I Just Switched! Best Stocks & Shares ISA For ETFs For 2022-23

The new ISA tax started on the 6th April, which means it’s decision time: Do you continue making deposits into your existing ISA, or do you switch to something better?

With Cash ISAs, all that matters is the interest rate, but with Stocks & Shares ISAs, you need to try and find the one with the lowest fees, good customer service, the best functionality, and the best investment range; or as many of these boxes as you can tick. The platform also needs to offer the specific investments that you want in your portfolio.

I’ve just transferred my main ISA from my old investment platform, Trading 212, to InvestEngine, who will look after my stock market wealth in the 2022-23 tax year. I’ve been blown away by this innovative new platform for ETF investors and am putting my money where my mouth is. But is it the best platform for your Stocks and Shares ISA?

In this video we’ll show you how important it is to have a good ISA, tell you how to transfer your old ISAs to a new provider, we’ll have a look at the portfolio I’ve built in InvestEngine, and we’ll go into why I’m so excited about this new home for my investments.

InvestEngine are offering a £25 investment bonus to all new customers who open any account type with them via the link on the Money Unshackled Offers Page. Capital At Risk, T&Cs Apply.

Watch The Video > > >

Written by Ben


Featured image credit: soul_studio/Shutterstock.com

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

1.3 Million Noobs! What New Investors Need To Know

Recently I received an email from Freetrade declaring they have had 1.3 million people sign up to their platform. Meanwhile, Trading 212 have 1.5 million clients, and bear in mind that they’ve been closed to new investors for over a year, so how high would their client base have gone? The point is, new investors are flooding to these kind of low-cost investment apps and there are now countless investing platforms available.

33% of Brits own shares and 67% of the population say they plan to buy stocks and shares in the future, according to finder.com. Their research also found that over the last 5 years, the volume of searches on Google in the UK for the term ‘buy shares’ has risen 165%.

We think this is fantastic news as more and more people are putting their money to work but it also means there is a tidal wave of noobs who don’t know what they’re doing.

In a survey of Freetrade’s users, they found that 59% were first-time investors and just 5.4% consider themselves highly experienced investors. For me, this really became apparent a few months back when both my sister and her husband out of nowhere were asking me what shares they should buy, having shown no interest in investing before. I presume their friends had mentioned a free stock and that was probably enough to tempt them to try investing.

In this post we’re going to dish out some helpful tips for newbie investors and answer many of the burning questions that new investors have or should have, so you get your investing off on the right track. We’ll cover: how much you should pay to trade; how you are protected; whether you should invest in stocks and crypto; and how long to invest for; and more. Now, let’s check it out!

Alternatively Watch The YouTube Video > > >

As a sidenote, check out the Offers page if you want to grab some free stocks from multiple investing apps, as well hundreds of pounds of free cash, and discounts to investment services.

Don’t Pay To Trade Anymore

At the end of the day the fees (and taxes) you pay make a huge difference to the amount of money you make. Investors have a hard enough challenge to pick winning investments without having fees dragging them down.

But the good news is that the days of paying £10 or more every time you want to buy and sell are over – even if some of the heritage platforms don’t know yet. I would love to be a fly on wall in the boardroom of the older platforms as they frantically strategize how they can protect their revenue stream. For years now their business model has always been to rip-off investors for placing trades despite the direct cost of these trades to the platform being negligible.

In Hargreaves Lansdown’s result for 2021, they were enthusiastically announcing they had a record 233,000 net new clients, taking the total to 1.6 million. On the face of it this is impressive but apps like Freetrade and Trading 212 have achieved this in just a few short years.

We’ve been producing videos for 4 years now and one thing we’ve noticed is that new investors are overwhelmingly choosing commission-free apps over their expensive rivals, and who can blame them?

AJ bell have identified the threat as they will launch their own commission-free app sometime this year but at launch this looks to be just a heavily watered-down offering.

Some of the new apps that have sprung up in recent years offering commission-free investing include Freetrade, Trading 212, InvestEngine, Stake, Orca, Revolut, Wombat, Lightyear, and even big names like Vanguard don’t charge to trade. There is plenty of choice, and it seems to be getting better day-by-day.

Interactive Investor, who are the second largest platform by assets under management include free trading credits each month, and it’s surely only a matter of time before they fully commit.

From conversations I’ve had with older investors I gathered that they were less bothered by trading commissions because: (1.) Their trades were so large that the fee was less significant, and (2.) They were used to paying fees having paid them ever since they started investing.

But for younger investors, who want to invest say £2,000 over 20 stocks, that £10 fee per trade would cost them 10% of their portfolio just to buy, which is crazy high!

The slashing of trading fees has mostly been focussed on General and ISA accounts, and we have to admit there is still less choice for commission-free pensions, although this is slowly improving.

Other than the excessive cost, the other big reason to avoid paying trading fees is they negatively influence how you invest. You need to be free to rebalance your portfolio as and when it is needed. Trading fees interfere and affect your investing behaviour.

Between the platforms there is also a race to charge the lowest platform fees. Our favourites all charge zero or near zero fees to hold your investments with them.

As it stands right now, most platforms will compete on price in one specific area such as ISAs but be less competitive with another product such as SIPPs. For this reason, it usually makes sense to have your different accounts across multiple investment platforms, ensuring you’re always paying the lowest fees possible.

How Are Your Investments Protected?

This is a super popular question, and we can tell based on community answers that it’s very misunderstood. Most people focus way too much on the Financial Services Compensation Scheme, which protects up to £85,000. Because this is quite low people wrongly believe that they aren’t protected above this amount and should spread their investments over multiple platforms, but it’s not that straightforward.

Let’s deal with what is hopefully obvious; if you make a bad investment and the share price crashes, you’ll have to take that on the chin and put it down as a lesson learnt. You are not protected against making poor investment decisions.

But how are your investment’s protected against platform failure? The first line of defence is the segregation of client assets. Your platform is not permitted to use your capital in running their business, so they won’t be selling your shares to pay their salaries.

So should the platform collapse, your assets should in theory be safe and transferred to another platform. The cost of the administration and legalities of this may have to come from the client assets but this is when the Financial Services Compensation Scheme’s £85,000 comes into play as a last resort. Therefore, although the FSCS is just £85k, you are in effect protected by much more than this!

Another thing that could happen – no matter how unlikely – is a provider of the ETFs and funds you are invested in becoming insolvent. For example, imagine you hold an iShares ETF on Freetrade, and iShares goes bust.

Most ETFs are domiciled outside the UK, typically in Ireland and Luxembourg. If the manager of an overseas-based ETF becomes insolvent, there may be a compensation scheme in that jurisdiction, but it’s unlikely to be covered by the FSCS.

The underlying stocks within the fund do not legally belong to the provider (such as iShares and Vanguard), so if they get into financial difficulty, your investments would be protected from its creditors. And in any case, these fund providers are probably too big to fail. They each manage trillions of dollars’ worth of assets.

The likely worst thing that will happen from any firm failure is your money getting tied up for a period of time. If you wanted to err on the side of caution you might want to invest in funds from a range of providers (such as iShares, Vanguard, and Invesco) and invest across a couple of platforms. We do this by ensuring our pension is not with the same provider as our ISAs.

It’s Harder Than You Think. It’s Easier Than You Think

That might sound like a contradiction, but it’s aimed at 2 different types of people. First you have new investors who think they are the bee’s knees, when in reality they are just taking wild punts. And in a bull market, which is when the market is going up, their recklessness is often forgiven.

Most of these investors couldn’t even tell you the difference between a balance sheet and an income statement but for some deluded reason they believe they have a knack for picking winning stocks… they don’t! Ben and I (MU cofounders) both have degrees and professional qualifications in accountancy, not to mention years of experience, but we still sometimes struggle with the overcomplicated and tedious accounts published by most companies.

Then you have scaredy cats who are the polar opposite. They are totally overwhelmed by investing and if they do overcome this fear, they will only invest through a managed service like a robo advisor because they wrongly believe you need to be some sort of investing professional to invest properly. Robo-Advisors are typically unnecessarily expensive but at least they get them investing, so are better than nothing.

The best way to invest in our view is somewhere in between these extremes. Hand picking your own Exchange Traded Funds which track broad indexes should produce better returns for each type of investor and is super easy. We even share our own portfolios on this website – what we call the Money Unshackled Ultimate Portfolio, so you can just copy this or at least use it as a starting block.

Limit Stock Picking And Crypto To The Bare Minimum

Picking stocks that outperform the market is insanely difficult and usually you will do worse than had you just dumped your money in an index tracker. There are tonnes of studies proving that even professionals underperform.

However, we get it; picking stocks is way more fun, so what we suggest is you put the majority of your money (say 85% or 90%) in boring index trackers, and have a little fun with the rest. We don’t mean toss it up the wall by any means, but feel free to have a go.

One problem with stock picking is you have to be right twice. You need to know when to buy and when to sell. The first one isn’t easy but knowing when to sell is super tough. Where most beginners go wrong is failing to understand that a good company does not mean a good investment. If the rest of world already knows how good the company is, then it will be factored into the share price. An industry like Veganism may seem like it’s taking off, but buying shares in, say, Beyond Meat, won’t necessarily be a good investment just because a lot of people want to eat plant burgers.

Stockopedia is an incredible resource for analysing and screening stocks, and we can’t recommend it highly enough. For most beginners it’s probably too expensive but you do get a free 14-day trial with our link, and a 25% discount if you choose to keep using it. For stock investors definitely take a look at Stockopedia.

As for crypto, that Freetrade survey we mentioned earlier found that 45% of their customers also invest in crypto. If this was just a little fun money, then we have no real issue with this, but we hope people aren’t investing their life savings into it.

With the stock market it’s usually a select few companies that drive overall market growth. With crypto the success of the asset class will be determined by an even narrower set of assets. There are 19,000 different coins according to Coinmarketcap.com, with the majority of crypto’s market cap coming from just a handful of coins – primarily Bitcoin and Ethereum. What are the chances of you picking a winning crypto from that large pool? Most of them will go to zero.

Also, we don’t think you should invest in what you don’t understand. Sure, you probably know the basics like you store it in a digital wallet, and you can buy it from Coinbase or other exchanges. But do you understand what applications crypto has and the value of them? Or why certain coins are better than others? We’re not convinced it will even become widely accepted for payment. You can’t spend Euros in a British Tesco, so what are the chances of being able to buy your milk with Bitcoin?

Personally, we don’t speculate on currency movements such as the British pound vs the US dollar. In our eyes, crypto is just another currency… albeit more complicated. Most of our money goes into productive assets. With stocks, it doesn’t matter in the short term if other investors don’t see your point of view. A good stock will generate massive profits (and dividends) regardless of what is happening to the share price. With crypto it’s only worth what others are prepared to pay.

Investing Is A Long-Term Game

Investors now hold onto their shares just 0.8 years on average before selling them. In 1980, the average was 9.7 years, representing a decline of almost 92%, according to finder.com.

This tells us that most investors are effectively gambling, rather than investing, at least when it comes to stocks. The problem with investing for short periods is that the market is highly volatile in the short-term, by which we mean a few years. In the short-term you could quite easily lose almost all your money even if you invested in the best stocks.

Amazon stock price history

Between 1999 and 2001 Amazon’s share price plummeted by around 90%. Today, that catastrophe isn’t even a noticeable blip on their price chart. Anybody who sold will be kicking themselves as today it’s risen by about 320x.

Benjamin Graham, who is widely known as the “father of value investing” and teacher of Warren Buffett said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

What tips can you share for noob investors? Join the conversation in the comments below.

Written by Andy

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

Can You Trust Commission Free Apps? How Do They Make Money?

Hey guys, in the medium to long-term the investment platform you use to invest through must generate a profit for itself or otherwise it will become insolvent, which is bad news for them and potentially you as well. A failed platform could result in your money being locked-up, making it inaccessible for an unknown period of time – possibly several months.

But worse still, is there a risk of actually losing your money when you use a commission free platform? Imagine you had invested for several years, built-up a tidy investment pot, which was your ticket to freedom, only to lose the lot because you tried to save a few quid on each trade and picked a dud investment app.

In this post we’re going to look at some examples of how investment platforms are making money such as Freetrade, InvestEngine, and even more established platforms like Hargreaves Lansdown. We’ll discuss whether it’s safe to invest on a platform if they make a loss and look at some of the other drawbacks of using commission-free apps.

One of the many reasons to use a commission-free app is the generous new customer welcome offers such as free stocks and free cash that many of these platforms provide. The Money Unshackled Offers page lists as many of these as we can arrange for you, so it’s worth checking that out if you’re looking for a new investment app.

Alternatively Watch The YouTube Video > > >

How Exactly Do The More Established Platforms Make Money?

Let’s first take a look at how the existing major players are making their money as it helps to put things into context. Some of the big boys like Hargreaves Lansdown are publicly traded companies, and many of these will give an overview of their revenue breakdown in their annual reports, so we can see precisely how their business model works.

Hargreaves Lansdown Revenue Breakdown

In the latest annual report from Hargreaves Lansdown, on page 145 of 188… yawn… we can see they made £631m and 37% of this was from ‘fees on stockbroking transactions’. Surprisingly, this was up from 23% of overall revenue in the year before. So, in a market where commission-free apps are hoovering up new customers, Hargreaves Lansdown is seemingly becoming more dependent on trading fees.

Also, their overall revenue increased year-on year by around £80m, which is mostly driven by increased revenue on trading transactions – a revenue stream which we think is massively under threat. This post is not meant to be an assessment on whether you should invest in this stock, but it doesn’t paint a pretty picture.

Moreover, £264m or 42% of their revenue was from ‘Platform fees’. This is the charge for you simply having your money sit on their platform. The commission-free apps are not all targeting the elimination of this revenue stream so vehemently as they are with trading fees, but it is also under threat.

Interactive Investor Revenue Breakdown

We didn’t think we would be able to get our hands on Interactive Investor’s revenue breakdown as it was a privately owned company, but they have indeed published accounts for the year 2020 and we’re shocked. 51% of their revenue came from trading transactions. I’m sure I had previously read that trading was not a significant influence on revenue, but this clearly shows it is.

AJ Bell Youinvest Revenue Breakdown

And finally, AJ Bell is similar to the others with the majority of their revenue coming from platform charges, and then trading transactions.

How Do ‘Commission-Free’ Apps Make Money?

As of now most of them don’t make money or at least not enough to turn a profit. I suppose before we go any further down the rabbit hole we should explain what commission-free investing is. Commission-free investing does not mean free. Generally, it means that placing trades is free but even that is questionable.

As we have seen, the established platforms make the bulk of their money from administration fees and trading fees. Those trading fees have tended to be around £10 per trade, which seems outrageous in this day and age, and makes investing only accessible to the rich.

The commission-free apps have done away with trading fees but most still continue to charge some sort of administration or account fee to hold your investments with them.

Freetrade openly admit that they run a freemium pricing model, and for fans of South Park you’ll know that “mium” in Freemium is latin for “not really”.  The freemium business model is where they give a basic service away for free and then upsell other products that customers will pay for.

It’s not exactly a new business model; UK banks have been giving out free current accounts for forever as far as we know, and instead make their money by charging a minority of clients interest on overdrafts and credit cards, and whatever else they can upsell. We have never heard anyone question the sustainability of free banking even though it surely costs the banks billions.

In the UK, Freetrade is the granddaddy of free trading apps. In their 2020 accounts, the auditors highlighted that Freetrade would need to raise additional funding during the year in order to meet their cash requirements and that this represents a material uncertainty.

This is not yet a problem; it’s actually quite normal for a new business. Freetrade, just like most other startups are in the rapid growth stage of their business, where making a loss is to be expected. But how do the commission-free apps intend to make a profit?

#1 – Charge For Certain Account Types

Some commission-free apps are giving you access to a general investing account for free but charging small amounts for ISAs and SIPPs. Freetrade is one such platform, but we don’t think charging for an ISA is sustainable because the increasingly hot competition are not doing this. In fact, Freetrade were probably given a lifeline when Trading 212 closed to new investors as Trading 212’s ISA account was free. Meanwhile, other free trading apps have flooded the scene and also don’t charge for this.

In contrast, charging for SIPPs is probably more sustainable (certainly over the next few years) because most new investing apps don’t offer SIPPs yet, and the older established platforms charge too much. Freetrade have been able to charge £10 a month for their SIPP and this still undercuts most of the competition. We actually showed in this video that Freetrade offer one of the cheapest SIPPs on the market for larger pension pots, despite the £10 a month fee – even cheaper than Vanguard’s in some scenarios.

Trading 212 was an existing profitable CFD platform before they side stepped into offering real stock investing. In their accounts they say their new stockbroking business did not generate material revenue during the year, despite the large growth in the number of accounts. They go on to say that they have a pathway towards monetising this line of business.

However, it seems as though offering free trading on real stocks has elevated its CFD business with revenue growing from £2m in 2019 to £54.3m in 2020, while a loss has become a £21.9m profit. That, ladies and gentlemen, is how you make a success of charging nothing for your product. Essentially, their stockbroking business has been a marketing machine for their CFD business, which makes all the money.

#2 – FX Fees

Most commission-free apps have continued to charge nasty FX fees – better than what we had before, granted, but still too high. The best stocks in the world are frequently based in the US and priced in dollars, so in a way these FX fees are just another type of trading commission that is unavoidable unless you trade less or stick to boring UK stocks.

#3 – Interest Rate Arbitrage

Not all money deposited on a platform is invested and it often just sits there in cash. Your broker is unlikely to be paying you interest on this but is almost certainly scooping it up for themselves. In recent years this has probably not been a massive earner for the platforms due to pathetic interest rates, but times are changing, and rates are rising and so could become a nice little earner.

Even with dire interest rates Hargreaves Lansdown still managed to pocket a tidy £52m in a single year (see breakdown image at top of article). How? By managing in excess of £100 billion of client assets, of which some (likely billions) will sit in cash.

#4 – Securities Lending

Recently, Freetrade announced that they would introduce securities lending in a step towards becoming a more sustainable business – or in other words, a profit-making business. Securities lending is the practice of loaning shares to other investors or firms, and in return a fee is paid to the lender.

This kicked up a bit of stink on social media as it is short sellers who borrow stocks and then try to push the price down. The borrower hopes to profit by selling the security and buying it back later at a lower price. So, you could argue there is a conflict of interest. Whatever your views, securities lending is common, and is a way that platforms can reduce the cost of trading for you. Seems fair enough.

#5 – Managed Service

InvestEngine is another commission-free app that is taking the world by storm and yet we regularly get asked how they make money. Well before they launched their do-it-yourself investing service, they first launched a managed service, for which they charge 0.25%. Currently 2/3rds of clients’ assets are managed and in their own words InvestEngine are using their free investing service to draw new customers in and then they aim to up-sell them to a premium service.

#6 – Margin Lending

We’ve not yet seen any UK commission-free platforms offer margin accounts but it’s super popular in the US. According to InvestEngine’s crowdfunding investment deck, they plan to introduce this, which we believe could be a great money spinner. Margin lending is simply borrowing to invest in shares and other financial products using your existing investments as security. You pay interest when you do this.

What About The Spread?

It’s commonly believed by many new investors that platforms simply widen the spread between the buy and sell prices of stocks and profit from this. However, FCA-regulated brokers are obliged by law to obtain the best result for the client. Price and costs are some of the key factors that must be considered.

Some excellent research by monevator.com found that etoro controls the spread for CFDs as they set both the sell price and the buy price. In their T&Cs they state that they are required to act in your best interest when providing services. However, there may be instances where your interest conflicts with their interests such as CFD trading. Whereas in the fee schedule for 0% commission stocks they state that the spread is determined by the market and not by eToro.

Analysis carried out by brokerchooser.com found that the spreads are basically the same among all brokers, and the best execution prices are usually very close to each other. Based on this they concluded that you don’t get a compromised execution if you open an account with a newcomer, but you pay far less for it in terms of fees.

Is It Safe To Invest On A Loss-Making Platform?

In most cases, yes it will be safe. You should always check that the business is authorised and regulated by the FCA. Simply go to the FCA site and search for the company. When they are authorised you will know that your money is ringfenced and segregated from the investment platform’s own business and protected by the financial services compensation scheme. There will also usually be a page on the platform’s own site detailing what precautions they have in place.

Beyond that if you wanted to be extra careful you could consider the roadmap of the investment platform, which many of them make available on their website or when they raise capital. What services do they intend to offer down the road, what will they charge for these, and how likely is it that they will ever turn a profit?

Personally, we’re not too concerned by this. If any of these new commission-free platforms fail, they will likely be easily wound up due to their small size, and clients’ assets will likely be transferred to a different broker. In the P2P Lending space, many platforms have closed but successfully returned clients’ investments, and these had considerably less protection than a stocks and shares investment platform.

Drawbacks Of Using A Commission-Free Platform

We are generalising a lot as there any many commission-free apps all offering different levels of service, but generally, the main drawbacks are as follows:

  • A smaller investment range – the expensive older platforms tend to offer any investment you can imagine.
  • Fewer account types offered – SIPPs are currently quite rare, and Lifetime ISAs and Junior ISAs are practically non-existent.
  • A watered-down customer service – sometimes being able to pick up the phone is useful but this isn’t normally an option. However, in-app chats on the whole have been excellent.
  • Encouraged to trade frequently – even without fees there is still a cost to invest and always will be due to the bid offer spread and possible stamp duty taxes. Therefore, trading frequently is often bad for your pocket.
  • Pooled orders – pooled orders is a cost saving technique used by some platforms. Although it shouldn’t really bother long-term investors too much it is still nice to know your order has been executed straight away.
  • No automatic investing – the best way to invest is to set it on autopilot and forget about it. Each month your bank will send money to your investment app, and they will automatically invest this according to your plan. InvestEngine are one of the few who offer this without charging but unfortunately, many free apps do not currently have this feature at all.

That brings an end to our take on commission free investing apps. They have come a long way in the last few years and are getting better almost day by day. We believe it’s only a matter of time before the big boys all follow suit and cut their fees. We can’t wait to see how this plays out.

Remember, if you want to sign up to a commission-free platform, we probably have a new customer offer for it on the Money Unshackled Offers Page, so check that out first.

Are you worried about using commission-free investing apps? Join the conversation in the comments below.

Written by Andy

Featured image credit: thinkhubstudio/Shutterstock.com

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

AJ Bell Dodl Review – New Commission-Free Investing App

AJ Bell have launched their much-anticipated commission-free investing app, known as Dodl, which is set to compete with the likes of Freetrade, Trading 212, InvestEngine, and all the other great investing apps which are driving down the cost of investing for ordinary people like us.

In this article we’ll be reviewing Dodl, looking at what account types they offer, the fees being charged, the available investment range, what we like, what we don’t like, and how it compares to the alternatives. Hopefully by the end of this review you’ll know whether you want to start investing with Dodl by AJ Bell.

As always this is a totally independent review and we’re not being paid by Dodl in any way. We do everything we can to bring you the best customer offers on financial products, so if we do ever get a Dodl welcome bonus or any other such offer, we will of course put it on the Money Unshackled Offers page, so that’ll be worth checking out first. Right now there are thousands of pounds worth of other offers (such as free shares and cash) up for grabs from competing investment apps. Now, with that said, let’s check it out…

Alternatively Watch The YouTube Video > > >

What Are The Charges?

Let’s kick off by stating the fees because there’s little point in listing a tonne of amazing features if you have to pay through to nose to use it. Well, we’re pleased to announce that they have kept things super simple – which we love.

There is a 0.15% annual account fee which is charged on the value of your investments and paid monthly. However, there is a minimum charge of £1 per month, which means if you’ve got barely any money invested it can be relatively expensive.

For example, for the purpose of this review I dropped in £100. So that £1 monthly fee would be a 12% annual fee if I didn’t add any more money. You’ll need £8,000 invested before you start paying 0.15%.

You can easily calculate what percentage you’ll be paying by dividing £12 by the value of your investments, with 0.15% being the minimum. So, if you have £3,000 invested that comes out at a 0.40% fee. That would be quite expensive; for comparison Vanguard charge 0.15% with no minimum pound amount, and InvestEngine charge no account fee whatsoever.

There is also no top-end cap on the fees charged, which means charges can get out of hand once you start building a sizable investment pot. Based on the competition and what we consider reasonable, our rule of thumb is that you dont want to pay much more than £10 a month or £120 a year. When your Dodl investments reach £80,000 that is when the fee begins to exceed £120 a year, and you might want to consider looking elsewhere.

Annoyingly and this is nit-picking, there seems to be only one way to pay the account fee and that is for it to come out of your available cash in your account. Our problem with this is that you always have to have some cash available just sitting there for this reason otherwise it would be an outstanding balance. Once this balance gets to £5, they will get in touch with you.

With some other investment platforms, you have the option to have the fee taken from your bank account via direct debit instead or have some of your investments automatically sold to cover the fee.

As for trading fees, there are no charges to buy and sell your investments, which is awesome, and what we now expect as standard from investing platforms. There is a smallish foreign exchange fee of 0.5%, which you’ll incur if a company or fund you own pays a dividend in another currency, but most platforms carry a similar sized FX fee so is not unusual.

What Accounts Does Dodl Offer?

This is where Dodl has taken an active lead in improving what we currently have available from other commission-free apps. Not only do they offer a General Investment Account and an ISA – they are also offering a Pension and a Lifetime ISA as well, which are two products that they have competitively priced at 0.15%. For comparison, AJ Bell’s Youinvest Lifetime ISA costs 0.25% and Hargreaves Lansdown is 0.45%, although both of these have caps on shares.

Those Dodl fees we mentioned previously apply no matter which accounts you use but bear in mind the minimum £1 monthly fee is charged per account, so if you have an ISA, a Pension, and a General Investment Account, the minimum fee would be £3 per month.

What Is The Investment Range Like?

This is probably the biggest disappointment! You can tell the guys at Trading 212, InvestEngine, Freetrade, and others are trying to create the best investment platforms they can with the resources they have, but our guess is that AJ Bell are deliberately offering a disappointing range to avoid cannibalising their existing Youinvest platform. New investors might like this very simplified range but for experienced investors the choice is very limited.

It would also seem that Dodl are slightly embarrassed with the investment range as the only way to see it is to download the app – a step that a lot of people wouldn’t bother with if they had seen what was available before.

Pension Replacement Rates

So you can avoid this hassle we went ahead and asked them to send us the full list and as of the 22nd April this is it. The investment range is split into 3 broad categories: AJ Bell Funds, Themed Investments, and Shares.

It is clear that the app is geared towards promoting AJ Bell’s own funds, which in our opinion are slightly overpriced.  The cynic in me would say they are offering a very cheap investment app and then hoping to recoup some of those lost profits by pushing new investors towards their own funds. The AJ Bell Growth funds all seem to charge 0.31% which isn’t outrageous by any means but price sensitive investors like us do prefer to pay less.

Next, we have Themed Investments. These are just funds and ETFs that have been rebadged with what is meant to be a helpful name. For example, the ‘global climbers’ theme is the iShares Emerging Markets Index Fund. Noob investors will likely benefit from the dumbing down of terminology, but we found it made things more difficult for us as we could no longer see what an investment was based on the name alone.  We wish they would have provided users with the ability to toggle real names on and off.

One theme (or fund) that we particularly like is ‘On top of the world’, which is really the HSBC FTSE All-World Index fund. This tracks the same index as the very popular Vanguard VWRL that everyone raves about but does it for a fraction of the price, costing just 0.13%. This HSBC fund is one of our favourite ways to track the whole world, and if we were to switch, say, our pensions to Dodl, we’d personally put all our money in this fund.

And finally, there are 50 UK stocks to choose from by our count. This might be enough for a casual noob investor but for anyone who wants to pick the best stocks it’s unlikely to be in this small list. Other commission-free apps make available thousands of stocks.

Naturally, most investors will want to invest in the big American companies like Amazon and Apple, but you can’t yet buy US stocks on Dodl, although they do say it’s on their roadmap. Nevertheless, based on the small range of UK stocks we can’t imagine they will ever make available thousands of US stocks, so it’s probably not something to wait around for. For one thing, making available thousands of stocks for free would undermine their Youinvest platform.

Other Things Worth Knowing

Low Minimum Investment Amount – You can start investing with as little as £100 for a one-off contribution or £25 if you setup a monthly direct debit. If you do start with the bare minimum do remember that the minimum monthly fee of £1 will massively eat into your contributions, so you will want to scale up your overall investment pot fairly quickly.

Good Customer Service – It’s always handy to have a responsive and helpful customer service. In order to clarify a few points for this review, we got in touch with Dodl and found them to be polite, helpful and they responded quickly. You get in touch with them via the in-app chat or via their website. There is no phone number, which might be a drawback for some.

Delayed Orders – When you submit an order Dodl will process it either later that day or the next day. Admittedly, this is annoying but for fund investors it’s something we can tolerate. In fact, this is similar to InvestEngine and is how Freetrade used to behave back in the day when they first launched.

The problem is that this type of order processing is dangerous when it comes to buying and selling individual stocks because you don’t know what the share price will be at the time of the transaction. Funds are unlikely to move massively within a day, but shares can have enormous swings. You could end up paying far more per share than you are comfortable with.

App Only – There is no website platform, so the only place you can buy, sell and do everything else is via the Apple or Android Apps. We can’t imagine this is too much of an issue for the younger audience which Dodl are clearly targeting but we always like to have a website platform as well as an app. If you lost your phone, you might not have access to your investments until you were all setup with a new one.

Monthly Investing – Some commission-free investing apps do not allow you to automatically invest on a monthly basis or charge you to do so. We’re big believers that regularly investing on autopilot is one of the best ways to build long-term wealth. With Dodl, you can set up a direct debit and invest into as many of the available investments as you like.

No Information On Available Investments – With the older investment platforms like Interactive Investor you get given a tonne of information about the fund or stock that you’re thinking about investing in. Unfortunately, with Dodl there is practically zero information within the app. For an app aimed at beginners many will have no idea what they’re actually investing in. Clued up investors will know how to find this information elsewhere, but they shouldn’t have to.

InvestEngine, a competing commission-free app, which specialises in ETFs serves up loads of information that an investor would need to know before investing right within the app. For example, you can view the fund objective, geographical breakdown, all of the underlying holdings, of which there may be thousands, and so on. You can even download the fund fact sheet, which is essential reading before investing in any fund.

Good, Intuitive App… But A Little Slow – The app is super clean, easy to navigate and looks good. If we had to complain about one thing here though it would be navigation speed – it seems to have a slight delay before loading each page and you get a split second of a spinning wheel. You might think we’re being pedantic about such a minor issue in speed but research by Google found that people search less if search results are even slowed by a fraction of a second. People have no patience and why should they?

Can’t Transfer In…Yet – Currently, you can’t transfer-in to any of their accounts but apparently, they are working on this. Our guess is that once they’ve been up and running a little while and ironed out any bugs they will be fast to enable transfers-in, so watch this space. At the end of the day, they make their money by holding your assets, so the more money you have with them, the more readies they make.

Our Final Thoughts

We’ll never complain about increased competition because this is what drives down fees for consumers. We’re currently spoiled for choice and there are more investing apps popping up all the time. Dodl may not be making big waves when it comes to General and ISA accounts, but we think a lot of people will be interested in their Pension and Lifetime ISA, which are amongst the cheapest on the market.

So, that wraps up the review! Some of the apps we’ve mentioned today have offers on the MU offers page, so check those out. Let us know down in the comments what you like and dislike about Dodl, and if you’re still unsure, feel free to ask us any questions. We do our best to answer as many as we can.

Written By Andy

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

My Leveraged Losses

One request we get quite frequently is to do an update on our leveraged strategy – and if you don’t know what this is, not to worry, we’ll give a quick summary to catch you up. At first, we were reluctant to do this update so soon because the strategy’s performance will basically return the same as the market multiplied by whatever leverage was applied, which in our case was a very risky 3x.

But given recent events in the markets driven by the atrocities in Ukraine by Russia we wanted to address any worries you may have if you were implementing the leveraged strategy for yourself.

We had always wondered how we’d react if and when the markets tanked, and we were nursing big losses. The war is the first serious threat to our portfolios in a long time, which is scary enough when you just invest in ETFs or stocks but is downright terrifying when you are leveraged.

We won’t be covering the awful humanitarian crisis and the horrors of the war in this post but instead will focus on the stock market impact. This is in no way to downplay these serious issues, but these are well covered elsewhere in the news and social media.

We are going to revisit the risks of our leveraged strategy and consider whether we should reduce the risk in light of real-world events. Our backtesting had previously warned that we may face losses of up to 90% at 3x leverage.

We’re going to look at my overall performance so far (early Mar 2022) and also break it down by the component parts of the portfolio, which was the S&P 500, long-term US treasury bonds, and gold. We’re going to talk about what’s worrying us right now and the reasons still to be bullish. Now, let’s check it out…

FYI: £50 cash bonuses and FREE stocks listed on the Offers Page.

Alternatively Watch The YouTube Video > > >

As always, check out all the offers for free cash, free stocks, and discounts to many investment services and apps at the Money Unshackled Offers page. We’re always updating this with more goodies and bonuses, so if you’ve not visited in a while check that out!

A Quick Catchup On The Leveraged Portfolio

Essentially, we’re borrowing money to invest with the goal of making massive profits. History tells us that we could make up to around 33% annual profits less any fees. This might sound super risky, but the risk depends on what return you want and the amount of leverage you use, and there are some solid reasons why borrowing a small amount of money to invest can actually lower your overall risk and increase your returns.

The leveraged portfolio breakdown

The portfolio we’re both using is 60% S&P 500, 30% Long-term US Treasury Bonds, and 10% Gold, and applying 3x leverage. We ran some extensive backtesting on this portfolio to see how it would perform with no leverage and benchmarked it to an index consisting of just US large caps, or in other words the S&P 500.

Backtesting of the portfolio

Over 43 years the unleveraged portfolio returned nearly 11% per year, not that much lower than the 12% from US large caps. However, it did this with significantly lower risk, measured here by the standard deviation, which is the volatility. Volatility is what usually kills investors using leverage, so we want to keep this down.

Note, that despite the small difference in annual returns, over 43 years the difference between the final balances is huge.

In a nutshell, this is why we are using leverage to improve our returns because every little increase to your annual returns will have a colossal improvement to your overall gains.

The portfolio’s worst year was a loss of just 17% compared to a massive loss of 37% for US large caps. And the max drawdown, which is the total decline from peak to trough was just 29% for the portfolio vs. a whopping 51% for US large caps.

Remember that these percentage gains and losses will be multiplied by the leverage factor you use. With a max drawdown of 29% this would be a nearly 90% loss with the 3x leverage we’re using. For a full guide on how we use leverage check out our Spread Betting posts, here, and here.

My Performance So Far

Since June 2021 I have deposited £12,400 and I have been drip feeding this money in on a bit of a sporadic basis – usually every month or two. With this cash I have opened up positions that at their peak were worth about £39,000.

I don’t record my profits or losses daily, but I do tend to value the portfolio about once a month. During December I was sitting on nearly £1,500 profit and at the time I had only invested £10,000, so I had made a huge profit in just 6 months.

Amazing! At this rate – with this strategy – we’ll all be millionaires in no time. Sweet!!!! Hang on, hold your horses, this is a leveraged strategy, so any downward swing will hit the portfolio hard and could easily erase all those gains. And it was about January or February time when things started to get bad.

First, we had inflation worries. Energy prices were surging, food prices were going up, and inflation was hitting highs not seen in 30 years. Inflation is particularly bad for speculative stocks because the value of those future profits is worth less – and the US market is full of these types of stocks. Some US stocks were getting hammered and the overall market began to fall – with the S&P 500 going from around 4,800 to around 4,300 – about a 10% decline.

The leveraged portfolio would surely be okay though, right? It’s got 30% allocation to treasury bonds after all, which are purposely in the portfolio to hedge stock market declines. Well, the bonds have been getting hammered too.

The usual way to tackle inflation is to raise interest rates and even just expectations of this will cause bond prices to fall as they have been doing over the last few months. Rising inflation is worrying but it’s the sort of thing that we would expect Western economies to be able to handle and therefore we weren’t overly concerned.

However, stories were also coming in that Russia was building up troops, tanks, planes, and all the military support that would be needed to mount an invasion of its neighbour Ukraine. The stock market was getting jittery.

By this point my near £1,500 profit had swung into a £500 loss, and I believe it was a £1,500 loss on the first day of the invasion. The point we’re trying to make is that the success of our leveraged spread betting strategy cannot be measured in such a short time period as massive gains (percentage wise) can become massive losses in a matter of days.

In early March 2022, my position in the S&P 500 had fallen just 1.2%. This seems so low because many of the investments were made months ago when the S&P was much lower than its peak.

The treasury bonds have fallen 5.3% but Gold however is up 6.5% and earns its place in the portfolio. Gold was intentionally included to save us in the event of a crisis, which at time of writing we certainly look like we’re in.

Why We’re Worried

We have a few big problems with our leveraged investment strategy. The first is the limited backtesting that we’ve run. Unfortunately, for these assets we can only test performance going back around 43 years using the resources available to us.

This might sound like a lot, but this time period does not cover all the events that could happen. Inflationary cycles, economic booms and busts, deadly pandemics, natural disasters, and war, amongst many other things, may not have happened during this time. Yes, we have had a pandemic, but Covid is not exactly the black death.

We honestly thought that World War 3 would never happen but based on recent events you can never say never. Is nuclear war a real possibility? We don’t know but what we do know is that events like this are not factored into our use of 3x leverage.

Other than the small exposure to gold, the portfolio is entirely dependent on the US stock market and bond market, and even though the stocks will have global exposure it is still very risky to put all your eggs in 1 basket, or market in this case.

On the day Russia invaded Ukraine, Russia’s stock market plunged 33% in a single day but it’s intraday low was a crash of 45%.  If we had been doing our leveraged strategy with Russian indexes we’d have been wiped out. Who’s to say that a freak event couldn’t do the same with the US market? Yes, this seems much less likely, but we have to acknowledge that it’s always a possibility, no matter how slim.

The second problem that concerns us is bond prices and the low yields. Bond yields have already been rising recently due to high inflation and anticipated interest rate hikes, which causes bond prices to fall. It seems unlikely that bonds will provide the same level of insurance to the stock market as what we’ve experienced in the last 40 years or so. Over this time, the US Fed interest rate has come down to record lows. The only direction it’s going now is up and that’s bad news for bonds.

This is hardly news to us, which is why we added gold to the portfolio despite gold not having any significant effect over and above the insurance properties of bonds in our backtesting. So far, our gut feeling to include gold has paid off but recently we came across this chart that could change everything.

Russian gold reserves

The chart shows the gold reserves of Russia since the year 2000. Up until the financial crisis around 2008 their gold reserves were flat. Since then, they have more than quadrupled. With a bit of hindsight our guess is that they were preparing for war.

You could argue that the Ukraine invasion has been 14 years in the making. Wars are expensive and what better way to fund a war than to raise money by selling your gold. Gold is real money and always has a buyer. So what does this mean? Our guess is that there will be tonnes of gold flooding the markets if Russia needs to raise money, which will put huge downward pressure on the price of gold.

To put it into context, there is approximately 34,900 tons of gold reserves in the world and Russia’s central bank has 2,300 tonnes – that’s 6.6%. Conversely, gold has always been a safe haven in times of panic, so the price could in fact rise even if Russia were offloading their reserves.

My third concern is whether I could stomach big losses to my leveraged portfolio. So far, having only put in just over £12,000 I wouldn’t be devastated if I lost the lot. In the grand scheme of things, it’s not that much money and I’m still young, so could rebuild. However, as I continue to build my leveraged portfolio there will probably become a point where the risk of loss is too much. I don’t know yet how much money I would need invested to start feeling uneasy.

Why We’re Bullish On This Strategy

We’re not going to repeat what we’ve said in other videos because you can go back and watch them but let’s look at some other key points:

Firstly, the risk of losing your original capital is much higher at the start. But in theory when you’ve been running the strategy for a long time, say 15 years, losses will likely just eat into your gains. And even with what would seem like a catastrophic decline you would still likely have way more money than what you could get from an unleveraged investment.

Portfolio values and returns after various theoretical declines

Say you had £10,000 and earned 30% leveraged gains for 15 years, but then suffered a 90% decline. Your original £10,000 would still be worth an awesome £51,000, which is still an 11.5% compound annual growth rate despite the massive loss at the end. The table you see here is the annual growth rates earned after various declines. There is a lot of assumptions in this, but it goes to show that time with this leveraged strategy reduces your risk to your original capital significantly even if it doesn’t play out exactly like this.

We’re also bullish because new contributions reduce your overall amount of leverage. Say you had invested with 3x leverage, and the market fell, and your portfolio was now 6x leveraged. When you add more money at 3x leverage you dilute your existing portfolio, bringing it slightly closer to your target leverage. This is a key reason why we continue to add to our leveraged portfolios even when the market is down.

And what’s more, this strategy is very different to dumping money into high-risk stocks or crypto because we’re investing in whole indexes of stocks, bonds, and gold, in a precise mix that has been designed to weather any market crash, and to massively increase in value over time. Those other strategies rely on hope. Ours relies on data.

What do you make of our leveraged strategy? Are we bonkers or geniuses? Join the conversation in the comments below.

Written by Andy


Featured image credit: Andrey_Popov/Shutterstock.com

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

10X Your Money: 10X Your Life!

I want to kick off this post by telling you a short story. I must have been around 11 years old, and my family and I were on holiday in North Cyprus, which is a relatively poor country. We had taken a hire car and on a remote mountain road in the middle of nowhere we had found a restaurant to grab a bite to eat.

We placed our order with the waiter and then he scurried off towards the kitchen. A moment later one of the members of staff was seen jumping into his car and speeding off down the dusty road.

A while later the guy returned with a big shopping bag in hand. It turns out whatever we had ordered they didn’t have in stock, but rather than just refusing the order – and sneering, “sorry we’re out of chips” – as they would in most UK restaurants, they bent over backwards to satisfy what was in their mind a wealthy customer. This is a perfect example of how those with money get treated better in life.

In this post we’re talking about some of the many ways money enhances your quality of life. Now, let’s check it out…

FYI: £50 cash bonuses and FREE stocks listed on the Offers Page.

Alternatively Watch The YouTube Video > > >

Money Makes You Live Longer

Is money the elixir of life that we’ve all been looking for? The richer you are, the longer you live – that is a fact. Data from the ONS shows that life expectancy at birth of males living in England’s most deprived areas was 74.1 years, whereas it was 83.5 years in the least deprived, a gap of 9.4 years. A different study found that the life expectancy gap between England’s richest and poorest neighbourhoods has widened since 2001.

Economists have warned of wealth inequality rising in Great Britain, so presumably the life expectancy between rich and poor will also continue to widen.

The wealthiest 10% of households owned 43% of all the wealth in Britain between April 2018 to March 2020, according to data from the ONS. In contrast, the entire bottom half of the population held only 9%.

But rich people don’t just live longer. They also get more healthy years. Wealthy men and women generally have eight to nine more years of “disability-free” life after age 50 than poor people do, according to a study of English and American adults.

The study analysed how well various factors including education, social class and wealth predicted how long a person would live before they could no longer carry out activities such as getting out of bed or cooking for themselves — the study’s definition of being “disability-free” and “healthy.”

Everything paled in comparison with wealth! Though education level and social class had some effect, neither was found to be nearly as significant as wealth.

You Are Not Ugly, You Are Just Poor

Before & After memes!

Money seems to possess a magical power that can make you better looking. Take these memes for example. Billionaire Jeff Bezos was a dorky nerd in the ‘90s. Fast-forward to 2017 and he looks more like the Terminator. A similar transformation appears to have happened to Elon Musk. Not only did he found PayPal, Space X, Tesla, and become a billionaire, he clearly has developed a hair growth formula.

Now, some of these extreme transformations might exaggerate the message. No doubt that these were probably the worst and best photos that could be found but even in more normal walks of life, it’s obvious that money can make you better looking and healthier.

In a Guardian article, the author wrote, “It’s simply harder to eat well when you are poor… healthy food is often prohibitively expensive, less healthy options are relatively as cheap as, well, chips. When parents have to find the cheapest food available for their family, it’s nearly always going to be less likely to be fresh; and more likely to be highly calorific (therefore “filling”).”

The next health advantage money buys is access to luxury gyms, health clubs, and personal trainers. None of this is required at all to maintain basic fitness but if you’ve got the money, it significantly helps. The extreme levels of fitness and good looks that most people can only dream of are not obtained by just a quick run round the block.

A personal trainer will push your limits, and crucially keep you motivated. According to PureGym, an average session of 45 minutes will cost up to £65. And a membership to a David Lloyd Gym will set you back over £1,000 a year.

You don’t even need to put in any hard work as long as you have the money. A good dentist can change your smile, swapping crooked gnashers for a set of poker straight, blindingly bright teeth. They don’t call it a ‘Hollywood smile’ for nothing

I had laser eye surgery several years ago, costing nearly £2,000, and the improvement to my life was amazing. I was tired of constantly having to put contacts in when I was doing sport or going out. I was about to travel to Southeast Asia and the thought of swimming, canoeing, and white water rafting while battling with contact lenses was the final straw. Without money, none of this is possible.

Wealth Gives You Options Now & In The Future

For us, a life feeling trapped is not an enjoyable one. Money gives you options. You can quit jobs, chase passions, enjoy hobbies, start businesses, retire early, travel, work part time, and so much more.

Without wealth, you need to constantly work to survive. Passive income is that annoying buzz word that is overused but the reality is that if you build assets that pay you without the need to put in your own time and sweat, you can free up your schedule. The passive income I have from rental properties means I’m never overly stressed about needing to work long hours.

Most of us spend about third of our lives at work, so working a job you hate is no way to live. Those people who have no money have no options.

If they have a nasty boss or the work is torture, there’s very little they can do. And as for starting a business, how is someone on the bread line ever meant to do this? It’s practically impossible. A business needs months, if not years to start turning a profit. A pile of cash gives you and your business the breathing space that is needed.

Even a little money can give you your independence. According to a study commissioned by the Debt Advisory Centre, nearly one in five people have remained in a romantic relationship because financial worries have prevented them from leaving.

Of those who have stayed in relationships for longer than they wanted to, one in five did so for up to three months but the majority stayed together for far longer. A shocking 24% of these respondents remained with their partners for more than three years after things went stale.

Moreover, a lack of good finances could make you dependent on the state, which is no way we would ever want to live. State benefits are always going to be measly and very few people would voluntarily choose to live on state handouts alone.

You might hope that the state pension would be more generous considering you have paid into the system all your life, but you’d be wrong. If you have a full National Insurance record you will only get a little over £9,000 a year. This is not enough to live on, so make sure you are building your own freedom fund, as we call it.

Live Worry Free

41% of Brits don’t have enough savings to live for a month without income, a third of Brits have less than £600 in savings, and 9% of Brits have no savings at all.

Worrying about money can make your mental health worse. Financial difficulties are a common cause of stress and anxiety, and stigma around debt can mean that people struggle to ask for help and may become isolated.

According to a recent American survey, 77% of people report feeling anxious about their financial situation. 58% feel that their finances control their lives, and 52% have difficulty controlling their money-related worries. They are most worried about their financial future with 68% worrying about not having enough money to retire.

Get Away With Murder

There seems to be a different set of rules for those with money. If what you hear is true, Wayne Rooney has had a string of affairs with prostitutes over the years, but Coleen Rooney has forgiven him saying she chose not to leave him partly for the sake of their boys. We’ll let you speculate what else convinced her not to give him the boot. Pun intended.

Back in 1995, OJ Simpson, American football star and actor, was acquitted of all criminal charges relating to the murders of his ex-wife, Nicole Brown Simpson, and her friend, Ron Goldman – even though he almost certainly did it.

OJ had so much money that he was able to put together an impeccable group of defence lawyers, who were nicknamed the Dream Team. It has been estimated that the defence cost Simpson somewhere between $3-6,000,000, the most costly murder defence expense to date.

It appears you can get away with murder: “as along as long as you’ve got the cash, to pay for Cochran”, as Good Charlotte once said. And just to caveat all this, we obviously do not condone any crime.

Invest In Your Future

We, as well as you guys reading, are probably a little different to the average person. Most people have a high time preference meaning they favour having stuff sooner rather than later. They want immediate gratification, whereas we as investors have a low time preference and often choose to delay gratification. We’ll sacrifice more now for a better tomorrow.

Investing in stocks, funds, property, and so on are all investments in your future. The more money you earn, the easier it is to invest more. However, there are many stories of ordinary people becoming millionaires by the time they retire simply by living below their means, investing in the stock market – often through a pension and an ISA – and being super patient.

Another way to invest in your future is by becoming educated. If you have some money behind you, you can invest in your education and learn new skills, which leads to better and more highly paid work. Unfortunately, so many people are firefighting just to pay their monthly bills that they have no money to reinvest in their education. How many books do you think the average person reads? We’re guessing not many, whereas 85% of wealthy people (including self-made millionaires) read two or more books per month. Bill Gates reads roughly 50 books per year.

Buy The Best Things

This point probably doesn’t need saying but money can buy you much better stuff. In some cases, it’s just perceived benefit, but many products and services are genuinely better. And in the case of safety equipment, it might save your life.

By way of example, consider braking distances of budget versus premium tyres. A recent test undertaken by Continental tyres showed that wet braking distance was over five metres longer when the vehicle was using budget tyres compared to premium tyres. Money spent on your car may save your life.

What You Need To Do

It’s evident that money is super important, so we all need to make sure we have plenty of it in our lives. This website is dedicated to helping you grow and invest your money, so make sure you’re subscribed. If you’re new to thinking about your future, make sure you’re putting as much money as you can into Pensions and Stocks & Shares ISAs, and continuously look for ways to save and earn more.

How would more money improve your life? Join the conversation in the comments below.


Featured image credit: Just dance/Shutterstock.com

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

If You Could Only Watch 1 Video…

We’ve been producing videos on YouTube for about 4 years now and uploaded nearly 450 videos. Over that time, we’ve dished out what we hope are helpful financial tips covering investing, retirement, tax, debt, economics, business, and everything in between.

That’s a lot of content, so in this post we’ve hand selected our best ever money tips that we truly believe will make a massive positive impact on your life and wealth. Think of it as our greatest hits.

This post can only ever be a summary of these life changing points, so we’ll also provide links to some of the key videos that explain further. This particular post is a perfect demonstration of what Money Unshackled is all about, so if you’re new here and find it useful, consider subscribing to the email newsletter and YouTube channel. Now, let’s check it out…

Alternatively Watch The YouTube Video > > >

#1 – Avoid Dividend Tax With Synthetic ETFs

Broadly speaking Exchange Traded Funds (ETFs) come in two forms: Physical and Synthetic. Physical ETFs physically own the basket of stocks they intend to track the performance of, while Synthetic ETFs hold different assets and then swap the performance of that basket with an investment bank to achieve the desired index performance.

Synthetic ETFs are so awesome because they can be used to circumvent some country’s dividend withholding taxes, saving you a fortune and getting you to your financial goal potentially years earlier. Most notably you can avoid that horrid US dividend withholding tax, and with US stocks likely making up the bulk of your portfolio this is a game changer.

Normally any US equity ETF you invest in, like the S&P 500, would pay 15% withholding tax. In recent history the yield on the S&P 500 has been around 2%, so that’s a drag of 0.3% on your return. Doesn’t sound like much but that is huge over your lifetime.

An investor saving £500 a month for 40 years, earning 8%, ends up with a portfolio worth £1.62m. If that return becomes 7.7% due to the withholding tax, the portfolio is only worth £1.50m. £120k less.

There is also every chance that we are being conservative with those numbers. The yield on the S&P 500 in the past has been more like 4%, so that tax drag would be even more substantial at 0.6%. And, in our example we based it on a 40-year investment timespan. Realistically you will have some money invested in the market well beyond your retirement day and likely up until your deathbed.

Therefore, the more you invest and the longer you invest for the more important it becomes to avoid paying unnecessary taxes, which over time siphon off your wealth. Synthetic ETFs are awesome!

#2 – Optimising The Size Of Your Mortgage Deposit

Many people’s negative attitude towards debt means that the common financial advice is to have the biggest house deposit possible and overpay on your mortgage to rid yourself of the debt as soon as possible.

Contrary to this, other people argue the exact opposite that you should have the lowest deposit possible and do as much as you can to avoid paying down the debt. The argument is that the interest rate is so cheap you can get a better return on that money by investing it.

Both approaches are flawed. Instead of being in either of these camps we invented our own approach. We carried out an investment appraisal, thinking it might be better to target specific LTV bands to find a balance between avoiding high interest and freeing up cash to be invested elsewhere for greater return.

We crunched the numbers and found at the time of doing the video that the optimal deposit from a purely financial perspective was 10%. This an updated version of this analysis but this exercise should be carried out for your specific circumstances and the latest interest rates available to you at the time, so these figures are just a guide.

A 10% deposit currently gives you a 14% marginal return on investment over and above a 5% deposit, so it makes sense to put down at least a 10% deposit if you can. However, as you move to a 15% deposit the marginal gains on the extra deposit amount are just a 5% saving, and then just 2% as you progress to a 20% deposit. On the assumption we can earn 8% in the stock market, sitting within these bands doesn’t make financial sense for those who don’t mind a bit of risk.

With a 25% deposit there is quite a jump in the marginal benefit, so we wouldn’t give you a hard time if you chose this amount of deposit or home equity. But from that point on there is almost no marginal benefit from paying down your mortgage, so you would likely be better off investing.

#3 – Spread Betting Futures

This may well be the single biggest win for investors who are prepared to spend the time learning the ropes of this very clever but high-risk investing strategy. This is our own formulated strategy – you won’t hear this anywhere else. What we have done is create a balanced portfolio to reduce portfolio volatility, and then ramp the risk back up with leverage to earn hopefully mega returns.

The strategy involves using a spread betting account to invest in S&P 500 futures, long-term US treasury futures, and gold futures in a 60/30/10 ratio. This was specifically chosen because historically for this mix of assets the largest ever drawdown – that’s the largest fall from top to bottom – was less than 30%. Government bonds tend to move in the opposite way to stocks when stocks crash.

On the assumption that history broadly repeats itself it means we can leverage the portfolio with up to 3x leverage and never get wiped out, which is vital whenever you invest on margin. That’s a big assumption but the beauty of the strategy is you can choose the amount of leverage you use, so you could do 2x or 1.5x. You can even use no leverage.

That begs the question why would you use a spread betting account with no leverage? Spread betting is technically classed as gambling by the powers that be, so there’s no capital gains tax to pay, even though our particular strategy using indexes is no different to any other long-term investing strategy. The author of the book The Naked Trader refers to a spread betting account as a Spread ISA because of the tax benefits.

In the past a non-leveraged portfolio like this would have earned 11% annually, so with 3x leverage we would hope to get 33% less any fees. We’re not expecting quite this much going forward but even half that would be incredible!

#4 – Matched Betting

Matched Betting despite the name is a great way to make some side income with relatively little risk. On the back of some of our previous videos, we’ve had people thank us for introducing them to this great money-making technique. Some people even claim to have made several thousand pounds from it but as a minimum you should be able to make several hundred with just the welcome offers.

Matched betting is a betting technique used to profit from the free bets and incentives offered by bookmakers. Bets are placed on all outcomes of a sporting event, so a negligible amount of money is lost. You are then rewarded with a free bet. You repeat the exercise to turn that free bet into real cash you can withdraw.

There are usually over 50 different bookmakers all throwing free bets and incentives at you, so there is plenty of easy money to be made.

To do this efficiently and to maximise profits you will want to sign up to some matched betting software. These literally walk you through the entire process and serve up the best bookmaker odds. Visit this page where we have a range of exclusive offers to the leading matched betting service providers, so do check that out.

#5 – Massive ROI With Buy-To-Let Property

We talk about buy-to-let property a fair bit on this website (and on YouTube) because it has the potential to make ordinary people rich, in years rather than decades. Ben (MU co-founder) currently owns 4 buy-to let properties and he credits this investment as the single biggest factor in his wealth building journey.

The reason why buy-to-let is so effective is mainly because of the leveraged returns that are achieved by using a mortgage. We’ve substantiated these figures in some of our YouTube videos but on a high level, if your property increases in value by 4% and you only put down a 25% deposit, your return on investment from capital gains alone is 16%.

You will also earn rental profits on top that can easily push up your total return to somewhere around 20-25%. Obviously, this strategy doesn’t work if you choose a bad property. Not all properties make good investments and in a way your profits are determined by what house you buy and the price you pay.

As a property investor you need to remember to invest according to which properties do well, not necessarily the type of house you want to live in. My particular strategy is to buy terraced houses in northern city locations as they command good rental yields, have excellent demand, and are amongst the most affordable.

For those interested in investing in property, if you are prepared to spend a great deal of time learning the market and then managing your own properties you can do everything yourself, but if you want to avoid having to essentially take on a second job you could get in touch with our preferred property partner via the Find Me A Property page.

[H2] #6 – Equity Release

I put this right up there with buy-to-let property as a means to grow wealth, with one complimenting the other. In fact, my ability to buy so many properties was largely due to equity release.

Most people who own property for a long time end up with substantial amounts of equity tied up in their home that is doing nothing. A savvy investor might prefer to borrow against their home and invest that money elsewhere.

Typical mortgage rates are less than 2% and have been that way for several years now. The stock market is widely expected to return 8% a year on average, so you could profit in the tune of 6% on average per year by moving equity from your home to the stock market.

The reason why mortgages are so good for this is because it’s long-term debt that is not callable. As long as you are meeting your agreed monthly repayments the mortgage cannot be called in no matter what else is happening in the wider economy and stock market. This gives your investments time to recover if they happen to fall in the short-term.

If you could release equity of £100k and profited 6% a year, you would earn £6,000 extra a year going forwards for doing relatively little other than moving some money around and taking on some minimal financial risk. As Ben chose to invest the money from the equity release into buy-to-let property he was earning significantly more on what otherwise would have been wasted capital.

[H2] #7 – Retire Early With A Pension Bridging Strategy

We believe everyone should be working towards retiring as early as possible, but pensions put up some roadblocks as they have an age restriction on when you can start withdrawing from them. Currently this is 55, which is due to increase to 57, then 58, and who knows how high this could climb?

Many hard workers who have diligently invested wisely may have enough money or be able to save enough so they never need to work a day again. However, it’s no good if it’s all locked away in a pension.

It seems that many ordinary people save exclusively within a pension, of which some build up huge sums and yet still can’t retire early due to the aforementioned age restriction. While some other aspiring early retirees disregard pensions completely despite the huge benefits.

What we teach is to use multiple investment products including accessible accounts that allow you to retire earlier in the most tax-efficient way possible. These accessible accounts enable you to bridge the gap between your desired retirement day and the day your pension becomes available.

Most people will want to invest in a pension because they are epic. You should get matched contributions from your employer, which is effectively free money and a 100% immediate gain. You also get tax relief, which for a basic-rate taxpayer adds 25% to your contribution, or 67% for higher-rate taxpayers. And if you’re lucky enough to have an employer using salary sacrifice you can avoid national insurance and student loan repayments.

But before you can access the pension cash you can use the likes of a Stocks and Shares ISA, buy-to-let property, and spread betting accounts to bridge the gap. You could even borrow against your home, which can be paid back with your tax-free pension lump sum when you get it.

[H2] #8 – Diversify Across Time

When we first heard this, it blew our minds and changed how we perceived risk forever. It was a concept we read about in a book called Lifecycle Investing. Essentially, due to how people come into wealth they start with relatively little when they’re young and end with a big sum at retirement age.

This uneven distribution of wealth across your lifetime means that the investor is almost completely exposed to the stock market risks at the end of their life; the market movements in those early years are largely irrelevant to your overall lifetime wealth as you have so little money invested.

The author’s proposition is for you to try and control as much of your lifetime wealth as possible as early as possible. To achieve this they recommend using 2:1 leverage and are only proposing this amount of leverage at an early stage of life. This way, investors only face the increased risk of wiping out their current investments when they are still young and will have a chance to rebuild.

The suggested path is to first leverage your investments in stocks, then reduce the leverage in the middle part of your life, and then finally move into an unleveraged stocks and bonds portfolio as you approach retirement.

We can’t say we agree with their precise strategy but the concept of diversifying across time is a game changer.

Which of these financial points has had or will have the biggest impact on your money? Join the conversation in the comments below.

Written by Andy

Links to key videos on these subjects:

Synthetic ETF (Ultimate Portfolio): https://youtu.be/xIK07tgv_14

How Big Should Your House Deposit Be: https://youtu.be/nuj456bkslU

Spread Betting Futures: https://youtu.be/1hzb_zIIdmY

Matched Betting: https://youtu.be/R6zbzk04BHI

Massive Returns With Buy-To-Let Property: https://youtu.be/gmioY5HxlDk

Equity Release: https://youtu.be/XA-an3NozVo

Pension Bridging Strategy: https://youtu.be/Nd-GUcBZFCo

Time Diversification: https://youtu.be/JpoWZ_K_iA0


Featured image credit: daniiD/Shutterstock.com

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

S&P 500 To Crash 50% / “ISA Millionaire” Numbers Revealed / Crypto Ban

Hello and welcome to Money Unshackled News. The headlines:

  • The S&P 500 is in freefall. Legendary investor Jeremy Grantham predicts the S&P 500 will crash almost 50%. Here’s where to invest to protect your wealth.
  • New figures from HMRC reveal that the UK has around 2,000 “ISA millionaires.”
  • Soaring food costs and the energy bill crisis drove inflation to 5.4% in December. The energy industry has called on the government to intervene ahead of huge expected rises to household bills in April.
  • Microsoft is set to acquire Activision Blizzard in a $69 billion mega deal as gaming content land-grab heats up.
  • Russia set to invade Ukraine with 100,000 troops stationed at the border. Dire consequences for the world and investors could follow.
  • And in other Russia news, as the third largest crypto mining country, Russia proposes a ban on crypto trading and mining.

We’ve gathered all the latest money news from the past few weeks that matter most to your finances. Let’s check it out…

💲💲💲 £50 cash bonuses and FREE stocks listed on the Offers Page.

Alternatively Watch The YouTube Video > > >

Jeremy Grantham Predicts The S&P 500 Will Crash Almost 50%

The S&P 500 is currently in free fall. Legendary investor Jeremy Grantham predicts the S&P 500 will crash almost 50% after the 4th US ‘superbubble’ in the past century pops. Jeremy Grantham is the co-founder of asset-management firm GMO which had $120 billion of assets under management at its peak, and he has predicted the last three market bubbles.

He said the S&P 500 index may slip to around 2,500 – even with multiple efforts underway to prevent it. This is a drop of 48% from January’s peak, and the tech-heavy Nasdaq Composite, meanwhile, might see an even sharper downturn, he added.

Grantham said, “This time last year it looked like we might have a standard bubble with resulting standard pain for the economy. But during the year, the bubble advanced to the category of superbubble, one of only three in modern times in U.S. equities, and the potential pain has increased accordingly.”

He goes on to say that “Even more dangerously for all of us, the equity bubble, which last year was already accompanied by extreme low interest rates and high bond prices, has now been joined by a bubble in housing and an [emerging] bubble in commodities.”

He compared this bubble to Japan in the 1980s, which saw two asset bubbles at the same time – real estate and stocks. The US, in contrast, has three and a half major asset classes bubbling simultaneously for the first time. These are stocks, bonds, real estate, and commodities. He said, “When pessimism returns to markets, we face the largest potential markdown of perceived wealth in U.S. history.”

By now he has scared the living daylights from anyone who has their money invested, so what advice does he give to investors? He advises to avoid U.S. equities, invest in value stocks of emerging markets and several cheaper developed countries, most notably Japan. He likes to have some cash for flexibility, as well as a little gold and silver.

And for all the Crypto fanboys, unfortunately for you he takes a dig at digital money. He says cryptocurrencies leave him increasingly feeling like the boy watching the naked emperor passing in procession.

For those that don’t remember that folklore: two swindlers offer to supply magnificent clothes to the emperor that are invisible to those who are stupid or incompetent. Everyone goes along with the pretence, not wanting to appear inept or stupid, until a child blurts out that the emperor is wearing nothing at all.

HMRC Reveal That The UK Has Around 2,000 “ISA Millionaires”

New figures from HMRC reveal that the UK has around 2,000 “ISA millionaires”, sitting on pots worth an average £1,412,000 according to the data obtained by InvestingReviews.co.uk.

Included in these incredible numbers are 60 investors who are in the £3 million+ bracket with the average pot among them standing at £6,199,000. And 80 investors had pots valued between £2 million and £3 million.

Becoming an ISA multi-millionaire is more difficult than you might think, due to the historical deposit limits. The predecessor to ISAs was the Personal Equity Plan (or PEP), which was only launched in 1987 with just a £2,400 allowance. With the annual allowance for the PEP being around £6,000 for most years after that and the ISA being around £7,000 for many years, the data released by HMRC indicates a small number of investors have benefited from supercharged returns over the years.

AJ Bell commented that if somebody had saved the full allowance since 1987 and earned 5% returns a year, they would only have built up almost £708,000 in their pot.

Investors starting from scratch now could expect to reach millionaires’ row in around 22 years by making maximum use of their annual ISA allowance, assuming a compounded 7% annual return, InvestingReviews.co.uk said.

Currently, there are around 2.7million Stocks and Shares ISA holders of which 37 per cent are maxing out their allowances, which at £20,000 per year is very impressive.

Inflation Soared To 30-Year High

In mainstream financial news, the biggest problem facing ordinary people is soaring inflation. The BBC report that surging food prices have pushed inflation to a 30-year high. Soaring food costs and the energy bill crisis drove inflation to 5.4% in the 12 months to December, up from 5.1% the month before, in another blow to struggling families.

Food writer and anti-poverty campaigner Jack Monroe said the inflation index measure “grossly underestimates the real cost of inflation” and what it means for people in poverty. She went on to list some examples.

“This time last year, the cheapest pasta in my local supermarket was 29p for 500g. Today it’s 70p. That’s a 141 per cent price increase as it hits the poorest and most vulnerable households,” she said.

“Baked beans: were 22p, now 32p. A 45 per cent price increase year on year.

“Canned spaghetti was 13p, now 35p. A price increase of 169 per cent.”

As for energy, the energy price cap is due to be revised on 1 April and as a result, fuel bills could increase by another 50% in the next few months pushing the average bill to around £2,000 a year. This is a potentially terrifying prospect for many people up and down the UK who simply cannot afford these price increases. The energy industry has called on the government to intervene.

One of the issues is dependence upon oil and gas from other countries. Theconversation.com say that the UK government should be taking a stronger position on developing the Cambo oil field off the Shetland Islands, which is estimated to have 53.5 billion cubic feet of gas undeveloped, not to mention 180 million barrels of oil.

These days companies seem to simply index their prices with inflation, rather than increase them because their underlying costs have gone up, so high inflation is sort of a self-fulfilling prophecy.

The Mirror reports that millions of phone, TV and broadband customers are facing £42 a year hikes on their bills under a series of price rises from the likes of TalkTalk, BT, Plusnet, Vodafone and EE.

Here at Money Unshackled we try to find a silver lining and inflation is good for at least one thing – the erosion of debt. Both the British public and the government are up to their necks in debt, and if we are able to maintain our earnings in line with inflation (a big ask), paying down the debt should in theory be a lot easier.

The best example we have seen of this is student loan plan 1 debt, which is the student debt held by people who started Uni between 1998 and 2011 in England, Wales and Northern Ireland. The interest rate on this is calculated as the lower of the Bank of England base rate + 1%, or the rate of inflation.

A few years of high inflation and relatively low interest rates would make that debt disappear, so for some it’s not all bad news.

Takeovers Heat Up

In takeover news, Unilever has had its third offer for GlaxoSmithKline’s consumer health business rejected. The business includes brands like Aquafresh and Sensodyne toothpaste, Panadol painkillers and Nexium antacids. The final bid was £50 billion, and Unilever have said they will not be increasing the offer.

The Financial Times said that Glaxo is likely to try to proceed with a planned demerger of the consumer health business in the middle of this year unless another bidder emerges.

In other mega takeover news, Microsoft is set to acquire Activision Blizzard in a $69 billion mega deal. It’s one of the biggest acquisitions in the tech industry in recent years, one that will boost Microsoft’s standing in the growing gaming industry, making Microsoft the third-largest gaming company by revenue, after Tencent and Sony.

The agreement is pending regulatory review and Activision Blizzard shareholder approval, with the deal set to close in 2023.

Activision Blizzard own game franchises such as Call of Duty, World of Warcraft, Candy Crush, and Overwatch. Activision has hundreds of millions of people playing its games, which could help Microsoft win subscribers to its Game Pass service, says CNBC. Overtime massive game franchises could become exclusive to Microsoft.

This acquisition comes on the back of the ZeniMax purchase in late 2020 in a $7.5 billion deal, which added game franchises including The Elder Scrolls, Fallout, and Doom to Microsoft’s growing intellectual property. Microsoft are not messing about when it comes to a land-grab of video game content.

Russia Set To Invade Ukraine

In other takeover news, Russia is set to launch a hostile takeover bid for Ukraine. Russia already has a small holding in the eastern European country after acquiring the Crimea in 2014 and is looking to take full ownership. Joking aside this a serious situation we find ourselves in and it could have devastating consequences for both the region and the wider world, including a heavy financial toll.

Mainstream media is reporting that Russia has an estimated 100,000 troops deployed near Ukraine’s borders. US President Biden says his guess is that Russia will move in but has warned that a full-scale invasion would be a disaster for Russia. From what we can tell it would be a disaster for the world, as the West would have to act. To do nothing would set a precedent and likely stoke further aggression from Russia in the future. Let’s not forget that World War 2 started after appeasing Hitler for far too long while he annexed European territory.

The West’s main tools for dealing with Russia, outside of military action, could be to disconnect Russia’s banking system from the international Swift payment system, and/or to prevent the opening of Russia’s Nord Stream 2 gas pipeline in Germany.

Other sanctions are mostly unknowns for now, but if they are indeed severe, both a military conflict and/or the sanctions could have a serious impact on the world economy, reports barrons.com.

As Russia supplies a lot of gas to Europe, any gas supply sanctions self-imposed by the West or a counter-reaction by Russia would lead to spikes in the price of natural-gas above the punishing increases we’re already experiencing.

Proposed Crypto Ban

In Crypto news, Russia’s central bank proposes a ban on crypto trading and mining within Russian territory. The announcement surprisingly did not appear to knock the price of Bitcoin any further down. Russia is the third largest cryptocurrency mining country after the US and Kazakhstan, and it has developed a thriving mining industry after China last year outlawed the practice. Russia’s share of Bitcoin mining rose to 11% last year from 6.8% in 2020.

Meanwhile, in the UK, the Treasury plans a crackdown on ‘misleading’ cryptocurrency ads by making them subject to the same regulations as marketing for other financial products such as shares and insurance.

Bitcoin’s price is down more than 50% from its November high. Is this a buying opportunity? Or could the price fall further? Join the conversation in the comments below.

Written by Andy

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

The Nightmare Ahead For Investors In 2022

The economy fell 9.4% in 2020 and bounced back by roughly 7% in 2021. But now the recovery looks like it will start to slow in 2022. Where once there were worries of mass unemployment after covid, instead we now have huge labour shortages that are likely to continue throughout the year, stopping businesses from operating at full capacity. Not only are there fewer staff available, but people have been told to work from home again, with a presumable fall off in productivity.

Elsewhere in the economy, the interest rate rise in December was mild, but likely a warning of further rises to come.

The Bank of England’s toolbox to fight the massive wave of inflation currently engulfing the country is running empty, as any significant action they take now will have massive negative consequences for homeowners, businesses, investors, pensioners, and the government finances.

GDP may be heading back to where it was before the pandemic and presumably higher, but business investment is not, suggesting that despite the so-called recovery, businesses are still struggling. Businesses are not able to grow, still in firefighting mode.

source: ONS data

The biggest political issue of 2022 is widely expected to be the cost of living crisis, with energy bills skyrocketing and taxes due to go up in April.

Some politicians like Jacob Rees-Mogg are fighting back against tax rises from within the cabinet, but it may be too little too late for many families. And when people reign in their spending, then businesses and investors will feel the pinch to their profits.

Is 2022 going to a tough slog for investors? Or is there anything to be hopeful for, with initiatives like the metaverse taking off, and the return of dividends post-pandemic? Let’s check it out!

And by the way, Stake are giving away a free US stock worth up to $150 to everyone who signs up via this offer link – T&Cs apply, see the Offers Page for full details.

Alternatively Watch The YouTube Video > > >

The Inflation Effect

After insisting for months that inflation was “transitory” (meaning temporary), central banks are having to concede that it’s not. Inflation looks like it is here to stay.

It’s currently hovering around 5%, which is pretty damn high. In real terms it means that if you’re not getting a pay rise this year of 5% you’re effectively getting a pay cut.

Inflation was mostly caused by the reaction to covid, both at home and abroad. The main culprits are believed to be the large scale money printing by central banks to pay for schemes like furlough, and supply chain issues due to borders being thrown up around the globe.

The transition to greener energy has pushed up the price of energy too; UK labour shortages have pushed up prices in general; and Chinese workers demanding more pay for their work has pushed up the price of goods coming from the world’s manufacturing hub. The problem for investors going into 2022 is… none of these factors are going away anytime soon!

So, it looks like we’re going to have a long run of inflation and there’s not much that can be done about that.

To ease inflation, central banks would have to either start taking money out of the economy, or raise interest rates. Neither would be a good thing for investors – but nor is inflation.

Let’s look at the 3 main options for dealing with inflation and how they impact investors:

  1. No significant action is taken, and inflation stays high and possibly gets worse. Your investment returns are eroded by inflation. A return on investment of 8% becomes a real return of 3% after deducting 5% for inflation.
  2. Interest rates are raised significantly. Money flows out of the stock market into high interest investments like cash savings accounts. The result is that stock market prices go down.
  3. Cash is deleted from the economy. The opposite of money printing, central banks have the power to delete cash from existence by selling bonds for cash and removing that cash from the economy. You saw the stock market skyrocket during the covid money printing – the opposite may happen in the case of banks reducing the money supply.

All 3 outcomes are bad for existing investors, though lower prices are good if you’re buying more. But the most likely course of action we think is option 1: no real action. Central banks may raise rates a little but will do nothing of significance and will wait for the market’s underlying issues to resolve themselves.

These include the container ship shortage, the microchip shortage, and the problem of rising labour costs across the world, particularly in China.

As a sidenote, if you’re an investor in property with a load of mortgage debt, then inflation (without an accompanying significant rise in interest rates) might actually be helpful – your loans stay the same size, but inflation means that their real value goes down. Inflation of 5% effectively wipes 5% off your mortgage debt.

In the same way, governments of the world aren’t very incentivized to address inflation right now. Inflation erodes public debt and can be a blessing in disguise for countries like the UK that are drowning in the stuff. But for the people inflation is often known as the ultimate stealth tax!

Other reasons to think that inflation is here to stay for the long term include:

  • A reversal of globalization, with a trend towards less free movement of trade and of labour.
  • We’ve not had normal interest rates now for 14 years. The economy is reliant on low interest rates and easy credit and can only transition away from this slowly over many years. Central Banks can’t raise interest rates significantly to counter inflation for many years to come without smashing the economy.
  • Now inflation is embedded, people expect decent pay rises, exacerbating the issue because it will be a huge cost to businesses who will need to try to pass this cost on to customers. That chart we saw earlier showing the collapse in business investment isn’t helped by a larger wage cost.
  • China has been the engine of global growth for many years, growing at 8/9/10%, but if that’s going permanently down now to around 5% and lower, then that has a long-term knock-on impact for every economy and stock market.

Aside from inflation, the economy does seem to be bouncing back from covid, which to a long-term investor should be a good thing. But in the short to medium term, it might be better to be investing in a weaker economy.

The fear of the pandemic response being dragged out for at least another year is at least creating some resistance to the tax rises we might otherwise see in a strong economy, and the money-printing that helps push up stock prices is more likely to continue rather than be rolled back so long as we’re in crisis mode.

But in the UK and presumably elsewhere, many industries including retail are on their last legs. 2021 was meant to be a boom year for retail after the 3rd lockdown ended, but when non-essential retail opened in the spring, instead of a runaway boom, we saw several months in which retail sales fell.

source: ONS data

Below 100 on the chart is below normal pre-pandemic activity. There are big drops during the lockdowns, and we were supposed to see amazing growth around Freedom Day in 2021. Instead, we saw stagnation.

The predicted spending spree from lockdown savings never happened.

The omicron scariant knocked confidence out of the economy in the run up to Christmas, further delaying the release of savers’ cash into the economy and thereby into investor’s profits.

And now it may never happen – people will rely on their savings from the pandemic to get them through the energy price rises and tax hikes in April.

The household energy price cap is reviewed then, likely resulting in a £600 energy bill increase for the average household.

Also in April, National Insurance goes up by an effective 2.5% (that’s 1.25% paid directly by you, and 1.25% that your employer has to pay out of their wages budget, impacting your future pay rises). The foretold Roaring Twenties is looking like it’s not going to happen.

Impact On The Stock Market

In the UK, stock valuations remain stubbornly low compared to markets like America. The Brexit effect on this is unclear, wrapped up as it is in the covid debacle. The types of company in the UK are dusty and old fashioned, which doesn’t help the FTSE 100 fight back quickly when it takes a knock.

One positive we saw in 2021 was the return of dividends, after companies reduced or withdrew them during the pandemic:

source: AJ Bell

It’s important though that companies came to their senses and recognised that for many people, receiving those dividends is an important part of their income, and is what pays the bills. Plus, the entire capitalist system is based on the trust that there will be fair reward for risked capital.

Dividends may have returned in 2021 but AJ Bell expects dividend growth to slow in 2022, and even worse will provide a negative real return thanks to inflation.

It also remains to be seen whether companies start to lean more towards share buybacks when it comes to returning cash to shareholders according to AJ Bell, in light of the government’s 1.25% rise in dividend tax.

As many as 22 members of the FTSE 100 have announced buyback schemes post-pandemic, to the tune of £18.7bn of cash to be returned to investors. Shell and Diageo have already made clear their intention to buy back more shares in 2022.

Will 2022 be another successful year for American tech stocks? The noises coming from Silicon Valley are all positive, with their CEO’s gushing with ideas for the future.

We’ve seen NFTs just start to take off, we’ve seen billionaires and actors launched into space, and just before Christmas we were all treated to Mark Zuckerberg’s vision of the metaverse.

If the rest of the world’s companies are in a quagmire fighting supply chain issues and inflation, maybe cash-rich software stocks like Facebook are the best placed to simply apply the blinkers and power ahead.

Tech in the 21st century is like electrification was in the 20th century, or railways in the 19th century – it’s a total gamechanger, and we think that investors with good exposure to tech such as by owning the S&P 500 will continue to do alright long-term.

Could part of the pandemic boom in trendy stocks have been due to the higher savings rates seen as people were locked down? People had more money to play with, and maybe there was a boredom element from being sat around at home. This is surely over now, and the boost to prices that came with it.

Danger Of A Reversal Of The Recovery

Given all the crap going on in the economy, none of us can rule out a serious reversal of the recovery. Some commentators are warning that consumer pessimism is indicating a possible recession. Others point to the multiplication of energy costs that traditionally is an indicator of a recession ahead.

A recession in the economy doesn’t necessarily require a crash in the stock market alongside it, though that is usually the case. But then, there are always reasons not to invest, and the sensible thing may be to just ignore the news, keep your head down, and carry on investing no matter what happens in 2022.

Will 2022 be a bad year for investors? Join the conversation in the comments below!

Written by Ben


Featured image credit: fizkes/Shutterstock.com

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

You Need To Know This About Money BEFORE You Turn 30

Among the countless stereotypes about young people is the belief that they manage money poorly. How to manage money well is not something that is ever taught in school or University, but if you take the time to master the money game you will have it in abundance.

In this post, we’re discussing the 6 things you should know about money before you turn 30. The more of it you can earn and invest from as young an age as possible the better. You need to make sure you’re on top of all the points in before it’s too late. Now, let’s check it out…

FYI: Stake are giving away a free US stock to new UK investors, worth up to $150, to everyone who signs up via this offer link. More info on the Offers Page.

Alternatively Watch The YouTube Video > > >

Multiple Streams Of Income Is (Usually) Much Better Than One

Most people’s job income is their lifeline. If this is you and your wage income suddenly stops, you could be in serious trouble because you have bills to pay and responsibilities. In the event of losing that single source of income, the likely best case is you are forced to spend your savings, which means either your retirement will get pushed back or you’ll have to forgo whatever you were saving for.

But for many the outcome is far worse, with the loss of your home a real possibility and/or racking up a load of expensive debt. Most people have one job and depend on it like a new-born baby depends on its mum. They are totally reliant.

It’s common to think that a salary is a reliable source of income but ask anyone who’s been fired or made redundant, and they will tell you the exact opposite.

This powerful chart shows how many people were made redundant in the UK by month since 1995. The typical monthly figure is between 100,000 to 200,000 people. And during the bad times it has been 300,000 and even 400,000 people per month. Essentially, no job is safe, so you need a backup plan.

The wealthy very rarely rely on one source of income. Take a professional football player for example. They make millions from their day job and yet they still earn money on the side through sponsorships.

1.1 million people in the UK have a second job but as many as 25% claim to have a side hustle. We’re not proposing that anyone gets a second job on top of a full-time job but you may want to consider a side hustle.

One source of additional income that everyone should work on obtaining is investment income but realistically this is not going to be achieved overnight. Having multiple sources of income from your work is more easily achievable if you’re self-employed or a business owner.

Consider a website like Amazon which might be the ultimate example of income diversification. They are not reliant on any one customer, any one product, any one country, nor any one industry. What once was an online bookstore expanded into other physical products, and then into all manner of services, including music and video streaming, cloud services, financial services, logistics, and everything else.

On a much smaller scale, and so perhaps a little more relatable, a plumber will likely serve thousands of people in a small local area. No single customer will materially damage the plumber’s income if they choose to go elsewhere the next time their drain is blocked.

Multiple income streams are one of many advantages of being a self-employed plumber over being an employed office worker (other advantages being increased freedom, and greater control over their hourly rate). But the job with the single income stream is the one that the education system herds you towards.

You Need A Game Plan

A lot of people drift through life without a destination. They have no goals and therefore no plan. It’s little wonder why they don’t achieve much.

But if you want to accomplish great things – no matter how big or small – you need a game plan. You need to know how you’re going to cover your immediate living expenses, and simultaneously you need to have a long-term plan for achieving comfortable wealth, with a clear roadmap to how you are going to get there. Without a game plan, it’s just a pipe dream.

First things first, you need to draw up that budget. A lot of people find budgeting tedious but more times than not it’s because they don’t have a long-term game plan. Once you know what you’re striving towards budgeting becomes, dare we say it, fun.

People budget in different ways, but what we’ve found is if you overcomplicate it, you stop doing it. This is our tried and tested budgeting master plan:

  • The day you get paid, transfer a pre-determined amount into a separate account, which will cover all your fixed bills for the month.
  • Also on the day you get paid, transfer a pre-determined amount into a separate account, which is for irregular or non-monthly expenses. Christmas comes about once a year but from now on you budget for it monthly. Some excellent banking apps like Starling allow you to have separate pots all within the app. This budgeting method is often known as savings pots or the jam jar technique.
  • Again, on the day you get paid, you transfer another sum of money to your investment platform. From your budgeting calculation you’ve already determined what you can afford or what is required to achieve your long-term plan. We call this pot our freedom fund and it’s so satisfying to watch it grow.
  • Whatever’s remaining in your bank account is what you have to left spend during the month. If you find it’s not enough you need to go back and adjust your budget.

Only 30% of Americans, so presumably a similar number of Britons, have a long-term financial plan – no wonder most people are skint!

Insurance Matters – You Are Not Invincible

We reckon this could be one of the most overlooked parts of financial planning and we’ll admit it’s not something we even thought about until more recent years. I was always put off because the only time it was ever mentioned was when a seemingly dodgy financial broker was trying to push it, cos he clearly got some huge commission.

But as you go through your twenties you start noticing that nobody is invincible and sadly some people start falling ill; some even don’t make it. If you have loved ones that depend on you, you have a responsibility to ensure that in the case of your premature death they are financially taken care of. You do this by taking out life insurance.

The second type of insurance you should take out is Income Protection Insurance. This insurance product is designed to pay you an income if you are unable to work. Some policies will pay out for a few months, while others will pay out until you reach retirement age.

Unless you can somehow fund your lifestyle without income protection insurance, such as with investment income, we strongly urge you to take out a policy that pays out until retirement, which is exactly what we both did.

Because we feel so strongly about this, we’ve teamed up with the same broker that we both used, and if you visit our lifestyle insurance page you can read a little more and get a quote.

The System Isn’t Rigged

Some people who struggle financially blame the financial system, claiming that it’s rigged. But the fact of the matter is, just because they haven’t become financially successful doesn’t make it impossible. There are thousands of examples where normal people have become not just wealthy but insanely rich.

One such example is the rags to riches story of J.K. Rowling. You will know her as a best-selling author who has sold more than 500 million books and became a billionaire. But prior to her success she was desperately poor, jobless, and with a young child to provide for. She described her economic status as “poor as it is possible to be in modern Britain, without being homeless.”

Becoming a best-selling author might be difficult to relate to, so how about an incredible story about a janitor who secretly amassed an $8 million fortune by the time he died. He achieved this through smart spending and good investing habits, reports CNBC.

His family was “tremendously surprised” upon finding out about his hidden wealth. “He was a hard worker, but I don’t think anybody had an idea that he was a multimillionaire,” his stepson said.

There is no secret to becoming wealthy. It’s simply a case of adding value that other people are willing to pay for, spending less than you earn, and investing the rest. The more value you add, the more you will earn, and the more you can invest. Sooner or later, your invested money will be making more than you do. You can make as much money as you want if you are willing to put in the necessary work.

You Must Seek Out Pay Rises – They Won’t Come To You

Too many people moan that their employer doesn’t pay them enough, and yet they never seek out a pay rise. Your employer is running a business and their goal is to maximise profits for the shareholders, not to be handing out pay rises if they don’t need to. Pay rises aren’t given for nothing and certainly aren’t given to those who don’t reach out to take them.

Most employers will expect you to work a job for at least a few years before being eligible for a proper pay rise of more than a derisory 1 or 2 percent. So, to climb the career ladder at breakneck speed, the best thing you can do is to job-hop between companies. You’ll earn a promotion each and every time.

If you want to be paid more and stay at your current employer, you need to effectively tell your boss what the craic is, but this only works if you’re well-liked by the entire management chain. You’ll be amazed at how high up the chain your measly pay rise request goes to be authorised.

Your boss and your boss’s boss are unlikely to give you a promotion without first doing more than what you are already paid to do. You should literally ask your boss what you need to do to earn a promotion and then deliver that. At the very least, you make your boss aware of your desires and this will give you an idea of whether a promotion is even possible.

Start Investing For Your Future NOW

When it comes to investing, the earlier you start the better because compounding takes a very long time to make a serious impact! The longer you put it off the more you have to contribute to make up for the time you missed.

If you’re putting it off because you think your financial situation will get better, you’re taking a huge risk. From our experience, life gets more expensive as you get older, not cheaper.

If you invest £100 a month for 40 years from age 20 at 8% return, your pot is worth £324k at age 60.

But if you miss the first 10 years, and then invest £100 a month for 30 years, your pot is worth only £142k.

If you did start early, you might even be able to Coast FIRE if you wish. Coast FIRE is when you have enough in your investment accounts that without any additional contributions, your net worth will grow to support retirement at a traditional retirement age. For instance, stopping investing at age 40 and allowing your pot to grow by itself until you’re 60 and ready to retire. Then you can spend more money on lifestyle and enjoy your later career a bit more.

All your peers will be squirrelling away as much money as they can for the last couple of decades before they retire and probably still won’t have enough, whereas you who learnt these financial lessons early, could be coasting all the way to a comfortable retirement.

What other financial tips does everyone need to know before turning 30? Join the conversation in the comments below.

Written by Andy


Featured image credit: Dean Drobot/Shutterstock.com

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