enjoying the recent double-digit inflation in the housing market. But it must be a bitter pill to swallow for new investors.

This initial inflationary boost to your equity may provide a cushion that helps to counteract any negative fallout if interest rates do go up.

Savers May Be Glad… At First

Savers may initially rejoice at a raising of interest rates, as they watch their high street savings account go from a 0.5% rate of interest to perhaps a 2% rate of interest.

That joy will turn to ash though when they realise that inflation in the shops has gone up by more than this, meaning their actual real returns are EVEN MORE negative than they were before. No matter how high inflation gets, central banks can only increase interest a LITTLE, or risk collapsing the economy.

Presumably cash savers are 100% reliant on their job for their income too, as opposed to investors who may own passive income generating assets.

We are all familiar with the pathetic 1% annual pay rises in the UK. When inflation is 5%+, but wages are stagnant, how will cash savers be able to keep building their wealth?

High Inflation Impact On Bonds

Holders of fixed income securities like bonds do poorly in a high inflation environment, because that fixed income has less and less purchasing power, driving down the price of bonds. Higher interest rates on newly issued bonds drives down the value of existing bonds as their lower coupons are less attractive.

How To Defend Against Rampant Inflation

So, stocks overall do poorly in a high inflation world, as do bonds, as does cash, as does property. So where exactly can we store some of our wealth to help defend against runaway inflation?

Many investors, including us, believe gold offers protection from long-term inflation. Gold is a store of value: its supply is limited, unlike cash which can be magicked in and out of existence.

Also, its history doesn’t lie. We see below how the gold price shot up in response to inflation in the 1970s, then loosely tracked it. In 2008 there was a massive correction in gold’s favour when people lost all faith in cash following the 2008 crisis and the resultant quantitative easing. During the pandemic, gold has shot up again when the banks once more fired up the printing presses, ahead of the inevitable inflation wave that is now hitting us.

We buy gold through the iShares Physical Gold ETC, and it’s free to trade on platforms like Freetrade, Trading 212 and InvestEngine. If you buy your gold through any of these platforms, new customers will get free shares worth up to £200 or a £50 welcome bonus.

Cryptocurrencies like Bitcoin, in theory, should do the same job as gold. They have similar qualities to gold in that there is a limited supply, and they are beyond the reach of meddling central bankers. But unlike gold, we can’t prove this hunch with a nice historical graph because, well, there is no history!

New users to Coinbase, one of the most popular crypto trading platforms, will get some free Bitcoin when you sign up using this offer link.

You can also hedge against rampant inflation by investing in certain stocks that benefit, or at least are not disadvantaged, by a high interest, high inflation environment.

These include:

  • banks like HSBC and Lloyds (who love it when interest rates on their loans can go up);
  • big blue-chip stocks like Coca Cola that sell everyday essential products and have little in the way of debt;
  • quality high-dividend stocks like British American Tobacco, who have a history of growing their dividend in real terms.

Grab a free trial subscription to Stockopedia here to get a full analysis of these stocks, and thousands more. The link also gets you a 25% discount on a paid subscription.

Are you worried about runaway inflation? Or are you upbeat about the economy? Join the conversation in the comments below!

Written by Ben


Featured image credit: Brian A Jackson/

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

How To Release Equity From Your Home To Get £50k+ In Cash

Imagine transferring £50k of extra cash into your bank account, without having to work to get it. Think what you could do with that money. The world would be your playground. This is what I did in my late twenties, and by investing the cash wisely, it transformed my life.

The way I did this was with equity release. Equity release is the popular name for products that provide homeowners with a way of releasing wealth tied up in their property, without having to downsize and move house. I got £50,000 out, but you might be able to get much more.

Your ‘equity’ is the difference between the value of your home and any mortgage you might owe. Equity release can give you access to some of this money, which would otherwise stay tied up in the value of your property.

If you’ve owned your home for even a handful of years, it’s likely that the property may be worth considerably more than what you first paid for it. On average, UK house prices increased by 17% in the five years to 2020, and are up a further 6% in the first half of 2021 alone! This could mean that you have an enormous sum of money locked away waiting to be accessed.

Here we’ll explain how equity release works and show you the different options available to do it no matter your age.

Maybe you dream of home improvements or a holiday, or maybe you intend to live off the money. For us, we’d use the cash to buy some income generating investments. Whatever you’d like to use the money for, equity release will help get you there. Let’s check it out!

Another way to make easy money for minimal effort is with Matched Betting, a risk-free technique to profit from the free bets and incentives offered by bookmakers. It can make you £500+ every month for less than an hour a day of effort.

Go to the Matched Betting guides to find out more, and for all the latest offers.

Alternatively Watch The YouTube Video > > >

A Plan For Any Age

Traditionally, equity release products are aimed at the over 55s. A specialist industry has grown in this space, with a very interesting range of products aimed at lump sum and regular income withdrawals.

But if you’re younger than 55, fear not: I just told you that I’ve already done this, and I’m 33. But if you’re over 55, or you can wait until then, the specialist products for this age group – known as Lifetime Mortgages – are tailor made for this job, so are worth prioritising.

For Lifetime Mortgages, the most common qualifying criteria are:

  • The youngest homeowner is 55 or over;
  • You own the property, either outright OR with a mortgage;
  • The property is worth more than £70,000;
  • If you have a mortgage, you will have to pay this off with the money you receive from the equity release.

If you’re under 55 this option is closed to you – to release equity, you’ll just need to be able to qualify for a regular mortgage on your house’s current market value.

How Much Equity Can You Release?

This comes down to your property’s value, and if you’re under 55, your income. For Lifetime Mortgages, your age is also factored in, and with some providers, your health.

The two times I have released equity, the gap had widened between my mortgage amount and the value of my home. This is due both to monthly mortgage repayments reducing the size of the loan, and to market prices pushing up the property value.

With the specialist products for the over 55s, the amounts you can release are much more clearly defined.

For Lifetime Mortgages, typically you can release between 20-50% of your property’s value. The older you are, the more you can release. You can withdraw even more than this with a product called a Home Reversion Plan: more on this soon.

In terms of timeframe, most equity releases take between six to eight weeks to complete.

What It Costs

Let’s be clear: most equity releases result in an increased mortgage amount against your property. As such, there is a cost. The main cost is the annual interest on the loan, currently around 2.5% on Lifetime Mortgages, fixed for the rest of your life.

If you’re averse to debt, this might sound expensive, especially the “for the rest of your life” part, but consider that 2.5% is essentially the same as inflation. Your property is likely to grow even faster than this, based on historic property growth rates of 5-7% annually.

And it depends on what you are using the cash for. If you choose to invest it over the long-term, 2.5% is perhaps a small price to pay for the rate of return you could get from the stock market for example, typically between 8-11% historically.

There will be some other upfront costs, including loan arrangement fees typically in the region of £1,000 which can be added to the amount you’re borrowing, and any brokers and solicitors’ fees for sorting this all out, which will typically add up to another grand or so.

The Specialist Products: How Lifetime Mortgages Work

Lifetime Mortgages are a growing but relatively unheard-of industry, serving only 500,000 UK homeowners since 1991. Barely anyone has taken advantage of these life-changing products!

If you take one on, you have the right to remain in your property for life, or until you need to move into long-term care: you can’t be evicted by the bank. You also have the right to move to another property so long as your new home is suitable collateral for continuing the arrangement.

With equity release, monthly repayments aren’t necessary. You can choose to enjoy the money now, and let the interest be taken from your estate upon the sale of your property, typically after you and your partner have passed away.

Alternatively, if you decide to pay the interest each month, your loan balance remains static.

Finally, with a Lifetime Mortgage you get an amazing feature called a “no negative equity guarantee”. You don’t get this with a normal mortgage.

A “no negative equity guarantee” means that when the property is sold and all selling fees paid from the proceeds, EVEN IF the amount left over is not enough to fully repay the loan, the difference will be written off. Sweet!

The Different Types Of Equity Release Products

First let’s look at the different products available in the equity release market for the over 55s, and then we’ll look at how you can manufacture your own equity release by using normal mortgages, regardless of your age.

#1 – Lifetime Mortgage

If you want to release a lump sum of cash up to 50% of the house’s value, a Lifetime Mortgage could be for you.

There is no requirement to make monthly repayments, as the amount you release, plus any interest, is repaid from the proceeds when the property is eventually sold. You can choose to pay towards the interest if you like, for those worried about leaving a more intact inheritance to their heirs.

#2 – Income Lifetime Mortgage

This one is really interesting because it allows you to turn your home into an income stream! An Income Lifetime Mortgage gives you flexible access to your equity. Rather than releasing a lump sum upfront, you can release your cash over time as a regular income.

If the value of your house is expected to go up by X amount each year, you might decide to withdraw that amount, less the interest cost and perhaps less inflation too, as an income each year.

Think about it! You can add an extra income stream to your other retirement incomes, without depleting your home equity!

#3 – Home Reversion Plan

This is an option for those who really need the cash. With these, you can take out even more equity than with a Lifetime Mortgage, typically up to around 60%. But it comes at a terrible price.

In exchange for a lump sum worth 60% of the value of your home, you would be signing over the entire ownership of your house to the product provider. Not the best of deals. But, you would not be taking on any debt, and you would get the right to stay living in the property for your lifetime, so this will no doubt appeal to some people.

How To Do It Yourself If You Are Under 55

If you are under 55, the only way to release equity from your home – other than moving house – is to get clever with how you use normal mortgages.

I’ve done 2 equity releases on my house over the years. Here’s what I did the first time. I ran a quick calculation to make sure that the finances worked, which was as follows:

  • I got my house valued for free by Yopa at £230,000. I was confident then to start the formal remortgaging process, as you need the bank to agree with your desired valuation. They did, and also valued it at £230,000.
  • I knew the new mortgage would be around £207,000 at a 90% LTV. The bank would pay this amount to my solicitors, who were provided by the bank as part of the service.
  • My old mortgage would need to be paid off by the solicitors, at £179,000. This would leave the solicitors holding nearly £28,000, payable to my bank account.

So I pushed ahead with the plan, and received nearly £28,000 in my bank account a few weeks later.

Was It Worth It?

We’re not suggesting you release equity to squander the money on frivolous things like holidays or fast cars. Although you could.

I put the released equity into a buy-to-let property, the expected investment returns on which were 20% annually. Minus the additional interest payments from the equity release, the net annual benefit was £3,600.

If you ever plan to release equity, you want to be able to do so on your schedule and at the opportune moment. If there is an Early Repayment Charge on your existing mortgage, you would either have to wait to be clear of the fixed-term period, or pay the price. I had to pay an ERC to break contract when I did this, but it would have been unnecessary if I had avoided a long fixed period in the first place.

Things To Consider

The new lender may ask you what you plan to do with the money. While we think it’s really none of their business, it’s best to be honest.

Banks are usually uncomfortable with the thought of you investing your borrowed money, when you could be spending it all on a holiday like a normal person. It’s a strange world we live in.

Here’s where using an independent mortgage broker comes in handy, as they will know how best to circumnavigate any uncomfortable questions in the application process.

And if you’re going for a Lifetime Mortgage, a chat with a financial advisor who specialises in these products would be sensible too.

It’s also worth remembering that just selling up and moving to a cheaper property could be a simple alternative to equity release, resulting in a similarly large lump sum of cash. This might be done through downsizing, or by moving to a part of the country with lower house prices.

For Lifetime Mortgages, releasing funds in your lifetime that would otherwise stay tied up in your home until you pass away will reduce the size of your estate for inheritance purposes. Lifetime Mortgages aren’t designed to be repaid in your lifetime.

Finally, consider what your life could be like with a huge injection of cash at just the right time.

Equity release changed my life: it bought me a couple of extra sources of income from investment properties; as a cash buffer, it gave me the confidence to quit jobs with nothing else lined up; and it eventually let me quit my career altogether and go full time on YouTube. What will it do for you?

Have you ever considered releasing equity? And when you’re over 55, would you draw an income from your home? Join the conversation in the comments below!

Written by Ben


Featured image credit: Dean Clarke/

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

Saving A House Deposit Or Building Your Investment Portfolio: Which Comes First?

Getting onto the housing ladder is becoming increasingly difficult. In fact, latest figures show only 50% of all 35-44 year olds had a mortgage, down significantly from 68% in 1997. When this dataset is next updated by the ONS, the decline will no doubt be even worse.

At the same time, people in their 20s and 30s are becoming more aware than ever of the importance of investing for their futures.

Unfortunately, the state pension is unlikely to exist in its current form for them, and gone are the days of final salary pensions. If you’re not investing from a young age, your future is looking grim.

Investing and home ownership are both worthy financial challenges to tackle, but the 2 goals are conflicting. How can you save up for a house deposit, AND invest adequately for your future?

Which target should you prioritise first? The roof over your head, or avoiding a miserable retirement?

Today we’re going to try to solve this problem facing the majority of young people, on which goal to tackle first from a financial perspective. Should you save for a house or invest in the stock market?

And if you’ve already saved up for a home, has the missed opportunity of many extra years of compounding investment returns done irreparable damage to your investing potential?

If you’re new to investing and want the professionals to manage your money, a great option for hands-off investors is to open a Stocks & Shares ISA with Nutmeg. They also offer Lifetime ISAs to help with saving for a house deposit.

New customers who use this special link will also get the first 6 months with ZERO management fees. If you’d rather manage your investments yourself, check out our hand-picked range of ‘do-it-yourself’ Stocks & Shares ISAs, here.

Alternatively Watch The YouTube Video > > >

A Growing Problem

The dilemma facing young people about whether they should start investing or save for a house deposit is getting more obvious with each passing year.

Firstly, investing is now more accessible than ever. You can now invest on many platforms without fees, and with minimum investments as little as £1. Information about the stock market is plentiful, is easily accessible and is free on places like YouTube.

Investing has been made omnipresent and accessible to the point that anyone can pick up a phone and buy some stocks.

This openness has removed a barrier that previously would have stopped most people from even considering investing, and made young savers think that maybe they should be abandoning the decades long attempt to build a house deposit and build a financial future through stocks instead.

However, at the same time, the prospect of ever owning a house is receding into the distance. House prices have gone up by an average of 5.2% over the last 20 years.

Why is this a problem? Because that is MUCH higher than wage inflation, which has averaged just 2.8% a year over the last 20 years. Incomes are not keeping up with the rate that house prices are increasing.

While you’re saving, house prices are going up in real terms. So more and more it feels like if you don’t try and buy a house right now, you’ll never get a better chance.

Why Not Do Both? Couldn’t You Whack Your House Deposit In The Stock Market?

Seems reasonable right? You’ve got a lump sum of cash just sat there idling in the bank while it slowly gets added to from your saved wages. Why not take it out, invest it, and get to your goal quicker?

Many people do this, and there are certainly success stories – but the same can be said of people who put it all on black on the roulette wheel.

The stock market can go up as well as down in the short to medium term, so we would not advise anyone to put their house deposit into the stock market unless you don’t plan to buy a home for at least 5 years, and preferably longer.

Otherwise, there’s a good chance you could have lost money on your house deposit at the point when it’s needed. It’s therefore usually best to keep the 2 goals separate.

3 Reasons To Save For The House Deposit First

#1 – A House Can Be An Investment

Your home is not an investment in the traditional sense of the word – a house costs the owner a fortune to maintain, and any capital growth can’t easily be accessed unless you decide to sell up and live on the streets.

But there ARE ways you can make the house turn a profit, by charging other people for the use of your assets.

The usual thing to do is to get a live-in lodger or two, or do Airbnb. A couple of lodgers paying rent could easily cover the cost of your mortgage and eliminate your biggest cost of living – a great investment.

But you can also rent out your driveway for day commuters; let someone park a mobile home or trailer on your land; or lease out your garage, attic, and spare room for storage space.

A house can also be a great investment if you geo-arbitrage it. This is when you intend to sell up the house in the future and move to a less expensive area.

Maybe you’ve managed to get on the housing ladder in London and can afford it due to your high London banker’s salary, but could see yourself retiring to Yorkshire. You might one day liquidate a £1m townhouse to buy an equivalent sized semi in Leeds for £300k.

#2 – The Emotional/Cultural Need

For most people in this country, home ownership is a defining feature of whether or not you’re a proper adult. This is an aspect of British culture, where 63% own their homes. This is down from 71% in 2004, when buying a house was much easier.

On the continent they are not as fussed as we are about this. The Germans and Austrians quite like to rent, with only 51% and 55% respectively owning homes. The Swiss care even less about home equity, with just a 42% rate of home ownership.

On this channel we don’t think whether you own a home or not defines you as an adult – having an investment portfolio and choosing to rent is just as valid a life-choice. Nor do we buy into the myth that renting is dead money: check out this article next on the merits of buying vs those of renting.

But if you’d sleep better at night by keeping up with the Joneses, then buying your home first is the right choice for you.

#3 – Investment Returns Don’t Matter So Much Initially

If you’ve got 2 or 3 grand and you’re stressing about where to put it… don’t. Your investing returns are likely to be miniscule in terms of pounds and pence, compared to what you’ll be able to make one day when your pot is much larger.

When you’ve got a decent sized house deposit built up, this might be a different story. If you’re enjoying this content, give us a big like to let the YouTube algorithm know that this video rocks! You can also show us some appreciation with the new Super Thanks button below.

1 Big Reason To Focus On Investing: The Compounding Boost Is Insane

First-time buyers now need an average of £59,000 to get on the property ladder, a 2021 report by Halifax bank has revealed.

That’s up £12,000 from the previous year. This is the national average: in London, first time buyers need an average deposit of £133,000!

Those numbers are huge, and represent many years of saving hard. How many years? A lot. ONS data tells us that of people between the age of 22 and 29 years, about 40% have not yet managed to save anything at all, while around 10% have savings of between £2,000 and £3,000. Only around 25% have saved more than £6,000.

And £6,000 is the also average savings for people aged between 35 and 44. Clearly saving for a house deposit is now a decades long task for most people.

These are decades that you can’t afford to be wasting sitting out of the stock market. Let’s assume money flows naturally to you, and it takes you only 10 years to save for a house deposit, from age 20 to age 30. You save £6,000 a year towards a £60,000 deposit.

Example 1 – Buy House First (Save During 20s)

Here’s how much money you could have when you retire at age 60 if you only started investing into the stock market at age 30, once you’d sorted the house deposit. Keeping it simple we’ll assume you continue to be able to invest £6k a year, or £500 a month, at 6% after-inflation returns. This gives you £500k at retirement, enough to draw an income from.

Example 2 – Invest Instead & Never Buy A House

Now here’s what happens if you choose never to buy a house, and you’d been able to start investing in the stock market from age 20, with an extra 10 years of compounding: you retire with £1m at age 60. The money you had put away in your 20s accounts for HALF of your ENTIRE retirement wealth. That’s the power of compounding over time.

Example 3 – Invest First (Invest During 20s, Save For House During 30s)

If you instead decided to delay buying your first home until you were 40, what effect would that have on your investment pot? Well, you’d be able to invest for that important first decade, which following on with our example provides £494k of after-inflation net worth to your retirement funds.

You then take a decade off from investing between age 30 and 40 to save for a house deposit. Your initial investments are cooking away merrily during this time.

Bear in mind that your required house deposit will likely be higher by then. If houses increase in value by 3% above inflation annually over 10 years, your required house deposit would move from an average £59,000 to £80,000 in REAL terms; a third higher. And a higher house price likely means higher mortgage payments and a reduced ability to invest.

Then you resume investing at age 40, and are able to build up to a further £231k over the next 20 years from your contributions plus growth. This assumes your mortgage repayments didn’t increase.

This amount takes you twice as long to attain, for half the end value of the money you invested in your 20s, again demonstrating the importance of investing early in life. You could end up with £725k, much higher than the £500k you would have got by saving for a house first. But even though your investments are larger, you’d still have a small outstanding mortgage at age 60.

But It’s Good To Own Property, Right?

Unless you’re planning to access the equity in your home by moving to a cheaper city or downsizing later in life – most people don’t – the growth in your house’s market value doesn’t really matter for your finances. Only the size of your initial deposit matters.

You’ll always need a roof over your head – you can sell your house for more, but your next house will cost more too as a result of the whole property market going up together.

Our Preferred Order

Before you set money aside each month for your house deposit, earmark some for investing on a small scale. If you can afford to save £500 each month in total, maybe you just invest £100 of that.

The goal is to learn while the stakes are low, with a large enough amount for you to care about how the investments perform, but not enough to get in the way of your other objectives.

You should always have an investment account even if it only holds a few hundred quid, so you can spend your formative years figuring out the stock market. Like anything worth doing, investing takes experience and time to perfect.

Ramping up your commitment to investing earlier means you get to experiment and make mistakes while your pot is small and it matters less. Once you’re older with a family, a mortgage, and responsibilities, you’ll be too scared to start once you have more to lose.

With your remaining savings you can save for the house deposit if that goal is on your dream-list. When the house is bought, every spare bit of cash you have should be going into building your investments. Nobody cares more than you do about your retirement, least of all the government. Your future finances have to be YOUR priority.

Which do you think should take priority – saving for a house, or building a freedom fund? Join the conversation in the comments below!

Written by Ben


Featured image credit: Dean Clarke/

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

Boris Delivers Tax Blow | House Prices Going Mental | Brits Are Unprepared For Next Crisis

Welcome to MU News. Today’s financial headlines:

  • Boris Johnson U-turns again by breaking Conservative manifesto pledge not to increase national insurance, income tax or VAT.
  • Average UK house price hits eye-watering eight times average salary.
  • Mortgage price war ramps up as Nationwide offers record breaking sub 1% five-year fixed rate deal.
  • Lloyds Bank plans big move into the UK rental market by becoming the UK’s biggest landlord with 50,000 homes.
  • Contactless card payment limit to increase to £100 from October. Expect it to be a ‘thief’s dream’.
  • James Dyson is telling you to get back to work. Dyson says that working from home makes firms less competitive.
  • The UK’s finance watchdog declares Binance is ‘not capable’ of being supervised.
  • The Royal Mint has recorded a fivefold rise in young adults taking a stake in Gold. Is it time to protect yourself against inflation?
  • Interactive Investor lines up banks for blockbuster London flotation.
  • And finally, the UK faces a £371bn savings shortfall.

In today’s episode we’re trying something new. We’ve gathered all the latest money news from the past few weeks that matter most to your finances. If you find this financial news bulletin useful then hit that like button and let us know down in the comments. Let’s check it out…

Don’t forget to check out the Money Unshackled Offers page where you’ll find free stocks, hundreds of pounds of free cash in welcome offers, and discounted memberships to stock analysis tools like Stockopedia.

Stockopedia will help you pick stocks like a pro, and with this offer link you’ll get a free 14-day trial followed by a 25% discount.

Watch The Video Here > > >

Written by Andy


Featured image credit: andrewvect/

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

Best Money Decisions We Ever Made!

In a recent post we looked at our biggest money regrets and we thought rather than just dwell on the stuff we got wrong, let’s also look at the stuff we got right. So, in this post we’re looking at our 5 best money decisions ever!

Hopefully these inspire you with your own money decisions. Now, let’s check it out…

Today’s offer: New users to Genuine Impact, the research and analysis tool, will receive 1 month’s PREMIUM access for free when you sign up via the link on the Offers Page. Be sure to check them out!

Alternatively Watch The YouTube Video > > >

#1 – Quit Job, After Job, After Job!

This applies no matter what age you are but it’s particularly important if you’re young. The fastest way to increase your salary is to job-hop and that is exactly what we both did, earning big pay rises each time. Job loyalty will cost you a fortune in missed promotions and pay rises!

When you first set out and enter the workforce as a bright-eyed and bushy-tailed graduate or school leaver you will be paid a pittance – and rightly so because you have no experience. You need to get experience pronto.

After Uni – so we were 22 – we both got jobs earning around £23k but we were both able to double that by the time we were 30. We didn’t do this by working ridiculous hours, being the best, or kissing the boss’s ass. Hell no!

Unless you’re a massive overachiever who is able to fly up the ranks within one company – which is rare – we find that most people who stick to one job end up getting stagnated.

They find themselves doing the same crappy job for way too many years and learning nothing new. You pretty much learn the entire role within a few months and then only gain additional experience in very small increments, over years. An employer will not pay you more unless you offer more.

To offer more, you need experience, which you get by changing jobs. Even if you end up doing the exact same job at a different company your CV or profile is boosted because of it.

Don’t believe us? Put yourself in the shoes of an employer who is interviewing candidates for a job. Who are you more likely to hire? The candidate who has been doing the same job for the past 10 years, learning nothing new, or the candidate who has worked at multiple companies and gained a wealth of knowledge?

My first ever full-time job was at IBM. I don’t know the exact reason how I got the job, but I do remember seeing the interviewer’s eyes light up when he heard I had previously worked for their direct competitor.

#2 – Lifetime Tracker Mortgage

Most companies like to lock you in to whatever service they provide. Take out a Sim-only phone contract and you’ll get a better deal if you agree to a 12-month or longer contract compared with a monthly rolling contract. It’s the same with Sky TV. Agree to an extended contract and you only need pay 8 kajillions each month instead of 10 kajillions!

A similar pricing strategy is used by the banks when providing mortgages. These days most people end up taking out fixed-term mortgages for 2-5 years. The bank hopes that you:

  1. a) roll onto the much more expensive standard variable rate; or
  2. b) remortgage with them, so you’re locked in once again; or
  3. c) pay off the mortgage early and thus incur rip-off early repayment charges.

I have always hated being tied down and tend to avoid any company that tries to lock me in, even if I have to pay more for the added flexibility. My first ever mortgage had a 3% early repayment charge, which would have cost me £11,000 if for whatever reason I needed to sell the house.

When it was time to remortgage I vowed to myself that I would never do that again, so when the time came, I opted for a lifetime tracker mortgage. The monthly repayments were slightly more expensive than the alternatives, but you can’t put a price on freedom.

It turned out to be one of the best financial decisions I ever made. My girlfriend and I ended up breaking up and selling the house. Thankfully, we could walk away with no financial penalties.

Strangely, we don’t get that many people asking us for help about which mortgage to pick, even though it’s one of the biggest financial decisions of your life. Life is too unpredictable to be locked into a mortgage for several years, so if we can provide any assistance with choosing a mortgage it would be this: think twice before accepting any mortgage with early repayment charges. If you are forced to sell it could be a financial disaster.

It might be a relationship breakup, redundancy, or worse – a debilitating illness. Sadly, all these things are more common than you think and could quite easily happen to you.

#3 – Financial Freedom Insurance

Half of you might be thinking, “Wow, financial freedom insurance. That sounds cool, what’s that?” The other half will be thinking, “Yawn, insurance is for mugs.” But don’t scoff just yet: hear us out.

Financial Freedom Insurance is the cool name we call Income Protection Insurance, because that’s what it is to us. It’s insurance that we’re taking out to cover us while we’re on the path to freedom, between now and the time our investment pots grow big enough to pay us our forever-incomes.

We are both on the path to financial freedom and one of the biggest risks that could derail these awesome plans is a debilitating illness or accident leaving us unable to work. It needn’t even be anything that major – just enough to stop us from producing videos. Losing the use of our hands or voice for example.

After reading about a voice actor who suffered a stroke and was left unable to speak and so sadly would likely never be able to do voiceover work again, we decided we couldn’t let something similar happen to us.

By taking out Income Protection Insurance we have effectively guaranteed our financial futures today. Either we become financially free through illness, or we achieve it the good old-fashioned way – by grafting and investing as much money as we can.

Income Protection Insurance comes in many forms but we both chose policies that will pay us an income right up until we’re 68. Surprisingly, attaining this peace of mind is far cheaper than you would ever imagine – for Ben (MU co-founder) it’s just £17 a month.

If securing your financial future is something you’re interested in, then check out this page and you can get a no obligation quote from the same broker that we both used.

This might sound like we’re trying to entice you into using one of our referral links, but it’s really not the case. We both took out Income Protection Insurance and consider it essential for any sound financial freedom plan.

#4 – Decided To Go Into Business

Changing jobs regularly was the best thing we did to boost our salaries but the decision to abandon servitude and go it alone was the action that had the most far-reaching impact on our lives.

The story is Money Unshackled legend. We both knew that slaving away for somebody else was never going to give us the money or freedom that we longed for.

In January 2018, we met up at a hotel bar on the side of the M62 motorway to brainstorm business ideas. Days later Money Unshackled was born, the company registered, and website domains and social media tags claimed.

As inspiration for you guys, we’d like to say that we became millionaires soon after this as all that internet money came flowing in but that wouldn’t be entirely truthful. The truth is we’re not there yet and it’s been a grind, but we do get paid to do what we love – which is talking about money and investing.

In terms of income, to date, we would have been better-off financially to have stayed working a high salary, long-hours job, but as Money Unshackled continues to grow and other businesses are spun-off they will hopefully overshadow anything that we might have earned working a job. That’s the way it’s looking at least. As Del Boy says, “This time next year we’ll be millionaires.”

An added benefit of starting this particular business is we literally get paid to think about money 24/7. Our investing strategies have been massively improved because we’ve had more time to learn the best ways to invest and manage money.

One such example is that we recently put together a long-term spread betting strategy that should comfortably amplify our investment returns into the double digits. We’re so excited to see how this plays out and the returns promise to be life changing. You can read about it here. It’s definitely worth checking out if you too want to supercharge your investment gains.

The best feeling you get from starting a business is when that first bit of income comes in, because it’s money you’ve made for yourself from nothing. Our first £50 earned from Money Unshackled means way more to us than all the money earned from a job.

#5 – Make Short-Term Sacrifices

This last one is a catch-all point. It covers all the sacrifices that we make and continue to make to achieve our financial goals. Dave Ramsey says it best when he says, “If you live like no one else, later you can live like no one else.”

Everything worthwhile in life can only be earned by paying the price. If you want to be the next Ronaldo, you have to eat the right food and train day and night. If you want to get the best grades and get into the best University, you need to put in the time and study hard. Those are the sacrifices required. There are no shortcuts.

If you want to get ahead financially you need to cut expenses and maximise income.

In my early twenties I was prepared to sacrifice my independence by living with my parents for a few years, and doing so allowed me to save and, crucially, invest a small fortune.

Forget the stigma about not flying the nest. Nobody will be laughing at you when you’re financially free while they’re still toiling in the mine.  On reflection this might have been my best ever financial decision.

Most young people will do the same but blow all their money on toys, holidays, and cars – completely squandering the opportunity to build wealth. They have sacrificed their independence and have nothing to show for it. Even on minimum wage if you live practically rent-free you should be able to put aside several thousand pounds a year.

Disposable income in your twenties is worth way more than disposable income later in life because the sooner you earn it, the sooner it can be invested, and the sooner it can begin to compound.

Ben too sacrificed his personal living space by getting a lodger for the best part of 2 years. He was able to earn around £8,000 at a crucial juncture in his 20s, when a few grand at the right time can be the difference between life success and life failure.

This additional cash buffer enabled him to feel comfortable jumping jobs frequently without having to have the next job lined up, leading to better choice of opportunities and more cash!

#6 – Live Plan B

We said 5 but here’s a bonus. Like most young people I didn’t know what I wanted to do career-wise. But I did know I couldn’t sit around waiting to figure it out. Weeks turn into months, months turn into years, and before you know it you’ve wasted the best years of your life working for peanuts.

Like most people I never had a solid Plan A… so I got to work on Plan B. I ended up pursuing a career in financial analysis and becoming a Chartered Management Accountant.

Ben too became Chartered. Working in accounting and finance may not have been a dream job but it was relatively well paid and allowed us the time to work on Money Unshackled in the evenings and at weekends.

There’s a fantastic YouTuber called Sean Cannell, who helps people grow their influence on social media. One thing he said really resonates with us: “I worked a day job at a restaurant for 10 years while working on my dream job on the side… keep grinding.”

Worst case we have a solid career to fall back on. The point we’re trying to make is: a good plan B is better than no plan at all. You can figure out Plan A later.

What are the best money decisions that you’ve made? Join the conversation in the comments below.

Written by Andy


Featured image credit: diy13/

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

The 3 Essential UK Dividend Stocks For Any Retirement Portfolio

You guys know we spend a lot of time searching for the perfect investment portfolio that will get us to retirement, but also keep us there. There’s only space for quality here – all killer, no filler.

We want the best index funds, the best properties, and… the best individual stocks. This article is looking at the stocks that we think are suitable for holding from today right through to retirement, whenever that might be for you.

These stocks need to be evergreen – they need to be companies with strong roots and staying power. But they also need to be powerful dividend stocks for the stability and cash flow they provide – UK dividend stocks specifically so we can avoid nasty foreign dividend withholding taxes.

And ideally, they’ll be in essential industries – even better, near monopolies with impenetrable barriers to entry for potential competitors.

We think we’ve found 3 such stocks that fit the bill. Let’s check it out…

Much of the research for this article was made possible due to our subscription to Stockopedia, the premium stock picking research and analysis tool for investors. Try Stockopedia for yourself with a free 14-day trial at the special offer link here, which also gives you a 25% discount off your membership if you decide it’s for you.

Alternatively Watch The YouTube Video > > >

Essential Retirement Stock #1 – British American Tobacco (BATS)

Tobacco, you say? No way! That’s a dead industry! Hear us out.

This company is one of the best we’ve seen in a long time and has been top of our list for a while now. Its finances are killer, and we’ll get to those in a bit. Spoiler alert: it has a sustainable 8% dividend!

But its current finances mean nothing if it’s not going to be around for your retirement. Let’s address those concerns first.

At the start of this piece we hinted at 4 criteria for any retirement stock. These are:

  1. Essential Industry;
  2. Barriers To Entry and an Economic Moat;
  3. Strong Roots – a large cap stock with staying power;
  4. and Kick-Ass Dividends!

Ideally the stock will be reasonably priced too, but that’s not so much of a concern if you’re holding it forever and it pays a good dividend.

So does BAT tick all the criteria boxes? The first one was Essential Industry, and it is indeed essential to the many tobacco addicts around the world! Its customers are physically compelled to keep buying its products.

There is a reasonable worry for shareholders that the number of smokers is declining globally.

This chart from the World Health Organisation shows that more countries are in the “declining usage” side at the top of the chart, than the “increasing usage” side at the bottom. Note that these are percentages of adults in each nation, but population sizes are forever expanding which will offset this decline to some degree.

They are already diversified as one of the world’s leading vaping and e-cigarettes producers as an alternative to tobacco, which is maybe the future of the company long-term. There also exist opportunities to expand into cannabis in the countries which it becomes legal in, which we expect will be a fair few over the coming decades. BAT have indeed just acquired a £126m stake in Canadian cannabis firm OrganiGram.

As for Barriers To Entry, who else could possibly compete with BAT? It’s illegal or difficult to advertise smoking products in most of the big markets BAT sells in including the UK, USA, Europe, Australia and NZ and much of Asia, which means this already established giant can exist unopposed by new entrants to the market.

BAT doesn’t need to advertise anyway – their brands are well established in their markets and saving all that money on marketing means they can pay out a bigger dividend. They rake in money, and they pay it straight out to you.

It has Strong Roots, present in 180 markets with 150 million daily consumer interactions from a dedicated pool of customers providing steady cashflow. BAT has been around since 1902 and has a market cap of £61bn.

Looking more closely at its finances now, its dividend yield is around 8% and forecast to grow, but we can see that this is not an anomaly – it’s actually at a sustainable level.

That’s because its dividend cover is consistently over 1 – anything over 1 means it can easily afford the dividend, and is the case for at least each of the past 6 years, with this forecast to continue.

The dividend yield looks overly inflated because the shares look oversold, which we’ll take a look at in a sec.

In 2017, it bought out the second largest tobacco company in the US, Reynolds American, a major landgrab invasion to grab an even higher stake of the American market. BAT have taken what is theirs, as global tobacco kings.

This left them a load of debt – but they are committed to paying this down a bit every year and have been doing so. Their revenue and profits are massively up since the acquisition.

BATs finances look so solid it appears they haven’t even realised that there’s a pandemic going on – profits just keep on growing!

Despite all this positivity, the price of BAT is ridiculously cheap. Its 12-month future forecast PE ratio is 7.8, Stockopedia showing us that this compares very favourably with the industry and with the wider market.

The EV to EBITDA, which is a slightly more accurate indicator of price as it factors in debt, is 9.6 – still very cheap. BAT is clearly under-priced when you add in the sustainable dividend.

The market has decided it doesn’t like BAT – its share price has plummeted over the last 5 years – probably due to overdone fears haunting the tobacco industry. Despite these fears, 21 institutional analysts are saying it’s a Buy.

We think this jewel of the British crown has been overlooked in favour of trendy new socially responsible stocks and green technologies. But don’t write tobacco off if you want to earn big, long-term dividends.

Essential Retirement Stock #2 – BAE Systems (BA.)

OK, we’ve invested in lung cancer with a tobacco company, now let’s buy some guns and bombs…

Seriously we didn’t plan it like this, but it seems to be that the so-called Sin Stocks are the ones to buy for long-term dividend success.

If we’re talking morality though, we like to remind ourselves that smoking tobacco is a personal choice, and without a well provisioned military to defend us we’d all be speaking German.

BAE Systems is one of the UK’s main arms, security, and aerospace companies, but it’s reach is much bigger than Britain. It has a global presence, being the largest defence contractor in Europe and ranked third-largest in the world based on 2017 revenues.

When China starts raining fire down on the West, we’ll be glad that BAE is there to have our backs.

BAE’s customers are national governments, supplying the essential bits and bobs for their armies, navies and airforce.

They’re also heavily involved in cyber defence for nations, which is going to be a growing problem for the world to deal with as advances like quantum computing come into play.

They have a big Barrier To Entry in they are practically a monopoly provider for some of the world’s richest countries. Let’s look at their finances to see if they have staying power.

Stockopedia was red-flagging a potential liquidity risk for us to research further. On inspection, it’s because its debt has shot up in the last couple of years.

This is fine because we know that its revenue comes from governments, most of which are able to magic money out of thin air from their central banks. They won’t be defaulting on their contracts. Total debt is only 2x annual profits – not high by any standard.

BAE has been supplying governments with weapons since 1902, surviving much worse than a bit of covid related liquidity worries.

Their revenue is growing consistently, as is net profit. As are dividends, and dividend cover. A yield of 4% and forecast to grow is good, and it is sustainable. This is company that’s not going anywhere, other than up.

And like BAT, they have an incredible Stock Rank in the 90s (of 100), cheap PE ratio for their industry and a cheap EV to EDIBTA ratio. In fact, BAE is more cheaply valued than all but one of its international peers in the defence sector.

Essential Retirement Stock #3 – National Grid (NG.)

National Grid is the definition of a stock with an Economic Moat. How could it have any competitors? It owns pretty much all of the electricity delivery networks in the UK.

Its cables, pipes and pylons criss-cross across the country, an essential part of the system that delivers power to all our houses and businesses: from power source, to lightbulb.

National Grid enables our economy to function. We’d go so far as to say that without the assets it owns, there is no economy. That’s a big tick for Essential Industry.

Its cables do not discriminate between green power and dirty power either – it is transporting electricity, which makes your TV work the same no matter the source. This means dependable revenue and stability for its share price.

That said, work is constantly ongoing to keep the network fit for purpose in a cleaner energy future, and to keep expanding the grid. It’s selling off its gas pipelines and buying up more electricity assets in recognition of the move away from fossil fuels.

Projects include 24 miles of new tunnels deep under London to ensure reliable electricity supplies for the next 120 years; it’s also just finished a new 3-mile tunnel under the River Humber to transport 25% of Britain’s remaining gas needs.

They’re also building the world’s longest undersea electricity cable to connect the UK to clean hydro power direct from Norway’s fjords, and a boat load of new revenue for its shareholders.

It has operations in the US too in New York and New England to diversify its income streams – in fact 45% of its operating profits came from its US operations in the year to March 2021.

On the face of it, National Grid has ridiculous levels of debt, at 18x its net profits. But it’s not a normal business model – its revenue is completely steady and predictable, and the company’s services will be required for many decades, even centuries to come. It has no liquidity problems as a result of its debt, with average current and quick ratios and a decent interest cover.

Dividend yield is rock solid at over 5% and forecast to grow, with dividend per share creeping up and forecast dividend cover expected to be comfortable.

It’s probably not a great time historically to buy into this stock, with an average PE ratio, and a really bad EV to EBITDA ratio relative to its industry.

But can we really compare National Grid to any other company? It’s got a monopoly in the UK – and there’s nothing else quite like it.

Frankly, this is one of those times when the price shouldn’t really matter too much, as long as the dividend yield is acceptable to you, which at 5%+ it likely will be. This stock is one to hold forever and grow fat on the dividends.

Who Wants More Stocks?

If you liked this post and want even more stocks, then let us know down in the comments here or over on YouTube. There were too many stocks to cover here and give proper justice to them all.

Or, filter for the best stocks using the tools on Stockopedia. If you want to expand your portfolio of UK dividend stocks, go grab yourself a Stockopedia subscription and start digging. Remember, the first 14-days are free with our special link and it’s 25%-off thereafter.

What do think are the best stocks to retire on and why? Join the conversation in the comments below!

Written by Ben


Featured image credit: Matt Gibson/

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

My Plan To Grow My £200k Portfolio To £1m In Under 10 Years

In a post back in May, I showed how my portfolio had grown to £200k over 5 years, starting from almost nothing.

Now I want to talk about my plan to grow that £200k to £1m over the next 10 years or less. It’s already up to £254k since that last article, thanks to the property market – a good start!

This won’t just be about what I’m doing. It will be packed full of tips and key steps to take that you can apply to your own financial journey.

There are a lot of ways to get to £1m in 10 years, but the plan outlined here is one that literally anyone can do if you’re willing to take your investments to the next level.

That’s right – a super high salary isn’t required, nor do you need to wait a lifetime for compounding returns of 4 or 5% to take their course.

This is a fast, sensible route to riches that I’m taking, and that you might want to consider taking too. Let’s check it out!

ETFs are the bedrock of my stocks portfolio. With InvestEngine you can build a portfolio of fractional ETFs for free. Just set the percentage allocation for each ETF and you’re done – say goodbye to spreadsheets! And rebalancing your portfolio is as simple as couple of clicks. New users to the platform will receive a £50 welcome bonus if you use this offer link.

Alternatively Watch The YouTube Video > > >

Getting To £200k – A Recap

The first £200k of my Freedom Fund was built over 5 years mostly from cash contributions from salary savings, and from home equity release on my house. Together that made up around 2/3rds of the portfolio’s value.

Actual returns from my investments contributed the other 1/3rd of the value to that initial portfolio.

In the early stages of your Freedom Fund’s life, your contributions from your salary will have far more of an impact than your returns on investment.

Enormous percentage returns don’t really matter all that much at this stage: a 20% return on £1 is still just 20p. You will be able to grow your portfolio at a steady rate just by adding new cash.

Why The Next £800k Needs A New Approach

Soon, those monthly contributions from work will become almost inconsequential. In fact, right now I’m adding barely anything from my salary from Money Unshackled, and my portfolio is still growing fast under its own weight, simply from compounding.

Cashflow from rent payments on my properties goes into the stock market, and the market values of the properties and the shares are growing like mushrooms.

New money from your salary will be a nice little extra boost at this stage in a portfolio’s life, but it’s not a requirement if your investing returns are high enough. We can demonstrate this nicely using the Money Unshackled Early Retirement (FIRE) calculator.

The blue cumulative contributions bars are quickly outstripped by compounding returns as the years go on.

Left to grow in index funds or ETFs without any further contributions or effort, £200k would still get to £1m, but over a couple of decades. ETFs will always be a major part of my portfolio, but I will need to pull all the levers that I’ve learned about during my investing career to maximise my returns to get me to £1m in under 10 years.

What’s In Our Toolkit?

There are 4 main components that we consider appropriate for building a Freedom Fund. These are:

  1. Contributions from salary or other earned income;
  2. Cash from extracting equity from your own home;
  3. Index investing in the stock market – this is our bread and butter, and will use ETFs held in Stocks & Shares ISAs and SIPPs; and
  4. Leveraged investments in both stocks and property.

To grow rockstar wealth in under 10 years I’ll need my salary contributions, ISAs and SIPPs to be supported by the power of home equity release and, very importantly, by leveraging.

Leveraged investment property already makes up a significant chunk of my portfolio – going forwards, leveraged stock market indexes will do too.

The Plan

The following is based on real numbers from Ben’s current and forecast future portfolio. The Returns On Investment are based on the following assumptions:

  • Inflation of 3%: all numbers are after deducting inflation.
  • 5% pre-inflation annual growth in the property markets, which is at the low end of historical average UK house price rises going back to 1952. Adding in leverage from mortgages, capital growth ROI is increased in this portfolio to 17% pre-inflation.
  • Rental income is based on what I actually receive now.
  • Investments in Stocks & Shares ISAs and S IPPs will grow by 8% pre-inflation.
  • Leveraged stocks, bonds, and gold in the portfolio will grow by 18% pre-inflation.

We also assume a smooth ride in the markets, for ease. In reality, it’s more likely there will be really good years and some bad years, maybe even a crash followed by a recovery.

So, here’s my smoothed-out forecast route to £1 million:

The orange headed columns are all property related. We don’t want to bog you guys down in too many numbers, so we’ll just point out the interesting things. There’s the opening and closing sizes of the Freedom Fund each year, while the numbers in-between are the various additions to the pot each year.

There’s Cash From Savings, which starts off at zero and assumes monthly salary will grow by a moderate £300 each year. As we are business owners rather than employees, this is a very conservative assumption. It should easily grow faster than this. That’s lesson #1 – work for yourself!

Now let’s talk about what’s happening with property investments in the middle there. My eventual goal is to have the option of selling my properties in the final years of the plan if, as I suspect, government meddling makes it more and more tiresome to operate as a landlord.

In the final years, property is gradually sold off rather than all at once, to take full advantage of the annual capital gains allowance. Rental income and capital growth go down as a result.

You get stung by capital gains tax on rental property, because HMRC fail to account for inflation. So even if you had only made an inflationary gain each year – and hence nothing in real terms – you’d still be taxed as though you had made a big gain when you eventually sell the property.

Cash is funnelled from the sales into other assets, which has a net zero overall impact on the value of the portfolio since I’m already accruing for capital gains tax. In the earlier years, I’m able to take cash out of the properties by remortgaging them. In one case, I plan to remortgage my own home and injecting that cash as fresh money into the Freedom Fund.

I don’t mind having a slightly higher mortgage as a result, if it means I can buy investments that pay me an annual double-digit rate of return.

We don’t include the values of our own homes in our Freedom Funds, as they can’t be spent. But if you extract cash from your home in a remortgage, that cash is fair game to be invested and then included here.

So, where’s that cash from the property equity release going? It’s primarily going into ETFs in my Stocks & Shares ISAs, and into Spread Betting.

For a full introduction to our method of doing spread betting check out this article/video next, where we explain what we’ve been doing to make killer returns!

Here’s why this portfolio grows so quickly over the next 10 years, from August 2021 to August 2031:

The light and dark green segments are the leveraged assets; light green for rental properties, and dark green for spread betting (which is leveraged stock, bond and gold market indexes). As I sell off the properties, they are being replaced with spread betting investments. This keeps leverage in the portfolio throughout.

The leverage, and hence the risk, is intentionally decreased though as a proportion of the overall portfolio over the period. The unleveraged ISAs and SIPPs right now make up 31% of the portfolio, while by the end they make up 45%.

The leveraged assets start out at 4x leverage as they are almost all mortgaged properties with 25% deposits, but leverage falls to 3x by the end – our current preference for spread betting.

In practice, I will be reducing my leverage much further than this towards the end if I’m doing well – volatility should ideally be reduced when you reach your goals. I almost certainly will reduce my leveraged assets to around 1.5x or less when the portfolio hits £1m, making the overall portfolio around just 1.25x leveraged.

As well as reducing leverage as I go, I’m also reducing effort. By the end, all my portfolio will be manageable from a web browser, at just a few clicks per month – no more tenants; no more calls from agents; no more mortgages to manage.

Of course, I always do have the option to just keep the properties, but I don’t need to.

Andy’s (MU co-founder) plans are similar to mine, but he’s using spread betting from the outset as his source of leverage, instead of investment property. The returns are expected to be not too dissimilar, but could be considered higher risk, since there’s a chance the debt could be called in if it’s managed poorly – in what’s known as a margin call. Crucially though, it’s almost completely passive to manage.

How Pensions (SIPPs) and ISAs Slot Into This Plan

I’ll still be building up my Stocks & Shares ISAs – the holdings won’t be leveraged but they’ll be safe. No matter how much the market falls (outside of all-out nuclear war), I will always own these positions as the market can’t fall to zero. Despite the magic touch that leverage provides, an ISA is still my favourite tool for growing and holding wealth for this reason.

The ISA is the reliable base layer of the portfolio, that I will feed with cash from elsewhere in the portfolio until it matches the size of the leveraged assets (see right-hand side of bar chart above).

Our SIPPs hold all the pension money from our previous jobs, and neither of us are touching our SIPPs for now, until it becomes advantageous in the future to filter money from our business holdings through a pension.

For our age group, the likely age at which we could access our private pensions is 58. As we’re planning to retire a decade or two before this, the question must be asked whether we should be including SIPPs in our Freedom Funds at all.

In both our cases, it can – if you’re young, a pension should only be considered part of your current wealth if it is a relatively small-to-medium sized chunk of your overall net worth, such that you have other pots to draw an income from between now and retirement.

If a pension is where you’re holding most of your wealth, it can’t help you much while you’re young!

Also see this article for a much more in-depth analysis of how Stocks & Shares ISAs work alongside pensions to allow you to retire at any age.

Will you speed up your own investment journey to riches, or are you content to wait it out? Join the conversation in the comments below!

Written by Ben


Featured image credit: Andrey_Popov/

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

How We’re Making 33% Annual Returns With Long-Term Spread Betting

Since 1978 – that’s 43 years – US stocks have returned roughly 12% per year. Not bad, but future returns are expected to be lower than this – maybe around 8%, maybe less. We here at Money Unshackled are not content with measly returns. No way! And if you’re like us you’re going to love what we’ve got in store for you today.

**EDIT 29th Sep 2021: The Step-By-Step Guide for putting the below into practise is now live! Read it here.

In this post we’re going to show you what we’re doing to make huge returns in the stock market with minimal effort. Our strategy is to take index investing to the next level, by investing in a portfolio of index futures using spread betting.

Don’t worry if you’ve no idea what any of that means, we’ll explain all the key things over the next few minutes.

Seriously, stick with us on this one – this is a lifechanging long-term investing strategy that might sound complicated at first, but give it a chance and it might just make you a millionaire in a fraction of the time that normal index investing can. Let’s check it out…

If spread betting isn’t for you but you still want to invest in indexes the good old-fashioned way, check out our handpicked favourite investment platforms here.

Alternatively Watch The YouTube Video > > >

Why We Started Spread Betting

If you want to get rich in the stock market you only have a few different levers you can pull:

(1) Wait longer for compounding to work its magic – This is not an option for us as we want financial freedom now. Retirement at old age is unacceptable to us and probably for you as well.

(2) Cut back and invest more – Again, not something we’re prepared do any further. We’ve already got well streamlined budgets and don’t waste that much money anyway.

(3) Earn more money elsewhere so you can invest more – Yes, we’re trying to do that within reason but achieving this is obviously not easy and we refuse to work all hours under the sun.

And (4) Earn a higher Return on Investment (ROI) – Most people cannot beat the market by stock picking, and so aiming to track the market using index funds is likely to give us the highest return we can get. We’re already doing this.

However, if we were to use leverage, we could amplify our ROI. The problem is that in the UK you can’t easily borrow money to invest in the stock market. But borrowing to buy property is both expected and relatively accessible for all. Whenever leverage is mentioned in the context of the stock market, it is almost always talked about negatively and you’ll be discouraged from using it. We think the naysayers are wrong!

Here in the UK the main ways to invest in stocks with leverage is with CFDs and spread betting but you only have to visit a brokers site and you’ll see that around 70% of investors lose money. Not very favourable odds!

The main reason people get burnt using leverage is because they have no idea what they’re doing and get too greedy. Done properly though there are big profits to be made!

And better still, spread betting is exempt from both capital gains tax and stamp duty. CFD’s are similar but any gains are however subject to capital gains tax. Therefore, we see no reason why anybody in the UK would trade CFDs when spread betting is available.

What Is Spread Betting?

Spread betting is a popular derivative product you can use to speculate on financial markets – such as forex, indexes, commodities, or shares – without taking ownership of the underlying asset. Instead, you’d be placing a bet on whether you think the price will rise or fall.

Spread betting is generally referred to as a short-term way to trade but if you look beneath the surface, it provides an excellent means for long-term investing. This is literally a hidden gem as nobody is talking about spread betting in this way.

With normal investing you buy a set number of shares, but with spread betting you bet an amount per point. Say you bet £10 per point on the S&P 500, and it was currently at 4000. If the index rose to 4400 it has gained 400 points. You bet £10 per point, so your profit would be £4,000.

When spread betting it’s really important that you understand the notional value or exposure of that investment. In this example we may have placed a bet of £10 per point but the value of our investment was £40,000 (£10 x 4000 index value). If we’d started with £40,000 cash in the platform, our £4,000 profit would be a 10% ROI.

Other than its tax-efficient status, spread betting can be used to invest using leverage, which means you only need to deposit cash equal to a small percentage of the full value of the position. Each platform and instrument will have different margin requirements but typically for the S&P 500 it is 5%. This means that you only have to deposit 5% of the value of the open position, allowing you to trade with 20x leverage.

In our example, the notional value was £40,000, so the minimum deposit is just £2,000. So, we could have used leverage to get the same £4,000 profit as before but from just a £2,000 investment – a 200% return.

In practice, for what we’re doing, we won’t be using anything like this level of leverage. Using this amount will almost certainly put you on the fast path to being broke, as any fall in the index value will put you below the margin requirement – leading to a margin call.

A margin call is the term for when the equity on your account – the total capital you have deposited plus or minus any profits or losses – drops below your margin requirement. You will either have to deposit more cash, or risk your positions being automatically closed.

One fantastic feature of spread betting is that there is no exchange rate risk. With a normal investment in an S&P 500 ETF, it could go up 10% from 4000 to 4400 but if the exchange rate moved against you by 11% you would still lose money. Not so with spread betting.

It doesn’t matter because you are placing a bet per point. Regardless of what exchange rates have done, the index has gone up 400 points. Hopefully that makes sense but if not just trust us.

The Money Unshackled Spread Betting Portfolio

At first, we considered solely investing in the S&P 500 index, but volatility and investing on margin do not play nicely together.

Fig.1: Portfolio returns backtest

We ran some back tests for the past 43 years. The max drawdown was 51%. Ouch! A max drawdown is the maximum observed loss from a peak to a trough, before a new peak is attained.

Assuming that history will repeat, a huge drawdown like this means that we can’t use much leverage – not even 2x before getting wiped out. Even when we don’t get wiped out it will be a hell of a roller coaster – one we could do without!

So, we had to do something that was even surprising to us – we have built a portfolio of stocks, gold and bonds, that significantly reduce volatility and the maximum drawdown.

The target portfolio is 60% S&P 500, 30% long-term US treasury bonds, and 10% gold. A traditional 60% stocks / 40% bonds portfolio would historically have provided a similar return, so it’s not a bad alternative.

However, with all the money printing that’s going on and enormous national debts that countries are drowning in we personally think the portfolio will benefit from a touch of gold.

The stocks, bonds and gold portfolio has a max drawdown of just less than 27%, which means we could use 3x leverage and never have to worry about a margin call: 3 x 27% gives an 81% worst case historical fall, which keeps us safely out of the danger zone, which is around 95%.

Let’s stop there for one moment to remind everyone that this is based on 43 years of data. Future results could be worse than this, and if you copy what we’re doing you do so at your own risk!!!

If that concerned you, one way to reduce risk significantly is of course to just drop that 3x leverage to 2.5x, or 2x, or even less, but potential returns would fall too. Over time and as we age, we see ourselves reducing our use of leverage to less than 2.

The 100% S&P 500 portfolio does have the best compound annual growth rate of just under 12% but our more balanced portfolios have compound annual growth rates of around 11% but crucially with less risk.

The Sharpe ratio is a genius metric that shows the additional amount of return that an investor receives per unit of risk. As you can see in the table, the balanced portfolios have much better Sharpe ratios.

If history does repeat itself this 3x leveraged portfolio would return around 33% less any costs, which on our portfolio are negligible. If we invested £10k over 10 years earning 33% our portfolio would be worth £173k. Or unleveraged, earning just 11% the portfolio would be worth just £28k – a massive £145k difference!

That’s why we’re so keen to increase our return on investment. A good return can literally be life changing!

How To Start Investing

The mechanics of spread betting are ridiculously complicated and if you don’t have solid investing experience and the patience to learn you should avoid doing this. Period! With that said, I picked it up within about a week of making my first deposit. As with anything I find it best to learn by doing.

The first thing you will want to do is choose a spread betting platform. All the comparison guides online are of barely any use because they’re all geared towards short-term speculating and often compare platforms based on factors that aren’t relevant to this long-term investing strategy.

We will be investing in Financial Futures and two platforms we have found to be excellent for this purpose are CMC Markets and IG. I have used both and find them great for what we need. Their spreads on the instruments we’re buying are wafer-thin, which means it will barely cost anything at all.

We have found IG to be ever so slightly easier for beginners, but CMC Markets is our preferred choice as they give us more leverage on US treasuries. This is handy as it gives us a little more beathing space, so we can better avoid a margin call if the market tanked.

With typical spread betting strategies, you don’t need much money to get started, but to follow our long-term investment strategy you will need at least £2-3 grand.

Fig.2: Minimum portfolio on day of writing

Unfortunately, each instrument has quite a high minimum bet size and we’re trying to build a diversified portfolio. So, to invest in each of our assets with the right allocation we end up with a portfolio with a notional value of around £9.0k. At 3x leverage we need to deposit a third of that – so £3k.

This particular post is not meant to be a tutorial in how to actually place your spread bets but we’re working on a step-by-step guide, so keep your eyes peeled for that.

How To Manage The Leverage Properly

As we touched on earlier, we suspect that most people lose money spread betting because they don’t understand or underestimate how even a small swing in the stock market can wipe out a portfolio when it’s leveraged.

We’ve demonstrated that with our strategy, 3x leverage is about the most that should be used when making that initial investment. However, as the portfolio grows in value your leverage is reduced, and similarly if the portfolio falls in value your leverage is increased.

For example, say the notional value of your portfolio is £9,000 and you originally deposited £3,000, and so were 3x leveraged. If the portfolio doubled in value from £9k to £18k your equity is now worth £12k (£3k + £9k profit). Now your portfolio is only 1.5x leveraged (£18k/£12k).

Instead, if the portfolio had fallen by 20% from £9k to £7.2k which is a loss of £1.8k, your equity would now only be worth £1.2k (£3k minus a £1.8k loss). Now your portfolio is 6x leveraged (£7.2k/£1.2k).

Each time we invest, new contributions will be at 3x leverage. As the portfolio grows and our leverage falls, we will reset the leverage back towards 3x by investing some of the gains.

However, if and when the portfolio falls in value, we will not reset the leverage. This means that at certain times we might find ourselves at 5x, 10x or even 15x leveraged, while we wait for the market to recover and spring us back to our starting leverage. That’s the plan anyway. My heart will be in my mouth I’m sure if this happens.

Invest In Index Futures Contracts – Not Daily Rolling Cash Bets

When investing in an index via a spread betting platform you will typically have the choice between two different products: a daily rolling cash bet or a futures contract. In general, rolling daily cash bets tend to be used by traders looking for short term positions, and the futures contracts by those looking to take a longer-term view.

With the daily cash bets, you have to pay a financing charge for holding it overnight. Most spread betting platforms charge around 2.5%+LIBOR. However, for what we’re doing paying this is unnecessary. Long-term investors should use futures contracts because you don’t pay overnight charges with them.

Instead, futures contracts have an interest charge baked into the price but crucially it’s incredibly cheap and far cheaper than what you could get yourself anywhere else such as a loan. The embedded interest charge is known as the implied interest rate and will be close to the risk-free rate. The risk-free rate is assumed to be equal to the interest rate paid on a three-month government Treasury bill, which is currently near 0%.

If you’re new to Futures contracts this is probably super confusing. There’s no way we can explain everything you might want to know in this post, so we recommend doing some of the free courses on A good place to start would be their Introduction to Futures course, linked to here.

One thing you do need to understand about futures is they have expiry dates – normally quarterly. As they approach expiry, we’ll be automatically rolling them over to the next contract, and your spread betting platform can do this for you automatically.

Do You Receive Dividends?

When you invest in futures you won’t physically receive a dividend payment, but the expected dividend is factored into the price. Because you don’t receive the dividend the futures are priced under the current index price.

As the futures contract gets closer to the expiry date, the value of the index and the futures contract converge on one another.

We hope you’ve found this post useful and hopefully we’ve clearly demonstrated how we’re making bank using spread betting. If there’s anything that you want us to expand on let us know down in the comments and we’ll do our best to help.

What do you think about investing with leverage? Join the conversation in the comments below.

Written by Andy


Featured image credit:

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

6 CRITICAL Mistakes You’re Making With Your Stocks & Shares ISA

So you’ve got an Stocks & Shares ISA or are thinking of opening one. It can be tempting to just crack on, build a portfolio of reasonable looking stocks and funds, and not put too much thought into what’s going on behind the scenes.

Did you know your ISA investments are probably still paying over the odds in tax? That’s because your investment choices play a large role in how much tax you ultimately pay.

You’re probably also paying over the odds in fees – particularly FX fees. Again, this can be easily avoided if you know how.

People are mismanaging their ISAs in all sorts of ways, including misunderstanding the £20k limit and even cutting their potential portfolio size in half due to dividend complacency.

In this article we’re looking at 6 common but critical mistakes people are making with their Stocks & Shares ISAs, along with what to do to avoid them!

If you’re looking for a new ISA provider, a great option for hands-off investors is to open an ISA with Nutmeg. Just deposit your money and Nutmeg does the rest for you – no investing knowledge required.

New customers who use this offer link will also get the first 6 months with ZERO management fees. If you’d rather manage your investments yourself, check out our hand-picked range of ‘do-it-yourself’ Stocks & Shares ISAs here.

Alternatively Watch The YouTube Video > > >

#1 – You Still Have To Pay Some Taxes

Let’s kick off with the elephant in the room; tax. It’s what ISAs are for, to make your money invisible to HMRC. But ISAs do not make your investments completely tax free. They do protect you from the main ones of capital gains tax and dividend income tax, so are important to have, BUT there are some sneaky taxes that are still able to creep in.

If you make yourself aware of these, then you can make better investing decisions about what you’re buying within your ISA.

If you’re buying UK shares you will be stung by a 0.5% stamp duty tax with every purchase. This is a transaction tax, so one way to limit the impact of this is to hold your shares for the long-term, instead of trading in and out of your position. If you’re buying and selling frequently, each time you BUY it’s another 0.5% hit to your returns. If you’re only making, say, 8% growth in a year, that’s a significant tax.

Another way around stamp duty is to buy some international stocks instead. But these attract other taxes, such as the dividend withholding tax.

Many countries including the US and most European countries impose this tax on your dividends, which is taken before you’ve even received them.

We use synthetic ETFs like the Invesco S&P 500 ETF (SPXP) to avoid US dividend withholding taxes, and if you’re buying US stocks directly these don’t attract stamp duty either. US stocks still attract sales taxes, the largest being the Section 31 Fee or SEC fee, but you might say this is negligible at just 0.00051%.

But all of the companies you are investing in are paying corporation tax. So, you can’t avoid all tax – you can just try to make decisions that limit it. Remember, tax is just ONE element of portfolio planning, as part of your overall consideration of Total Return.

#2 – A Global Approach Might Mean High Foreign Exchange (FX) Fees

We always say to take a global approach to investing, but there are ways to do this which have no FX fees, and other ways which can have quite nasty FX fees.

What you probably shouldn’t be doing is frequently trading international stocks, such as US stocks, in your ISA.

Freetrade charges a 0.45% FX fee on stocks listed in foreign currency, i.e. not in pounds. Hargreaves Lansdown charges 1%. Interactive Investor charges 1.5%. Trading 212 charges 0.15%.

For the full listing of how much each of the most popular platforms charge for FX and all other fees, follow the link to the table on the Best Investment Platforms page.

The way we get around FX fees is to buy the bulk of our portfolios in ETFs, which we make sure are listed in pounds. Regardless of an ETF’s quoted currency, the underlying stocks in it can be from anywhere; for instance, S&P 500 ETFs listed in pounds invest in the top 500 US companies without you being charged an FX fee.

Note, we’re currently only talking about FX fees – you’re still exposed to exchange rate risk.

If you want to frequently buy and sell US stocks, you shouldn’t have to change your behaviour just because of silly FX fees. The answer might be to use a specialist app like Stake, which is designed to trade US stocks from the UK and solves the FX problem.

With Stake, your pounds are converted to dollars once at the point that you deposit cash into the app, rather than every time you make a trade.

This should save you a fortune in FX fees if you trade frequently. The app has no trading fees either, so you can buy and sell US stocks to your heart’s content.

Stake have a sign up offer for those interested, where new users will be given a free stock worth up to $150 when you use this offer link.

Stake doesn’t offer ISAs, so you can have a Stake account for trading US stocks, as well as an ISA elsewhere for your other investments. Just make sure the FX benefit outweighs any possible tax hit.

#3 – Don’t Fall Foul Of Capital Gains Tax (CGT)

It’s possible that you also hold investments outside of your ISA. These will be liable for capital gains tax if they exceed the annual allowance, currently £12,300. There is a clever tax strategy called Bed & ISA which means you can use your capital gains allowance on non-ISA investments without having to sit out of the market for 30 days.

The strategy involves selling your non-ISA investments, and buying the same investments again but within your ISA. Normally you’d have to wait 30 days before you could buy the investment back, otherwise it doesn’t count as an official sale in the eyes of HMRC, but using an ISA dodges this rule.

Investors with a large position in a stock or fund might choose to sell part of it to realise gains up to the capital gains allowance limit, so they are benefitting from their annual tax-free allowance.

If you don’t use the CGT allowance, you lose it, and you might otherwise end up being stuck with a larger gain in the future that’s above the tax-free limit.

#4 – Don’t Stop At £20k

ISAs have a £20,000 deposit limit each tax year, but there’s no reason to let this number dictate your investment goals. There are other ways to avoid paying tax on your investments even after you’ve hit the £20k limit.

The first is to ensure you are using your whole family’s allowances. This includes your spouse, and maybe your kids.

Your spouse also has a £20,000 allowance, and each kid gets £9,000. An average 2 child household therefore qualifies for £58,000 a year of ISA allowances.

Beyond this, each adult gets a £12,300 capital gains allowance and just a £2,000 dividend allowance. Because the dividend allowance is much smaller, it makes sense to put all of your high-dividend stocks and funds in the ISA and allow your growth stocks to be the ones that fall outside of your ISA limit.

Assuming annual growth of 8% on your non-ISA investments, you’d need over £150k before it even became an issue, or £300k as a couple.

Beyond THIS, tax can be avoided on investments by using spread betting, which can be used like an unlimited ISA for long-term investing if you know what you’re doing.

So an ISA is only one tool in your tax-fighting arsenal. But do make sure you are using your full £20k allowance if you can – if you don’t use it each year, it’s gone.

#5 – Don’t Follow The Herd: Portfolio Balance Is Everything

All the free trading apps are geared towards individual stocks. So is the media – look at any finance news and it will be about how Apple has done this, or how Gamestop has done that.

Rarely will you hear that the MSCI World Total Return Index has climbed by 26% in the last year, even though it has.

You could be investing in an ETF that tracks this index, or a collection of ETFs like the offering on Nutmeg which tracks the world in a similar way, instead of messing around trying to beat the market by building a portfolio of trendy stocks.

Make sure your ISA investment platform offers the range of assets that you need. Have you considered if you want to invest in REITs, which hold commercial property? Some ISAs offer these, others don’t.

Or investment trusts like Scottish Mortgage, which have an excellent history of outperformance – again, some ISAs offers these, and some don’t.

Do you care about actively managed funds? You won’t find these on the free trading apps.

Whatever you invest in, you need to consider how everything in the ISA comes together to create a balance of risk, return, diversification and perhaps a little fun.

You can be too cautious by over-investing in bonds, just because many investing gurus say you should have a load in your portfolio. But in this age of super low interest rates should bonds really be in your portfolio? Is the 60/40 portfolio outdated?

Likewise, you can be too risky if you only invest in individual stocks, or if your stocks are all in similar industries.

Remember your Pokemon training: a team of Fire types is useless if you come up against a Blastoise. And a portfolio of tech stocks is useless if tech crashes.

“Don’t follow the herd” also means “switch off the news”. Making investment decisions around events like Brexit and Covid might be too short-term, unless you’re picking stocks with the intention of making short term gains.

#6 – Don’t Let Cash Fester In Your Account

Some investors might intentionally choose to hold some cash in their ISA to max out their £20k allowance, even if they are not yet ready to invest it. That’s not what we’re talking about here. That’s a smart strategy.

What you should avoid is allowing your ISA’s dividends to remain stagnating as cash while you’re trying to grow your wealth.

Many ISAs will have the option to reinvest your dividends automatically into the markets. Robo investors like Nutmeg will just do it for you as part of the service.

Reinvesting all dividends will let compounding get to work for you properly. You’re really shooting yourself in the foot if you’re withdrawing your dividends before you’re ready to live off them, as it massively hinders growth.

The difference between an 8% return with reinvested dividends and a 6% return without them is enormous over 30 years. Starting with £100k, it’s the difference between a £600k final portfolio and a £1.1m portfolio.

Are you using your ISA to its full potential? How much will you be paying into it this ISA year? Join the conversation in the comments below!

Written by Ben


Features image credit: Zastolskiy Victor/

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

You Won’t Believe What New Investors Are Doing!

Hi guys, here at Money Unshackled we love investor surveys. We’ll take any chance we get to delve into the mindsets and behaviours of fellow investors, and Freetrade recently carried out just such a survey. In this video we’re looking at the responses from over 2,000 investors.

We’re particularly interested in this set of data because, as we’ll soon show you, Freetrade’s userbase are similar in age to us and our YouTube audience.

Also, this is hot-off-the-press information and includes the opinions of both experienced and first-time investors – many of whom have had incredibly good fortune to start investing since those March 2020 Covid lows. Without further ado, let’s check it out…

First, we want to give a big shout out to Freetrade who carried out the survey and sponsored the video version of this post. Freetrade doesn’t charge any commissions when you trade, and has thousands of stocks and ETFs available, including the FTSE 100, S&P 500, and so many more.

Sign up from as little as £2 using this special link and you’ll be given a free share worth up to £200!

Remember, as with all investments, your capital is at risk – the value of your portfolio can go down as well as up and you may get back less than what you invest.


Alternatively Watch The YouTube Video > > >

First-Time Investors Or Experienced?

Until the dawn of commission-free trading apps like Freetrade investing was seen as an activity that was mostly for the wealthy. It was too cost prohibitive to begin building a diversified portfolio of stocks, and it astounds us that in the UK the old heritage platforms still continue to stick to their outdated business model of charging on a per-trade basis.

So, with this said it comes as no surprise that Freetrade has amassed an army of 800,000 customers, up from 600,000 in March 2021. This is phenomenal growth for a company that only launched its first app at the end of 2018.

According to the respondents in the survey, a whopping 59% are first-time investors and have joined Freetrade to kick off their investing journey. Just 41% are joining Freetrade with existing experience.

When you think about it this statistic is insanely high. With a typical investor likely to be investing for decades throughout their life, in normal times you would expect these percentages to be the opposite and overwhelmingly in favour of those with previous experience.

Our hunch is that while the old heritage platforms continue to grow their users slowly, the commission-free apps are hoovering up the new generation of investors in their droves. Users of the heritage platforms may be stuck in their ways.

UK Retail Investors – Who Are They?

Here are the age ranges and the overall gender split. It comes as no surprise to us that men make up the vast majority of investors, consisting of over 76% vs 23% for women.

Freetrade state that the reason fewer women are investing is partially caused by the inequalities in pay between men and women. We disagree!

Investing apps like Freetrade have all but eliminated fees, so if the take-up of investing still remains low amongst women, then we suspect it is something more innate than just a difference in salaries. Freetrade is proof that anyone can invest from as little as £2, without fees. So why should size of salary cause a significant difference?

If we look at a study like this one of YouTube video categories it is clear that some subjects are favoured by either men or women. Men and women simply have different interests.

Anecdotally, out in the real world we meet loads of guys who have a keen interest in talking about the stock market, but personally have found women as a whole are far less interested.

Next, on to age. 61% of the surveyed users are under 35 years old, with 40% being between 26 and 35 years old. This is probably to be expected and comes as no surprise to us. That age group have started to make some good money from their jobs and so have more disposable income to invest. They are probably also keener to invest through an app than perhaps older generations who might prefer a web-based interface.

One interesting point was the living situation of the respondents. 45% of respondents are owners of their property, 24% rent, and 20% live with parents.

Considering the young ages of Freetrade’s investors and the fact that home ownership is known to be shrinking in that demographic, we’re surprised that almost half of the survey respondents own their own home.

Unfortunately, the survey results do not mention investors’ employment earnings. But if 45% own their home we suspect that many of their customers are doing rather well financially.

Freetrade’s mission is to get everyone investing and there’s no doubt they are doing a great job but based on this statistic it would seem they might be helping more middle earners than those right at the bottom. Perhaps the message that anyone can invest from as little as just £2 needs more time to filter through.

Key Reasons Why UK Investors Start Investing

45% want long-term financial stability and the key reason was wanting peace of mind knowing they were building their savings, and another 30% wanted to retire early. Respondents were able to choose more than one answer, so there will be some crossover.

We don’t think there is any better reason than these to start investing. It’s not a coincidence that wealthy people take deliberate action to grow wealth and end up wealthy.

In 20 years or so, their peers who didn’t invest will no doubt claim that these investors got lucky or have some excuse why they didn’t get started themselves. But the reality is these investors took deliberate action today to invest to take care of their futures!

A worrying number of people – 19% – said they invested because they were bored in lockdown.

These sound like the sort of people who see investing as akin to gambling and are looking for a thrill. We can imagine that these guys are probably the sort investing in meme stocks and looking for that quick win.

The markets have been very kind to all investors since the Covid crash and delivered unprecedented growth. Therefore, even those who have had no idea what they’re doing have come out the other side smelling of roses.

Warren Buffett famously said, “Only when the tide goes out do you discover who’s been swimming naked.”

What Are The Main Goals For UK Retail Investors

49% want more disposable income to support their lifestyle. This is a great reason to invest but we reckon that many people have unrealistic expectations. Building up a portfolio that supports a lifestyle, or at least partially, takes a lot of money and a lot of time. When we say this, we absolutely don’t want to deter people from investing because every little bit put aside helps.

The 4% rule gives you an idea of what you can withdraw each year without running down your pot. So, for every £10,000 invested you could withdraw £400 per year. On its own this won’t change your life but build that investment pot over time and that 4% can you set you free.

36% said they were investing for fun and had no goals. To be fair we also partially invest for fun. Who doesn’t like making money? 34% said they were investing for a property. We’re not sure this is a good idea unless the property purchase was many, many years in the future or they don’t mind waiting longer if the stock market fell. Stock market investing is way too volatile for money that is needed in the short-term.

How Do DIY Investors Research What To Invest In?

46% spend a couple of days researching an investment before pulling the trigger, 32% spend less than a day, 19% spend more than a week, and 3% spend months researching.

This is probably a little simplistic because if we look at our own behaviours, we spend no time thinking about investing when its business as usual. For instance, our monthly investments into ETFs take no consideration time whatsoever. We know exactly what we’re buying, when we’re buying, and how much we’re buying!

On the other hand, when it’s a new investment strategy, like when we first started investing in synthetic ETFs, or using leverage to enhance returns, it took us weeks of detailed research.

46% were investing with Freetrade at least once per month. Most people are paid their wages monthly, so we would have assumed this was the most popular response. 22% said once every few months.

16% said they have only invested once or twice. These don’t sound like the type of people who are prioritising their wealth building. 14% said they invest at least once per week. We don’t think many people can successfully day trade, so long-term we’d expect this group of traders to lose money.

Here are the research channels being used and the percentage of people who use each channel. Unsurprisingly, Google is the most popular with 78% of people using it to get their information. Next up is the financial media at 48%.

Generally, the financial media can be a great source of information. But you also need to be wary of sensationalist and fear mongering stories. If you believed all the hype in the media, you would be selling everything due to an imminent crash caused by future inflation, a tech bubble, and tensions between the US and China. The next day you would be throwing everything at GameStop as it’s going to the moon.

Social media comes in at 40%. It’s interesting that they’ve grouped Reddit with useless social media sites Twitter and Tiktok. Reddit may indeed have idiotic subreddits but there’s also some brilliant ones, so we won’t tar them all with the same brush.

Data services and research services come in at 36% and 23% respectively. Data services includes sites like Yahoo! Finance and Stockopedia, and research services includes the likes of Seeking Alpha. Every investor who is investing in stocks should be using these kinds of sites. The sheer amount of quality data and research that you get is incredible and we highly recommend them.

And finally, YouTube comes in at just 3.5%. Shocking! As we primarily deliver our content through YouTube our audience are part of this elite group and obviously know where the best content is!

A Senior Analyst at Freetrade said, “Social media can make the headlines for the strangest of reasons but dismissing these platforms means ignoring the truly valuable educational content young people are finding on them.” He must watch Money Unshackled!

What Do Retail Investors Have In Their Portfolios?

We’ve saved the best until last. 95% said they invest in individual companies and only 50% own ETFs. While this doesn’t surprise us, we don’t think most investors should be buying stocks directly. Or at least they should limit it to a small part of their overall portfolio, which is what we do. We’re not told what their portfolio allocations are so there’s no way of knowing but my gut feeling is these investors are too exposed to some of the so-called trendy stocks.

We have long banged the drum that ETFs should make up the core of every investor’s portfolio. If you watch our videos, you probably own ETFs yourself. A shocking number of people – 45% – own Crypto. Freetrade doesn’t offer crypto, so presumably this is bought elsewhere, but this is a very speculative asset that most normal people probably shouldn’t own due to the real risk of losing a tonne of money.

If you do invest in Crypto it’s probably best to limit your exposure to a small part of your overall portfolio. Also, this volatile asset contradicts the main goals for retail investors that we looked at earlier. 34% were saving towards a property purchase and 24% to help raise a family.

As always, we hope you found this post interesting and don’t forget to go grab your free share on Freetrade using this link.

Where do you do your investing research and why? Join the conversation in the comments below.

Written by Andy


Featured image credit: Prostock-studio/

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