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

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

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

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

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

Not only largely irrelevant, but dangerous too!

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

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

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

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

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Cut Up Your Credit Cards?

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

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

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

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

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

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

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

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

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

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

Pay Down your Student Loans?

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

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

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

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

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

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

Pay Down your House Mortgage?

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

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

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

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

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

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

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

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

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

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

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

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

Invest using Actively Managed Mutual Funds?

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

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

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

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

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

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

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

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

Saving For Retirement

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

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

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

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

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

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

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

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

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

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

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

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

YouTube Video > > >

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

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

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

USA

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

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

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

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

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

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

The offer for new customers - click here

UK

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

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

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

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

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

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

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

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

Europe

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

Vanguard FTSE Developed Europe UCITS ETF (VEUR)

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

Asia Pacific Ex Japan

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

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

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

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

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

Japan

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

Vanguard FTSE Japan UCITS ETF (VJPN)

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

The Emerging Markets ETF covers so many cool regions!

Emerging Markets

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

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

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

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

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

Other

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

Portfolio Weighting

Our Freetrade World Portfolio weighting

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

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

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

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

Vanguard Lifestrategy vs Robo Investing with Nutmeg

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

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

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

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

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

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

YouTube Video > > >

The Vanguard LifeStrategy Funds

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

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

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

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

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

The 5 Vanguard Lifestrategy Funds

Robo-Investing

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

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

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

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

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

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

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

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

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

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

Which is Simplest?

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

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

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

Click here to save money on fees when you invest

Which has the Cheapest Fees?

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

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

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

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

Which has the Best Returns?

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

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

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

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

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

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

Conclusion

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

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

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

Robinhood is Coming to the UK – What We Can Expect

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

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

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

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

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

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

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

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

YouTube Video > > >

What Can We Expect?

Looking at an article from Techcrunch, Robinhood are claiming,

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

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

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

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

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

He's on his way, folks!

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

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

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

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

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

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

New Investors

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

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

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

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

Join the Waitlist?

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

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

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

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

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

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

Should you join the wait-list?

FSCS Protection?

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

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

Is it just US Stocks?

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

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

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

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

Which Investment Platform is Best? – Choosing An Investment Platform

Which is the best investment platform for buying stocks and funds? The answer is that there is not one but several good ones that we have tried and tested over the years, and of these there are one or two that will be best for YOUR specific circumstances.

It all boils down to getting the right balance of Fees, Choice, and User Experience.

Editors note: Get your investing journey off to a flying start with the links on our Offers page, and which has £hundreds of sign-up bonuses for new users of investment platforms, that we use and love. Enjoy!

YouTube Video > > >

Fees!!

The platform costs should be number one in your mind when choosing an investment platform. Stock market investment platforms are historically notorious for slapping you with hidden fees, including:

  • Platform fee
  • Fees to Buy and Sell
  • FX Fees
  • Account fees
  • Transfer fees

Navigating these and other fees successfully can be a headache – and it is investor frustration at the web of costs associated with investing that has led to the demand for the development of zero-fee investment platforms.

Navigating your way around platform fees can be a headache

Zero-Fee Platforms

The top zero fee trading platform in our opinion is the Trading 212 Invest app, which also has the option of an ISA – I have been using this platform to invest for a few months now and can confirm that it is as zero-fee as it is possible to be.

The only costs that remain are the ones outside of its control – stamp duty is still there at 0.5% when you buy shares, but not on funds. Stamp duty is a legal requirement in the UK when buying shares.

Dividend with-holding tax on foreign shares is still there too, even if these are held within funds, deducted from dividend payments by the country of origin.

Many people prefer the Freetrade platform, another decent zero fee investing app, though beware that they charge £1 for instant trades and £3 monthly to invest through an ISA.

The disadvantage of using a zero-fee platform is that you are limited on investment range. They offer a decent range of shares but nowhere near all of them, and their range of ETFs is again limited.

That said, I am building up a decent portfolio on Trading 212 of ETFs including the Vanguard FTSE 250, iShares FTSE 100, Vanguard S&P 500 and many more including the far east, Brazil, oil and gas and commercial property.

Safe in the knowledge that with zero fees, all my gains are mine to keep.

An example portfolio from our 4 Step Guide

Editors note: Download your FREE 4 Step Guide to Stock Market Investing here.

The Complete Package – Traditional Investing Platforms

The big traditional investing platforms like Hargreaves Lansdown, AJ Bell, Interactive Investor and Barclays are what the seasoned investors use, as here you’ll find a much wider choice across more geographies and sectors.

Because they are premium service providers, they cost a lot to run and so seek to bombard investors with fees, such as the ones we covered earlier.

The fees that most significantly affect the values of most portfolios however are Platform Fees and Trading Fees.

All platforms are not made alike however, and there are 2 clear favourites of ours from amongst the traditional platforms, which keep these fees to a minimum. These are AJ Bell, and Interactive Investor.

AJ Bell

AJ Bell is a good choice of platform if your investment pot is small – smaller than around £20,000. This is because they charge a small percentage platform fee, being 0.25%.

The fee is quite small on smaller pots, but of course the amount of fees you pay will get bigger the larger your portfolio gets as it is on a percentage basis. Compare and contrast with:

Interactive Investor

For the wealthier individual – this is another premium platform. Interactive Investor charges £9.99 a month fixed platform fee – a lot if your pot is just a grand or two, but barely anything if you own tens of thousands of pounds worth of stocks.

Both platforms charge a small fee for buying shares, funds and ETFs, of £1-£1.50 for regular monthly investments. This is our preferred way to invest, as it avoids the pitfalls in trying to predict the market.

Finally, buying shares outside of regular monthly instalments costs between £8 and £10 on these platforms, but with Interactive Investor you get your platform fees back in trading credits.

Our favourite platforms at time of writing

Vanguard

You may be familiar with Vanguard from the famous Vanguard LifeStrategy Funds and Vanguard collection of ETFs.

We love to buy Vanguard funds and ETFs for their strong history of performance and low product fees, and one of the best places to buy these is on Vanguard’s own platform.

This would be my platform of choice if not for the zero-fee apps – for following an ETF-only investment strategy – as all the best Vanguard ETFs traded on the London Stock Exchange are on there.

It’s also the cheapest place to buy and hold the LifeStrategy Funds, which are all-rounder Funds of Funds and ETFs, perfect for beginners and investors who just want one diversified place to put their money.

Robo Investing - automating your portfolio

Robo Investors

The third factor we mentioned after fees and range of choice was usability. The last couple of years has seen robo investment platforms hit the market, which aim to make investing easy for the masses.

Nutmeg is our favourite robo investor platform – called robo because it seeks to build a portfolio for you using algorithms to determine what is most suitable for you based on your money goals and attitude to risk.

You simply open an account, and it asks you a series of questions; after which it will start to build you a diversified portfolio.

It really takes the thought process out of investing, and you essentially get a fund manager – though you are simply assigned to one of the many Nutmeg designed portfolios – without having to pay to put the fund manager’s kids through college.

Nutmeg has an annual fee of 0.45%, though you can get the first 6 months fee-free if you use our referral link.

A beginner may as well try it for 6 months fee-free and then consider if you want to stick with the robo platform or move on to a platform where you make the decisions yourself.

Wombat is another new platform to the market that we reviewed a few of months ago, which also seeks to make life easy – by assigning easily understandable names to funds.

Know that you want to jump on the technology train and buy into a technology fund, but wouldn’t know where to start? Just join the wombat platform and buy the fund called “The Techie”. Simples.

"The Techie" fund on the Wombat platform

So, Which Is the Best?

We’ve reviewed 6 platforms that we use and consider to be the best. If you’re a beginner, we would say go with Nutmeg or Wombat – Nutmeg have the lower fees if you use our link, and Wombat is free if you only invest under £1,000.

If you have a bit of knowledge and want to be able to buy and sell shares and ETFs without having to pay any fees, then Trading 212 is our zero-fee platform of choice.

If you’re only interested in Vanguard products including the Vanguard LifeStrategy Funds, choose the Vanguard platform.

And if you’re a serious investor or plan to be, who intends to build up a sizeable and interesting global portfolio, then it’s AJ Bell initially, and Interactive Investor if your pot is growing much beyond £20,000.

So whichever of those 6 applies to you, sign up to it and start your investment journey! And remember to check the Offers page on MoneyUnshackled.com to see if we have any sign-up bonuses for your chosen platform.

Which do you think is the best investment platform, and have we missed it from our list? Let us know in the comments below…

Written by Ben

Why You Need to Be Financially Free

Why do you need to be financially free? Ask any of your peers and the majority will cite financial security as their top money goal – security, not freedom. The difference is huge.

Practically all of our peers have different financial objectives to us. Where they are bothered about money at all, they inevitably fall into one of two camps – the “I want to pay my mortgage off” crowd, or the “I want to pay more into my pension” bunch.

We can’t relate to either position. Both are basically saying that they are happy plodding along in their jobs until they are aged 70, and will funnel all spare employment income into financial products that will benefit them in 30 or 40 years’ time.

We are investors because our objective is Financial Freedom – today. Forget being comfortable at age 70. You need to be Financially Free; and here’s why…

Get your investing journey off to a flying start with the links on our Offers page, and which has £hundreds of sign-up bonuses for new users to platforms that we use and love. Enjoy!

YouTube Video > > >

Chasing the wrong goal – job security

We hate the phrases “a job for life” and “safe, secure job”. The people who claim to have such things are claiming to have reached financial security early on in life and are happy to stop there – they do not have ambitions beyond this.

We hate these phrases because they are dangerous. Our fast paced economy and advances in tech means that in modern times there is no such thing as a job for life – that idea should be left in the industrial age where it was born.

What is Financial Freedom

First, we are not talking about being millionaires; only being able to cover your outgoings without having to rely on a paycheck.

Financial freedom is very different, and in our opinion far preferable to, job security.

An investment portfolio can't fire you - only a "safe and secure" job can do that

People who are financially free derive their income from a wide range of assets and businesses that they own.

They laughed in the face of safety and security and took sensible and measured risks to build up huge investment portfolios during their early career years, or started businesses that grew to be self-sustaining.

This income, once established, is called Passive Income, because it comes to the investor or business owner regardless of whether they show up to work or not.

You cannot be sacked or made redundant from your passive income – that’s only something a “safe and secure” job can do to you.

Is Financial Freedom a Realistic Goal?

Absolutely. It won’t happen overnight, and is much harder to achieve than simple job security. All it takes is commitment to the goal over a number of years.

We decided in our 20s that we would be financially free in our 30s. We’re almost there now, but continue to work hard while we still have the drive in order to build our pots even bigger to support a better lifestyle.

You only get there by trying

How Did We Do It?

We each have large investment portfolios which returns enough to cover the basics, and we have our Money Unshackled business to spread the word about financial freedom and free others from their shackles, which also brings in an income.

Note that we only get income from this business because it works hard for others to help them be free –  much like how our stocks and properties work hard for their owners.

So long as the underlying asset or business is sound, it will keep paying you an income that can’t be taken away by a boss.

Why You Need to Be Financially Free

1. Start Making a Difference

When money matters are resolved and your outgoings covered, you can spend your time how you like.

For us, the most meaning we could derive from our lives would be in helping others to become financially free, but for you it could be helping your community, taking up a cause such as campaigning for a greener world, or anything you deem worthy.

You can use your time as you see fit... once you're free

Or your time could be spent building up a massive business that gives generously to charity. It’s literally your call.

2. Gain Life Satisfaction

Working for someone else on someone else’s dreams is a non-starter for us, and if you’re watching this, we bet you feel the same way.

Wouldn’t you feel better about your direction in life if you were making money for yourself, and growing your own assets and pet-projects in the process?

We know some jobs do bring life satisfaction such as policing or nursing, and more power to the fanstastic work that these professions do for the rest of us – but the guy running numbers on a bottle factory’s inventory? Does he wake up each morning loving life?

3. Your Time is Precious

Most laugh at this – absurdly in our opinion. When we say we can’t do something because our time is worth more than that, the employee-lifers scoff.

Your time is precious

“Time isn’t worth anything” they say. This is coming from a mentality where a salary just pops into their bank account each month regardless of the effort they put in.

But we know that time is everything. You are worth so much more than a wage per hour.

If you spent all your time building a scalable business and investing the returns, you soon wouldn’t have to.

What You Can Do NOW to Be Financially Free

1. Learn to invest – start now, by Learning By Doing

Make your first investment in something lower risk like stock market ETFs or P2P Lending.

A couple of great platforms you could start with are Trading 212 and Ratesetter, linked with sign up bonuses in the description below, with many more on our website.

Being comfortable investing huge sums of money later starts with being comfortable investing small amounts today. Also, you’ll be earning passive income, however small at first, and that is a great feeling indeed.

If you're stuck working on someone else's dreams, you have to find time to work on your own too

2. Rethink your career

Are you sure that your 10 year plan to climb 2 levels up the corporate chain is the right plan for you?

What else could you be doing in that decade? Hint: you could start a side hustle business that grows way faster than employment income does and is taxed far less!

3. Set a plan with deadlines

How much passive income do you need before you can leave your job? How much time will be needed to establish this passive income?

Work out how much you need to be investing each month, and then plan how you’ll achieve that target.

Don’t put it off. You need to Financially Free. Start today.

When will you be financially free? Let us know in the comments below.

How Nutmeg choose ETFs to invest in – Learn to invest from the pros

Nutmeg are the UKs largest and fastest growing digital wealth management service. We reviewed the robo-investing platform back in February 2019 and we were so impressed that I continued to invest a small portion of my wealth with them on a monthly basis.

Other than the great investment returns, one of the things that we loved about Nutmeg was their transparency and the huge amount of information they make available on their website.

For some investors they just want to give their money to the pros, so they don’t need to worry about it themselves. For others though they want a deep understanding of what is happening with their money.

We know your time is precious, so we’ve gone through some of the Nutmeg resources on their website and in this video, we’re going to look at how Nutmeg choose ETFs to invest in and show you my actual Nutmeg portfolio.

Whether you invest in Nutmeg or not this is a great resource to learn exactly what to look for when selecting ETFs.

And don’t forget – sign up to Nutmeg using the link on our Offers page, and you get a zero fees shield applied to your account for the first 6 months. Enjoy!

YouTube Video > > >

Who Are Nutmeg?

For more info check out our full Nutmeg review but very briefly, Nutmeg is a robo-advisor that will ask its customers a few questions and then invest the customers money into one of its many portfolios that it considers most suitable.

Their portfolios are put together using Exchange Traded Funds or ETFs as they’re more commonly known. This is something that we at Money Unshackled really like as they’re a great instrument for achieving huge diversification at rock bottom prices.

So, How Do Nutmeg Select Their ETFs?

#1 – The Components of the Index

They look under the bonnet (or hood, if you’re American), to find out whether they would invest in the actual stocks that make up the index.

Many indices are weighted by market capitalisation so that the larger stocks make up more of the index. We often use the FTSE 100 as example, with Shell consisting of about 11% of the index just on its own.

Looking under the hood at what's in the fund

By looking at the underlying components they can assess whether the index is suitable.

#2 – Method of Replication and Tracking Error

Not all ETFs own every single stock within an index. Doing so can be difficult and expensive, so many funds choose to optimise selection by only investing in a sample of stocks within the index.

This is one reason why ETF performances can often deviate from the index, in what is known as tracking error. At Money Unshackled we prefer ETFs that use full replication, but this isn’t always possible.

Nutmeg will then assess the tracking error and will choose funds which are as closely aligned as possible.

Offer for new customers interested in starting a Nutmeg portfolio - click on image for link to sign-up

# 3 – Costs

Investors these days are very conscious about costs and they must be kept to a minimum. So, with no surprise Nutmeg aims to invest in the lowest cost ETFs that match its other requirements.

#4 – Size and Trading Volume

As with stocks, many small ETFs don’t trade in high enough quantities to make them liquid enough, so these will be avoided or at least won’t make up a large proportion of a portfolio.

They also seek ETFs with low bid-offer spreads.

This is the gap between the buying and selling price and can get quite large on smaller ETFs that are not traded frequently.

#5 – The Type of ETF

Some of you might be surprised to learn that not all ETFs directly hold the underlying stock or investment. Those that do are known as physical ETFs and are our preferred type.

In fact, we won’t ever invest in in any other ETF type and to our relief neither do Nutmeg.

Nutmeg invest in the RIGHT type of ETF

The other main type is called a “synthetic” or “swap-based” ETF – These involve legal agreements between 2 parties to produce the return.

This would expose you to counterparty risk, and in both Nutmeg’s and our opinion this isn’t worth the risk.

Other Considerations

Many ETFs will leave the investor exposed to currency risk and in some cases, Nutmeg will invest in a “hedged” version to reduce this risk.

Also, most of the major ETFs are very straight-forward index tracking funds.

However, there are some more exotic Actively Managed or Enhanced ETFs that Nutmeg may take advantage of but according to Nutmeg these are unlikely to make up a large proportion of portfolios.

What ETFs Do They Invest In?

In Nutmeg’s own words, they “choose from a universe of over 1,800 ETFs and favour physically backed ETFs with high liquidity and good tracking performance.”

I was assessed to have a high-risk level, and this is the portfolio that I was placed into. As you can see over 35% of the portfolio is in the iShares Core S&P 500 ETF. Note that this is the hedged version, which attempts to minimise foreign currency risk:

The breakdown of Andy's auto-generated portfolio on Nutmeg - well balanced!

We totally agree with this position. All investors need large exposure to the US as it’s the World’s major market but as UK investors we could do with some protection against currency swings. This achieves this and also comes in with a low TER of just 0.10%.

Next in the list is the Vanguard FTSE 100 ETF at around 10%. Again, we totally agree with having a large investment in the UK’s 100 largest listed companies. This is extremely cheap at just 0.09%

We have always loved Vanguard but must wonder why Nutmeg didn’t opt for the ever so slightly cheaper iShares equivalent.

Both are dirt cheap, so no problem either way. Perhaps they didn’t want too much exposure to any single ETF provider.

Next on the list with 9.5% is another iShares S&P 500 ETF, but this time it’s not hedged. Again, this is the US’s major index and the lack of currency hedging is perfectly fine in our eyes especially as we both have a high preference for risk and reward.

The future of portfolio balancing?

In fourth spot is the iShares S&P SmallCap 600 ETF at 6.4% of the portfolio. This is a riskier investment as it offers exposure to 600 small US-listed companies. We both love this because smaller companies tend to grow at a faster pace than large companies – you may have heard of the phrase “elephants don’t gallop”.

The portfolio contains many more ETFs but the allocation percentage gets far smaller as the geographical markets become less significant to UK investors.

What do you think of the Nutmeg portfolio that I’m invested in? What are they doing right and what are they doing wrong? Let us know in the comments section.

Written by Andy

When to Sell Stocks (Alternative Reasons) | Why I Sold my Shares at a Loss

Some people like to do a spring cleaning on their house. Well I just did a purge on my shares portfolio. I had a lot of deadweight and they had to go even though I was selling at a loss.

It sounds weird but it was a really hard decision because I had become emotionally attached to these companies, which is against our own rule – Never involve emotion when investing.

But I had been invested and following these stocks for years, so it’s only natural.

Some people say you shouldn’t sell at a loss, whereas other people say run your winners and sell your losers. So, which train of thought is correct and when should you sell stocks?

In this video, we’re talking about 5 alternative reasons to sell a stock, which don’t get mentioned that often and we’ll take a look at the stocks I sold and why.

Reminder: invest in UK shares and index funds without attracting any fees by using the Trading 212 app. If you use our link to sign up here, you get a free share for your portfolio. Enjoy!

YouTube Video > > >

There are loads of reasons to sell a stock and you’ll find a tonne of YouTube videos on the subject but they’ll all be telling you the same main reasons:-

1)         When a stock is overvalued

2)         Looming recession

3)         Slowing profits

4)         Cut in dividend

5)         New major competitor entering the market

6)         Directors are selling their stakes

Plus, so many more.

Now these are great and genuine reasons but we’ve compiled a list of alternative reasons.

When your mate down the pub thinks it's time to buy shares, you should be selling

#1 – Everyone is Talking About the Stock Market

Normally, outside of successful circles nobody talks about the stock market, business or the economy. When nobody is talking that’s an indication that everything is going fine.

But as soon as you start hearing Joey down the pub talking about the stock market and how much he’s making then it might be time to sell.

Joey doesn’t normally invest, Joey has never shown any interest in investing before, but for some reason Joey is now investing. Who’s Joey? He’s just a normal person. In times like this we’re running for the hills as markets are in bubble territory.

Although not a share, a recent example of this is when Bitcoin was reaching almost $20,000 a few years back. People were jumping on the bandwagon – people that had never invested in their life – and then, they lost big time.

A small value might no longer be worth your energy to monitor

#2 – Allocation Too Small – Time Waster

Selling only because a stock has fallen is a bad idea. If the fundamentals of the company have not changed then there is little reason to sell.

However, on occasion the share price will fall below what you consider to be worth your time. If you’ve seen our videos before you might be wondering why we bang on about time so much.

Well time is money or put another way money buys you time. We want money not to buy fancy things but to create time for ourselves.

If a stock consumes more of our time than it creates then it’s time to sell.

Investing in shares properly requires research before a share purchase and for however long you hold that stock. This requires significant time.

If you are buying small monetary amounts and then the value falls further, is it still worth your time to keep up to date with everything? Probably not. Get rid.

#3 – Loss Aversion Bias

You bought a dud and you know you should sell but you’ve lost a few quid and now you feel you can’t sell. You’re hoping that it will recover, so you can then sell once you’ve broken even.

Let’s say you bought a stock for £1,000 and its fallen to £800 because it was a dud. You should cut your losses. Accept you made a mistake and move on.

But nope, you can’t seem to sell. This is Loss Aversion Bias.

It could take years to recover and it may never recover at all. If the stock was then to rise from £800 to £900 this doesn’t justify the decision to hold on to it on its own.

The rest of the market could have increased by a far larger percentage, which means by holding on to the dud you had an opportunity cost. It has cost you even more money. Not cool.

Rebalancing can be counter intuitive

#4 – Rebalancing

There comes a time – maybe once per year or possibly sooner, that a portfolio needs to be rebalanced. Over time some stocks will have grown, and others fallen.

This causes your allocation to drastically change from your original intention, which exposes you to greater risks and possibly lower future returns.

As a result, you should sell some of the successful shares and reallocate the money to the worst performers to rebalance. This may sound counter intuitive but if you don’t you will soon find that all your eggs are in one basket.

#5 – Your Goals Have Changed

Over a lifetime your goals are going to change – it’s inevitable.

For example, it’s often said that young people should be taking more risk and so should probably invest in companies that have high expectation of growth but pay little to no dividend.

But later in life you will almost certainly need an income from the Stocks and so you will require dividend paying stocks.

Those exciting growth stocks may no longer suit your requirements. It’s now time to sell and buy big dependable and often boring dividend payers.

These may no longer have the chance to double in price but those divis are what you need now. No matter your goals make sure your portfolio matches those needs.

What did I Sell and Why?

I took an axe to my portfolio and sold 4 stocks – Centrica , Vodafone, Royal Mail and GVC.

The main reason for selling is that they had all fallen in value since I purchased them. This wasn’t the end of the world as they were all still paying dividends but the amount I now held was not worth my time.

Our lives have changed from the days when we had the time to analyse stocks in detail.

Time to chop that dead wood from your portfolio

We now spend great swathes of time establishing our business, so there is little point in managing stocks that are worth so little.

It has been a strategy of mine for quite some time that I have slowly been moving away from individual stocks and more towards index funds and ETFs. These get a great return without the hassle. 

Also, many of these stocks have had dividend cuts, so are no longer as lucrative as they once were. Each of them even faces horrendous political pressure and increasing competition.

Take GVC, which owns Ladbrokes and Coral. The government is out to minimise the impact that gambling has on society and tax it to the hilt. We see advertising bans on gambling similar to the smoking advert bans in the not too distant future.

Finally – you have to ask yourself – “would I buy this stock today, at the current market price?” If not, why not sell it and buy something else that you would buy. The past is the past – the future is what counts.

I bailed out late, but not too late.

What was the last stock you sold and why? Let us know in the comments section.

Written by Andy

FTSE 100 Index – Investing Risks That UK Investors Need to Be Aware Of

The FTSE 100 is an index of the top 100 companies listed on the London Stock Exchange by market capitalisation. It’s packed full of household names that you will be familiar with including HSBC, BP, Vodafone, Tesco and many more.

We think the FTSE 100 is a brilliant place to store your wealth – but do you know what risk you are taking on by investing in the FTSE 100?

As many of the companies listed on the London Stock Exchange are UK companies the FTSE 100 index is often seen as a barometer of the UK economy, but this isn’t really the case anymore. The FTSE 250 is a much better indicator of the UK.

This is because the companies that make up FTSE 100 actually generate 71% of their revenues outside of the UK. After all they are huge global companies.

In this video we’re going to look at some of the biggest risks that come from investing in the FTSE 100 index and some will surprise you!

Reminder: invest in the FTSE 100 without attracting any fees by using the Trading 212 app. If you use our link to sign up on our Offers page here, you get a free share for your portfolio. Enjoy!

YouTube Video > > >

Risk #1 – Little Stock Diversification

Many investors invest in indices like the FTSE 100 for quick diversification. But look closer and the FTSE isn’t very diversified at all – Just a few stocks dominate.

In fact, just 5 companies make up about 32% of the index- Shell, HSBC, BP, AstraZeneca and GlaxoSmithKline. And the top 10 make up about 48%

Some of you will be okay with this but for us, this definitely means that we want further diversification.

One way to achieve this but still invest in the FTSE 100 is to go for an equal weighted FTSE 100 ETF such as the Xtrackers FTSE 100 Equal Weight UCITS 1D ETF (XFEW).

A very large chunk of the FTSE100 is made up from just oil giant Shell

Risk #2 – Little Sector Diversification and No Technology

This is sort of an extension to what we just discussed. Unless we are targeting a specific sector for a specific reason, we investors don’t want to be overexposed to just a few sectors.

Unfortunately the FTSE 100 has some serious overexposure to a handful of sectors such as Oil, financial services such as Banking and insurance, and Personal Goods.

What’s worse is there is no tech. We don’t have any Googles, Apples or Microsofts.

Technology is the future of business. There’s a reason why tech stocks have what seems to be crazy valuations. They are expected to make huge future profits.

These tech companies are going to dominate our lives and the FSTE 100 has zero direct exposure. The risk here is that the FTSE 100 is left behind, unable to keep up with the tech heavy index S&P 500.

This means you cannot just invest in the FTSE 100. You need exposure to more industries that will create huge future profits. One techy area the UK does particularly well in is fintech but again this is just more exposure to the financial sector.

Risk #3 – Currency Fluctuations

If you watch the FTSE on a regular basis, you’ll have seen that since the Brexit vote, there has been an inverse relationship between sterling and UK Stocks.

Whenever the pound gets weaker, UK stocks and therefore the FTSE has usually gained in value but why is this?

The prevailing logic has been that a weaker pound boosts the overseas earnings of the UK Stocks. This makes perfect sense because if you remember, UK Stocks make the majority of their profits internationally.

Therefore, negative Brexit news has often had a very positive effect on UK Stocks, sending the value of the big blue chips skyrocketing.

Another positive for those that hold the FTSE 100 or its constituents is that the relative weakness in the pound makes the stocks increasingly tempting targets for foreign investors, particularly US companies who are sitting on a lot of cash after recent tax cuts. Takeover bids can also send valuations skyrocketing upwards.

Negative Brexit news seems to rocket power the FTSE100 as the Pound falls

Risk #4 – Brexit and a World Crash

Other than the currency fluctuations just discussed, there is in our opinion an irrational fear that Brexit will somehow destroy the UK economy.

But let’s say this does happen and Britain’s economy tanks. The FTSE will be affected but probably not significantly due to the FTSE 100 being more of an international stock market than a UK domestic one.

It’s little brother the FTSE 250, however, will almost certainly struggle as this has significantly more UK exposure. But then again if Europe and possibly the world are dragged into a recession caused by Brexit then this will have serious consequences on the FTSE 100 too.

But it’s always worth remembering that no matter what has happened to the stock market in the short term, it has always come back stronger.

An artist's impression of Brexit 😉

Risk #5 – Dying Industries

The FTSE has many old industries, such as Banks, Oil and Tobacco companies. Some believe that they’ve had their day and their time is now over.

Banks were crippled during the financial crisis of 2008 and never fully recovered and face constant pressure from new technology such as Peer to Peer Lending, a ground-breaking new way to borrow and invest.

Oil is constantly being demonised and more renewable energy seems to only be a matter of time.

Alongside health concerns, tobacco is being taxed left right and centre causing the number of people who smoke to plummet, which is not good for tobacco profits. Good companies are able to adapt to new threats and respond to opportunities.

No matter what happens we know we’ll be looking for bargains. When the stock market falls, we’re buying!

When the stock market falls, we’re buying!

Only a few times in a lifetime does the stock market have incredible deals on offer that are far too good to miss. Make sure you’re ready when the time comes – maybe after Brexit?

What other risks does the FTSE 100 face and what do you do to mitigate it? Let us know in the comments section.