Big Bold Money Moves To Make In 2022 To Explode Your Wealth

Today’s post is about taking massive action to significantly change the course of your life.

We’ve covered the need for regular monthly saving and investing on this site a lot – the small incremental steps that almost guarantee eventual success. That is all very important stuff and must be done, but arguably more important are the big, one-offs events that transform your finances in one go.

Looking back over the last few months and years, have you taken some specific action that you can single out as the point when you achieved something big financially?

Let’s make this next year count, with massive action. It’s time to put a stop to all of your years merging into one long line of working and saving.

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What Is Massive Action?

Massive action in the personal finance world is when you spend a short amount of time to implement a major change to your life which from that point on results in a bigger income, lower costs, and/or more free time.

It is an event, rather than a lengthy process – though it may be followed by continuous action such as starting and then managing a business. Massive action instantly changes everything about your money making potential or return on investment. Massive action might also be a restructuring of your working life which results in you having more free time to work on your life goals.

The End Goal

So how will taking massive action result in you getting rich? Your end goal might be to massively increase the income you earn from your 40 hour work week. Or, maybe you’ll slash your expenses so much that you can retire a few years earlier. Maybe you’ll engineer a shorter work week, making more time for family and friends. Or, maybe… you’ll establish multiple income streams.

This last one is the secret that sets the rich apart from the working and middle classes. Nearly everyone in the UK has just a single income stream – their job.

They may have a few quid from dividends or interest trickling in each month too from savings accounts and investments, but because no massive action has been taken these pots are small for most people, and the income insignificant compared to their wage.

Having several income streams in addition to your main wage, each providing at least a few hundred quid to your total income, is all but guaranteed to result in you becoming rich.

Let’s now look at the practical bold money actions you can take to initiate this change and rocket-power your wealth.

#1 – Reset Your Primary Income Stream

Before you get started on building multiple income streams, first focus on your main one. If you’re not satisfied with what you’re earning from your job or maybe you’re having second thoughts about your career choices, then it might be the time to hit that reset button.

Usually, changing jobs alone isn’t enough because you’ll probably end up in another one with similar pay to what you’re already on, in a similar field to what you’ve done in the past. Your CV will allow little else.

Instead, consider abandoning your current career path altogether and going through the short-term pain of retraining. Unless you’re passionate about your job it’s unlikely you’ll ever rise to the top anyway. Your massive action in this regard might be paying those fees for a new degree or professional qualification.

As an example, someone who puts themself through a professional accountancy qualification can make around £40,000 on the day they qualify.

If you’re stuck in a lower paying career, signing up to a professional course like that could mean you make significantly more money going forward for the same number of hours worked each week.

On the flip side, it’s just as bold to scrap a qualification that you’ve already earned, in favour of taking a different path. We both did this, choosing to end lucrative careers in order to strike out on our own with this website and our YouTube channel.

#2 – Start Your Own Venture

You’ve heard us preach the virtues of starting a business or side hustle before, so all we’ll do here is remind you that this can be an excellent second income stream alongside your main job. Quitting your job is optional, once you’ve built your venture large enough.

As such, we believe most people would benefit from having a side hustle, especially if you can monetise a hobby. In fact, in the UK, 1 in 4 people do have a side hustle, and have already taken the massive action to set this up, contributing an estimated £72 billion to the UK economy.

Some of these hustles will be true businesses capable of going to the moon, and some will just be second jobs. But if you enjoy what you’re doing and are making extra money then it’s all good. Some practical steps you can take to make sure that you commit to the idea of a side hustle are as follows:

[1] Register your new business as a limited company on Companies House. The act of making it official may seem inconsequential, but it makes it feel real and exciting, and gets the ball rolling.

[2] If your business idea requires you to learn new skills (which it will), go all in and sign up to a proper course that teaches those skills.

Maybe you want to learn carpentry, so you can make and sell furniture on the side. When you hand over your money and attend the course, you’re far more likely to make a success of it than if you just bought a book or watched some free videos on YouTube.

[3] Announce your services to the world. You should be making good use of all the local Facebook groups in your area to tell the world about the service you’re offering. All your friends and family will know, and it will be harder to go back.

If your service isn’t confined to the local area, find the time to build a website.

#3 – Materially Downsize Your Outgoings

The amount you can invest each month is significantly affected by your outgoings too. But trimming a bit of fat from your household budget is unlikely to make that much of a difference.

There are, however, perhaps 2 main expenses you need to focus on that can be vastly reduced with massive action, improving your savings rate and future wealth.

These 2 areas are cars, and housing. Starting with housing then, you can save hundreds of pounds a month and many years off your mortgage payments if you were to move to a cheaper city.

Londoners could more than halve their housing costs by relocating to Manchester. Residents of leafy Cambridge could have a similar lifestyle in York, again for a fraction of the price.

Regarding cars, there are a few actions you can take to slash hundreds of pounds a month from your car expense.

  • If you’re a multi-car family, drop to one car. Even the most basic of cars costs at least £200 a month, and often more once you factor in insurance, tax, depreciation and maintenance.
  • If you’re leasing your car, stop doing that! Buy a second-hand car instead. Even a 3-year-old equivalent model to your current lease car will save you a fortune.
  • If you drive a BMW, Mercedes, Audi, Tesla or other top-end car, trade it in for a Ford or a Kia. You can invest the difference, and it won’t cost so much to service.

#4 – Get A Lodger

While this probably fills most homeowners with dread, getting a lodger is not a permanent fixture – if you don’t get on with them, you can ask them to leave. But they CAN bring in £400 or more a month in passive income – I once enjoyed this boost to my income for nearly 2 years.

#5 – Investing Action

Starting to invest in the first place can be a mental leap too far for some. This won’t be an issue for many of our viewers who have already taken massive action in opening their first investment account, but for many people it’s a big psychological hurdle to overcome.

We suggest starting out by putting a material, yet losable, amount of cash into an investment account, which might be a couple of hundred quid. That first deposit is like breaking through a mental wall.

I remember my first investment well. Other than a brief dabble at age 16, I had done nothing until around 6 years ago, where in a moment of inspiration whilst chilling in a holiday cottage I decided enough was enough, opened a Stocks & Shares ISA, and whacked £500 into a stock market fund.

This action spurred me to then properly research what it was I’d just bought – it was something undiversified and expensive like a managed fund – but this was how I began investing like a pro, from that first leap forwards.

Most people do already invest, though they may not realise it, because their pensions are invested in the stock market. But the quality of the investments in a workplace pension, as we said before here, are often substandard.

You could potentially increase your retirement wealth by hundreds of thousands of pounds by simply taking a weekend to understand what your pensions are invested in and moving that money into better and more suitable funds. You might also want to perform this exercise on your Stocks & Shares ISA if you have one. Here’s some videos to get you started [How To Build The Perfect Vanguard Portfolio & The Ultimate ETF Portfolio – Low Fees, Low Taxes, High Returns!].

Wealthier investors might choose this next year to be the one where they add a seriously high returning asset to their portfolio – a buy-to-let property.

I’ve taken massive action 4 times now with buy-to-let – buying one isn’t as simple as buying a stock. The cash profit I earn monthly from my 4 rentals brings in at least an extra grand of income each month. More information on my property strategy here.

#6 – End Relationships

A controversial one perhaps, but sometimes the relationships you have with partners or friends can be holding you back from achieving your potential. With regard to partners, their financial priorities may not be in line with yours.

Maybe they are a big spender. Or maybe the two of you have conflicting life goals, such as financial freedom and travelling the world at age 40 for you, versus work and a community-based life for her. Is it time for a fresh start?

Likewise, if your mates like to blow their wages and waste their weekends and are dragging you down to their level, then maybe it’s time to find a better network as you are the average of your 5 closest friends.

#7 – Master Good Debt

The massive action which started my rental property portfolio was doing a low interest equity release on my own house for some 50 grand, which was added to my home mortgage. I stand by my assertion that it was the best thing that I’ve ever done, and was the single biggest influence on my wealth today.

I’d go as far as to say my wealth would be a third the size that it is now, if I hadn’t taken on good debt to buy investment assets with.

#8 – The Big Clear-Out

Andy (MU co-founder) has just moved house and has realised he had a tonne of stuff that was clogging up his space and mind. So, recently he’s been selling all his possessions on eBay and Facebook, minimalist style. Well ok, not all his possessions – just the stuff that is surplus to requirements. Most of which was just gathering dust in the loft anyway.

There are 3 financial benefits:

[1] There’s less stuff to distract him from the job of making money.

[2] Less time and money goes on replacing or maintaining stuff he didn’t need when it breaks.

[3] He’s making over a grand, which he could invest.

#9 – Claw Back Time From Your Employer

As we’ve stated, you can and should also take massive action to free up more of your time. This time can then be used to implement some of the big-money actions we’ve already covered.

There really is no need to work 5 days a week, every week, without pause. Why not arrange a 6-month career break like Andy did, or drop a day and go part-time to 4-day weeks, like I did?

The action in this case is to give your boss an ultimatum. You need to tell them that this is what you want to do, and if they can’t make it work, you will have to leave. Always be prepared to walk away and find another employer who can give you what you need.

What bold steps have you made in your life or career? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: Ollyy/Shutterstock.com

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

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We’ve Had Enough! On Crypto Luck, Media Nonsense & Crazy Politics

Normally we like to focus on topics that enhance your financial life; how to invest, what not to waste money on, important finance news, and the like. But today we need to have a good old moan about certain things in the money space that are really annoying us right now.

If it frustrates you too, let us know in the comments below. Or otherwise tell us to stop whinging and to get back to telling you the finance news. We’ll be moaning about investing, YouTube, the media, politics, tax, and people. Now, let’s check it out…

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Investing

First off, we need to moan about crypto, meme stocks, and lucky stock picks. We don’t have a problem with these things per se, but more precisely what winds us right up are the lucky sods that make a quick win – on what is essentially a gamble – and then think they’re investing gods.

Meanwhile the rest of us – who are investing in a more calculated, and some would say, boring, fashion – have to spend years and decades growing our investments at a snail’s pace. Then of course we all look stupid when we’re only getting, say 10% growth a year, while some of those who took a reckless punt are laughing all the way to the bank.

Bitcoin really started to gain traction and widespread attention in 2017. It started that year hovering around the $1,000 mark and by the end of 2021, it was priced around $50,000 – a 50-fold increase.

Somebody could easily have turned a 10 grand investment into 500 grand – a lifechanging sum of money. The internet is awash with people who rode that gravy train, and an entire community of crypto “experts” has popped up on YouTube claiming to have rewritten the investing rulebook.

Perhaps a little more common are those who started investing in Bitcoin when it was hovering around $15,000 at the tail end of 2017 and you, like us, probably have some friends who did this. If they continue to hold to this day, this is still an epic return of 3.3 times in just a few years. Quite frankly, this makes those of us who invest in conventional index trackers look like idiots.

There is a danger here that we’re wrongfully describing incredible investors as lucky. Serious Bitcoin investors will argue that it was obvious, and that Bitcoin will continue to surge ever higher. However, we have yet to meet anyone who can put together a compelling case for Bitcoin at its current price, and we see no reason why the price couldn’t have gone the other way. Seriously, what is Bitcoin worth? All we tend to hear are soundbites like, “invest in Bitcoin”, “Bitcoin is the new gold”, or “Bitcoin is my retirement”.

While we see potential uses in Bitcoin and crypto in general, we have no idea how anyone can put a value on them, so how can we justify investing serious money into this asset class? Honestly, we would not be surprised if it either went up 10-fold from here or collapsed 10-fold.

On a related note, we get frustrated at the quantity of social media influencers on places like here on YouTube that are relentlessly plugging crypto, no matter the coin.

Even respectable YouTube stars like Graham Stephan who initially talked about real estate, and has 3.6 million subscribers on his main channel, seem to be ruthlessly knocking out video after video about crypto.

The infamous YouTube algorithm rewards videos that get clicks, and there’s no doubt about it that clickbait ‘get rich quick’ style videos are hugely popular. Meanwhile YouTube channels that focus more on “boring” but tried and tested methods of investing into stock-market index funds and property are sadly far less popular.

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We’ve got introductory guides here, but in short you subscribe to one of the Matched Betting services and they serve you all the offers and walk you through it. We have discounted offers for both Oddsmonkey and Profit Accumulator on our Matched Betting page.

The Lying And Sensationalising Media

Something that really has got to stop is the constant negativity from the media. And much of the media are so lazy now in their reporting that they just stick a few tweets in their articles and try to pass the negative opinions of 3 random people or celebrities as if it’s the opinion of the masses.

But what annoys us the most about the media is the constant sensationalising, headline-grabbing news stories. They spread fear because negativity sells. This obviously applies to all aspects of the news, but it seems to be very prevalent in the financial space.

Take this recent headline from the Mirror as a typical example, “Bank of England HIKES interest rates to 0.25% as inflation jumps to 10-year high”.

The fear mongering in that headline is full-on supercharged – trying to terrify anyone who has debt like a mortgage and also those who are worried about the rising cost of living. Nobody on planet earth considers an interest rate increase from 0.1% to 0.25% as a “hike” – honestly, you’ll barely notice it.

For investors, this negativity is a minefield that needs to be avoided at all costs. If you paid close attention to the news, you’d never invest, because there’s always a reason to sell and sit out of the market.

This chart is an updated version of one we have shown before. It’s littered with negativity that the media would have been hysterically reporting at the time, and it shows how the S&P 500 responded – it continued to storm ahead. Remember Brexit? Well, some people may have thought it was the end of the world, but this is what the market thought. It simply didn’t care!

Don’t even get us started on how Covid has been reported these past 2 years. The thing with statistics is you can spin almost any story from the same set of data – both positive and negative, but the media obviously choose the latter.

Every death these days seems to go down as “dying with Covid”. A blind 112-year-old, driving dunk and stoned, drove off a cliff, whilst having a heart attack. But his autopsy showed that as well as having no head, he had contracted Omicron. Add him to the “died with Covid” statistics!

Negative news was bringing Ben (MU co-founder) down so much that at one point he stopped watching the news entirely. But as a finance YouTube channel, it’s our job to cut through all that noise to bring you the news that matters, so he has reluctantly started tuning in again, so you don’t have to. You’re welcome.

Politics & Taxation

We’re sick to death of the government. They’re either raising taxes, banning stuff, or taking away our freedoms. We’re very much pro-freedom as you might have guessed based on our slogan ‘Investing For Freedom’, which you might have seen during our video intros on YouTube.

Both of our goals in life are to build up big enough Freedom funds, so we’re free to live the life we want. But if the government continues to keep overreaching, and forcing their will on the people, no amount of money will ever be enough to achieve true freedom.

Much of the stuff that the government bans doesn’t even directly affect us but it sickens us that other people lose the right to enjoy whatever it was that was banned. One such example in the finance space, was the banning of crypto derivatives by the FCA. Another was preventing investors from having more than 10% of their net worth in P2P Lending.

We’re all for laws to guide positive behaviour and protect people but outright bans – to put it bluntly – pisses us off.

Here’s one that probably affects everyone and the economy in a big way – antiquated Sunday trading laws. Most people are too busy slaving a full-time job during the week to go shopping and probably save Saturday for a little bit of well-earned fun.

You finally get a chance to head to the shops on Sunday evening to do a big food shop but remember the silly law that prevents shops over a certain size from opening for more than 6 hours, so you’re out of luck. You’re forced to go and overpay at a far smaller shop, which has less choice.

As for taxes, we’re in favour of making them as low as possible, to encourage economic growth and make Britain the world’s choice for investment. But both major parties in the UK, despite their rhetoric, are pro high taxes, which is why The Institute for Fiscal Studies (IFS) said the chancellor was on track to lift the UK’s tax burden to the highest sustained level in peacetime.

It’s not just the amount of tax that is the problem though, it’s the fact that the tax system is ludicrously complicated and imposed on certain aspects of life that it has no right to, such as on death.

Inheritance tax is 40% after some relatively small tax-free allowances. Every person should have the right to pass on most of their wealth, which they probably spent a lifetime earning, without having almost half of it siphoned off by the sticky fingers of the government.

In a Guardian article published in 2015, they stated that the UK tax code was the longest in the world at 17,000 pages, which is considerably longer than Hong Kong’s, which at the time was 276 pages. Theirs is widely held by tax lawyers to be the most admirably efficient in the world.

Taxation.co.uk, said, “We can’t stress enough how important a nation’s system of tax is – societies are shaped by the way they are taxed. A large part of a nation’s destiny – whether its people will be prosperous or poor, free or subordinated, happy or depressed – is determined by its system of tax.”

They also said that the UK’s tax code is eight times longer (and considerably less readable) than the longest novel ever written.

Their taxes and regulations also punish aspiration and those who seek to better themselves. Landlords, for example, are having a tough time of it recently – after years of fiddling with the way property is taxed (in HMRC’s favour of course), property investors now face a rough decade of trying to make their properties “green”.

From installing car charging points outside houses (how do you do that on a terraced street?), to insulating lofts and wall cavity spaces, to replacing boilers with costly heat-pumps, at what point is the landlord meant to draw a decent profit? Landlords don’t take substantial financial risk to provide housing out of the goodness of their hearts. Soon, what will be their incentive to keep providing housing to renters?

People

The most annoying thing of all though could be people. People don’t fact check and believe everything they hear.

This meme always makes me laugh, “Don’t believe everything you read on the Internet just because there’s a picture with a quote next to it.” – Abraham Lincoln.

Just the other day, Ben was telling me about some revolutionary wisdom he had just read about. It was Warren Buffett’s three-step productivity strategy, which has been dubbed as the “25/5 Rule”. He was about to enact it in his own life, only to find out that it was complete nonsense and Buffett never even said it.

Also, people are prone to whinging a lot and then making preposterous suggestions that would never work in the real world. Hopefully we’ve not done any of that today.

I don’t help myself because I listen to talk show radio shows like LBC, where any idiot is given airtime when they ring up. One such ludicrous suggestion is that MPs should earn minimum wage, so they can see how difficult it is to live on. I’ve lost count how many times I’ve heard people say that MPs get paid too much.

Despite all the criticism MPs get for doing a poor job, if anything they don’t earn enough for what the job involves. FYI, the basic salary for an MP is about £82k.

One major reason why many MPs are so useless is because the wage is so low, compared to wages for the top jobs in the private sector. The right person for the job instead chooses to work as a director in a large business and often earns many hundreds of thousands of pounds, so why take a stressful job as an MP for relative peanuts?

For reference, the director general of the BBC earns a staggering £525,000 per year, which is about 3 times as much as the prime minister. Come on people, MPs are hardly making the big bucks. Do you really want drunk Dave from the pub running the country?

The same applies to company directors. We want the best people running our great companies, and they demand a very high wage.

Another thing that frustrates us is people whinging about wanting a higher wage for themselves and taking no action. We’ve even spelled out to friends and colleagues exactly what they need to do, and yet many years later they’re still doing the same job for the same pay and still moaning.

As a minimum, these people simply need to inform their manager that they want more money. Your boss isn’t psychic, so probably doesn’t even know you’re unhappy – or it’s easier to ignore if you don’t raise the issue.

What’s annoying you right now? Have a moan in the comments below.

Written by Andy

 

Featured image credit: altanaka/Shutterstock.com

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

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Why Is Getting Rich So Difficult?!

Almost everyone wants to make more money and get rich, but it never happens for most people. In this post we’re going to be looking at why it’s so difficult to get rich and we’ll even throw in some tips on how you can do it.

Amassing and keeping wealth is one of the hardest things you can set out to do – but is it easier or harder to get rich today than it was in the past? We’re also going to give our take on this. Now, let’s check it out…

And check out the MU Offers Page here (including £50 cash bonuses, FREE STOCKS from Freetrade and Stake, and Stockopedia 25% discount & FREE trial).

Alternatively Watch The YouTube Video > > >

What Is Rich?

Although most people dream of becoming rich, most of us have never given two thoughts as to what rich actually is! It’s probably fair to say that most picture being able to buy luxury items like yachts and fast cars without batting an eye. That is certainly on the rich scale but where is the threshold that divides ‘not rich’ and ‘rich’?

Everybody will have their own definition, but we define rich as the ability to live comfortably without having to work, as your lifestyle is funded by assets you own – what we call financial freedom or financial independence. High levels of financial wealth provide wealth of time and better health (in theory).

Why A Job Probably Won’t Make You Rich

We’ll keep this section brief as we’ve done enough job bashing over the years, but the fact of the matter is if you want to become rich it’s unlikely that a job will suffice.

Most jobs don’t remunerate you enough to achieve wealth in a short amount of time. Even in a well-paid job it often takes a few decades to squirrel away enough to quit work. Having a high income without free time is not rich by our definition.

Moreover, the chances are that you didn’t start out in that high-paid job. It usually takes a significant amount of time working your way to the top, so even when you achieve the job that pays well it will take years of continuing to work before you can enjoy the fruits of your labour.

Doctors for instance spend around 10 years studying and training before they get a real doctor’s salary. After a decade, their financial journey is only at step 1.

So, in essence while you can eventually become rich slaving in a job, it will take more time than most people are understandably willing to give.

Can Investing Make You Rich?

Investing in the stock market is often considered to be the only sure-fire way to get rich by a lot of people. But there are two major problems: Most people are not investing enough, and the compounding effect takes years if you don’t have much money to start with.

Here’s a quick and realistic example of building wealth through investing:

We think financial freedom is achieved for a single person once they have around £30,000 annually in passive income, and therefore need an investment pot of around £750,000. This can be achieved by investing £500 a month, earning 8% returns, less 3% inflation, increasing the monthly contributions in line with inflation, and investing for a little over 33 years. And herein lies the problem; that’s a long game for most people to play.

This leads many people to try and take shortcuts, which only worsens their financial position. Short-term trading without the skills to do it will likely hurt you. We’ll probably get hate for this one but speculating on crypto or meme stocks is essentially gambling. It might make you rich…. possibly, but it’s not comparable to a safe, steady, and boring index investment that has a long historical record of success.

To sum it up, investing will make you rich eventually, or at the very least will make you richer and more financially comfortable. And additionally, investing is essential for staying wealthy – no matter how you make your money, whether it’s a job, a business, an inheritance, or whatever, that money needs to be invested otherwise you might not be rich for very long.

You’re Too Busy Firefighting To Get Rich

If jobs don’t cut it, hopefully we’re in agreement that owning a business is your best chance of getting rich in a short timeframe. However, starting a business seems like an impossibility for many because the journey is fraught with problems and risks.

The biggest problem of all is most people are living permanently close to the breadline and are too busy firefighting on a day-to-day basis. Their focus is on covering their immediate living expenses, such as keeping a roof over their family’s heads, so that they have zero spare time to ever invest in a business or side hustle that ultimately could change their life.

If you’re working a full-time job or even two jobs just to survive, even if you have time in the evenings, your best mental energies have already been spent. If you’re going to build a successful business, it’s going to require enough of your quality attention.

You might even have other responsibilities, like children or elderly parents to care for, which makes working on a business near impossible.

Very few people are willing to put in the work and make the sacrifices. When you’re young it takes a special kind of person to neglect friendships and relationships to focus their time on a business, especially if they’re working another job in the day. As a parent would you be willing to miss your kids Sunday league football game or school play? Most would consider that too much of a sacrifice!

One solution to this problem is to concentrate on your career a little longer and work towards a promotion and a payrise, and then with the increased pay aim towards going part time to perhaps a 4-day week. This new free time can be reinvested into a side hustle.

I did this but Ben (MU Co-founder) went even further, going from 5 days to 4 days to 2 days to none. But he also invested in rental property, which gave him a small secondary income to supplement my reduced salary. He established the rental properties with a mixture of existing savings and remortgaging his home mortgage to extract a significant wad of cash. Learn more in this post.

Need Money To Make Money?

In an extension to the previous point, most people don’t have the finances to fund a start-up business, but lack of finances may not be the dream killer in the way you think it is. You regularly hear the excuse from those that never do it, “that it takes money to make money.”

Having ourselves started a small business we can safely say this isn’t completely true although money does make it easier and certain types of businesses might be unachievable without a larger budget. Although, even when money is required, a good business will attract funding from outside sources if you make it happen. But crucially many businesses are possible on a shoestring.

A lot of businesses can be started with just a tiny sum of money and a lot of your time. The real financial problem is how to find money to live on while your business is in its infancy and not producing enough profit, if any.

Personally, we ran our business as a side hustle until it started producing a moderate income. Now that we’re running the business full-time, we have no choice but to draw a salary and dividends, but we know this is financially handicapping our business, hence why it makes getting rich so difficult.

If we happened to be on Dragons Den, we would be condemned for doing this, but we have no idea how the Dragons expect the entrepreneurs to live without any income.

Psychological Fear Of Losing Money

Most people fear losing money, which is why they avoid investing. There is a culture in the UK, encouraged by poor education, that pushes people to take safe harbour in a bank account rather than risk their money by investing it.

And if investing in public stocks is seen to be too risky, then spending money on a business is close to impossible for most people mentally. Even when you opt for starting a business on the cheap it will require a little upfront investment and reinvestment of profits.

It’s understandable to fear start-ups as each and every penny spent could be throwing money away if it doesn’t result in increased revenues. The worse your financial situation the more difficult it becomes to make the required investments.

No Mentors & No Connections

Wealthy people seem to be as rare as unicorns. People tend to hang around with similar people to themselves, which makes it difficult if you’re trying to break into the elite group.

If you want to achieve something in life, whatever that might be, it’s wise to take note of how other people achieved what you want and to replicate their success. Whatever you’re trying to do, someone has walked a similar path before.

A mentor will be able to show you the ropes, will guide you, and will likely be able to connect you with the right people. If we use another Dragons Den example, many of the entrepreneurs give away huge amounts of equity – not necessarily for the money but for the experience, guidance, and connections of the Dragons. The Dragons might be able to get them a crucial meeting with a key buyer that could supercharge their business overnight.

If you’re like us and unfortunately don’t have any personal mentors, then take advantage of the experts that are publicly operating in your space. Everyone these days is sharing their knowledge online. Love him or hate him, the best mentor available to us was Robert Kiyosaki, who spoke to us through the book, Rich Dad Poor Dad.

Wealth Is In Houses

In this post we reported that most wealth in the UK is stored in property and pensions. We all know that property prices are increasingly becoming more expensive and that the housing market is excluding those at the bottom, which only widens the rich-poor divide.

It’s not uncommon for someone to say that their house earned more than they did in any given year. Although there are some advantages to renting, generally you will be better off financially if you own property.

The longer you are not on the property ladder the more difficult it becomes. If your salary goes up 10% from £25k to £27.5k, but house prices also go up 10% from £250k to £275k, then your goal is forever out of reach because banks won’t lend to you beyond a certain salary multiple.

Lifetime ISAs are potentially a good way to save for a house deposit as the government will top up your contributions by 25%. Check out the Lifetime ISA guide for more info and the best providers.

Business Taxes

Tax is obviously necessary to run a country, but small start-ups need tax breaks to get off the ground, which are few and far between.

Individuals get a personal allowance, which protects their first bit of earnings from being taxed, but limited companies don’t get a tax-free allowance. They incur 19% corporation tax from the first tiny bit of profit, which is demoralising. You’re trying to get the wheels turning and the government are pushing you back in the wrong direction.

Has Everything Already Been Invented?

Now for a couple of counter points. Funny man Karl Pilkington said, “we’ve run out of new inventions cos everything has been invented.” He said it was so much easier in the past because as soon as you needed something, that was a new invention as it didn’t exist yet. In one of his TV shows he said something along the lines of if you have a bowl and wanted to scoop food from it you would have invented the spoon. It was that simple!

Karl is a comedy genius but he’s forgetting in this case that today the rate of innovation is only increasing, which means it must be getting easier. You may well be watching this video on a little device that fits in your pocket, can communicate with anyone on the planet and gives you the world’s information at your fingertips.

Access To Suppliers, Customers, Jobs, And Information Is Better Than Ever

Those inventions – being a phone and the internet – have also made the world smaller. For those that choose to, you can locate a supplier or manufacturer who could bring your idea to life. This is a quick Google search away, whereas in the past we can only imagine this came at great effort and expense.

You can take niche ideas and reach your customers globally. Ideas that were impossible before because of a small local market that didn’t offer enough demand have now become viable. No longer do you have to waste money on untargeted advertising, which ultimately failed, when you can now pinpoint your exact target audience… and it’s only getting better.

On the jobs front, we all have better access to education than ever before. Although, we still think there is a long way to go in making education affordable it’s undeniable that higher education boosts earnings as evidenced by data provided by the ONS.

For those educated to an A to C grade GCSE standard, gross annual earnings level out at around the age of 30 at an average of £19,000. For graduates, their annual income rises at a rapid rate as they get older, before plateauing around the age of 39 at an average of £35,000. The key to turning this into wealth though lies in investing what you’ve earned.

Why do you think getting rich is so difficult? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Fida Olga/Shutterstock.com

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

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I’ve Made £60k In 6 Months By Investing!

We’re always saying how important it is to own investments for wealth-building. But it’s one thing to hear the theory, and quite another to experience it first-hand.

Over the last 6 months I’ve made £60,000 passively, just by being an investor in stocks and property. And that is not including the value of my home either, which has also gone up significantly in this fast moving market, but which I don’t count as a financial investment.

Meanwhile, the vast majority of the UK public continue to fail to own ANY financial assets, which include investments like stocks and property held solely for the purposes of cash generation and capital growth.

In this video we’ll show how important it is to be in the market during the best days, and how bad days matter very little if you’ve played the long game.

We’re also going to address exactly HOW I’ve managed to make way more from investments than I ever could from working 40-hour work weeks. We’ll look at sensible ways that you yourself can invest for the long-term to get maximum exposure to the best trading days.

We’ll also briefly address the success of the crypto craze over the last few months. And finally, we’ll look at just how bad the investing culture still is in the UK. Let’s check it out!

Featured in this video is InvestEngine, a platform that lets you build a portfolio of fractional ETFs for FREE. Just set the percentage allocation for each ETF and you’re done – say goodbye to spreadsheets! And rebalancing your portfolio is as simple as couple of clicks. InvestEngine also offer a managed service at JUST 0.25% per year – the lowest we’ve seen.

And, new users to the InvestEngine platform will receive a £50 welcome bonus if you open an account using this offer link and deposit at least £100.

Watch The YouTube Video > > >

Written by Ben

 

Featured image credit: @Mehaniq via Twenty20

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Why THESE 3 Stocks Have Me Rushing To Buy!

A handful of stocks have been flagged by my Stockopedia filters that I’ve felt compelled to buy – all big American household names.

With the market priced as highly as it is, we’ve been cautious in recent months about buying stocks. But while the S&P 500 seems crazily high right now it’s simply not true that the whole market is overpriced – there’s some genuine bargains out there on some brilliant companies.

In this video we’re deep diving into the fundamentals of 3 wicked stocks that I’ve just added to my portfolio. You can decide for yourself if you want to buy them too! Let’s check it out…

Watch The YouTube Video > > >

Written by Ben

 

💲💲💲 All offers listed on the MU Offers Page (including Stockopedia 25% discount & FREE trial, and FREE STOCKS from Freetrade and Stake).

👉 Best Investment Platforms page here.

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Back To Basics: The Complete Beginner’s Guide To Investing

To many people the reason why you invest is blindingly obvious but if everyone knows, then why isn’t everyone doing it? Many people don’t realise how important investing is – and if you’re new to this channel you might be one of them. Others might simply be overwhelmed and don’t know how to begin despite wanting to.

Well, you’re in the right place. Today, we’re going back to basics with a complete beginner’s guide to investing. We’re covering:

  • Why you need to invest
  • What returns you can expect
  • Whether you should do it yourself or have someone do it for you
  • When you should go with a Stocks & Shares ISA, SIPP, General Account, or LISA
  • Which platform you should invest with
  • What investments you should buy
  • Where you can do research
  • And how much you can lose and how safe your money is.

If there’s anything that’s unclear, please let us know down below and we will do our best to help you out.

Alternatively Watch The YouTube Video > > >

Why You Need To Invest

“If you don’t find a way to make money while you sleep, you will work until you die” – Warren Buffett. A very poetic and sombre thought but very true, nonetheless.

There are many different reasons why somebody might invest but generally most people invest with the intention to have their money make more money. Hopefully, one day you can invest enough so that you can stop trading your time for money through working a job and can retire. The more you invest and the better return you get, the sooner you can retire if you wish.

Maybe retirement is not even on your radar yet but we’re betting that you’d like to make more money, so you can buy more of the things you want, so in this case why not get your money working hard for you.

And if that’s not enough to convince you of the benefits of investing, then maybe this more depressing fact will. The annual inflation rate in the UK jumped to 3.2% in August 2021 and is set to continue climbing to a predicted 6%, so if you don’t invest you will be fighting a losing battle and your money will be constantly falling in value in real terms. Wealthy people have always invested, and you should too!

What Returns Can You Expect?

Unfortunately, short-term expectations about how much money you can make investing can often be totally unrealistic. You might have heard that someone made a killing investing in a particular stock or in Bitcoin, or whatever it might be, and was able to retire in their early twenties. The fact is that these success stories are few and far between – almost mythical.

Someone asked me whether it was worth investing as they’d seen you could start from £1 and someone they knew had made £1,000. It is indeed very easy to make £1,000 investing but it’s never going to happen from a single £1 investment.

The good news is that you could very realistically make £1,000 in a single year if you invest £10,000 or more. Over the last 30 years, the S&P 500 – which is the 500 largest US stocks – has returned 10.4% per year on average. For 19 of those 30 years the return exceeded 10% and 4 of those years exceeded 30%.

It’s really important to understand that your investment returns will almost certainly not be in a straight line. Some years will have devastating losses while others – as we have seen – will make you epic profits. Investing is a long-term game, and you’ve got to think of investing as a lifestyle choice and something you will do forever.

The other good news is that while peoples’ short-term expectations are unrealistic, you will probably underestimate how much money you can make in the long-term. With a 10.4% annual return over 30 years, just a single £10,000 investment would morph into over £193,000. You could very easily become a millionaire by investing if you decide you want to.

Should You Do It Yourself Or Have Someone Do It For You?

Broadly speaking you have 3 choices:

  • Option 1: You can do it all yourself, which will be the cheapest option and the most fun. With some investing sites and apps, you can now even invest for free. You will also have the widest choice of investments when you do it yourself and this is what we do.
  • Option 2: You can go to a financial advisor, and they can do it all for you, but this is very expensive and we’re certain you can do a better job yourself if you spend a little time learning. Usually, this option is reserved for high-net-worth customers who have at least a couple of hundred grand to invest. This option is likely to be only worthwhile for those who have complex tax planning to consider and for those whose finances are far more complicated than a normal person.
  • Option 3: You could use a robo-investing service. On the whole these are reasonably priced and will assess whether an investment is suitable for you and carry out the investing on your behalf. If you’re the kind of person who will never feel comfortable doing it yourself or you’d simply rather not have the hassle, then robo-investing would be a good shout.

Which Account Should You Invest In?

Before you choose your investment platform, which we’ll look at next, you should first choose what account types you want to use. These include Stocks and Shares ISAs, SIPPs, General Accounts, LISAs, and a few others. We think everyone should probably have a Stocks and Shares ISA, and a SIPP and here’s why.

A Stocks and Shares ISA is a tax efficient account that allows you to invest without paying some taxes such as capital gains tax, and some dividend taxes. Think of it as a wrapper that protects your investments from the taxman. You can sell your investments and access the money at any time, so this is likely to be your main investing account. You can only invest £20k a year as it stands right now, and you can only pay into one Stocks and Shares ISA each year.

Another popular account is a SIPP or self-invested personal pension. These are awesome for consolidating old workplace pensions into, give you enormous freedom in what you can invest in, and tend to be very low-cost. However, if you’re employed and saving into a pension you will likely want to prioritise your workplace pension as you get employer contributions with this, which you are unlikely to get with a SIPP.

As SIPPs are just a type of pension you won’t be able to access the money until age 55, and this is likely to rise in future.

With General accounts you have total freedom; you can open as many as you like and invest as much as you like. Any investment gains or dividends you earn though will be liable for tax.

A Lifetime ISA is an unusual account in that it’s used for either your first home or for retirement savings and has strict access limitations. If you are considering using a LISA we urge you to read our full LISA guide here.

Talking of guides, we have guides and best-buy tables for most of the stuff we’re talking about today, so check those out here.

Which Investment Platform Should You Choose?

If you’re a beginner we’re guessing you want to pay as little as possible in fees – at least until you have learned the ropes. The more expensive platforms tend to have better service and a bigger investment range, but you do pay for this.

We’ve got a thorough comparison of the best ISA platforms here, so head over there if you want to read up some more. For now though, let’s briefly look at a few of our favourite commission-free investing platforms that let you choose your own investments.

InvestEngine is currently our favourite. They offer a growing range of ETFs (more on what ETFs are in a moment) and they have zero charges. There are no set-up fees, no dealing fees, no account fees, and no foreign exchange fees. There are no fees from them whatsoever on the do-it-yourself side of the platform, which is awesome.

InvestEngine only offers ETFs, which we think is ideal for beginners because it keeps things super simple, and they’ve just added a feature that breaks your ETFs down by countries, sectors and companies, so you can see exactly what your portfolio is invested in.

We work closely with InvestEngine and new investors who use our link will get a £25 bonus when they deposit £100 or more (T&Cs Apply, capital at risk). Full details are listed on the MU Offers page, linked to here.

Our next favourite is Trading 212 but at time of filming they are closed to new investors. They will eventually be reopening but we don’t know when this will be. Trading 212 is almost free, but they do charge 0.15% in foreign exchange fees.

Trading 212 has an incredible range of stocks and ETFs considering it’s a commission-free app. But be careful which account you sign-up for; Trading 212 also offer CFDs – which is a type of derivative. We think beginners should avoid CFDs completely due to the high chance of losing all your money. As we already mentioned, an ISA is probably your best bet.

When they do reopen to new customers again, you’ll be able to get a free stock valued up to £100 with our special link (T&Cs Apply, capital at risk, full details on MU Offers page) – join the waitlist now and secure your free stock with this link.

Freetrade is another of our favourite commission-free apps. They too have a great selection of ETFs and stocks and have zero charges when you trade. However, out of the platforms we’ve mentioned in this video they do have the highest fees as they charge small amounts for an ISA account at £3 a month and have a larger foreign exchange fee at 0.45%.

New customers who use our link will get a free stock worth up to £200 (T&Cs Apply, capital at risk, full details on MU Offers page).

If you don’t want to invest for yourself and intend to use a robo-investing service instead, check out the written guide on robo-investing here.

In short, our favourite robo-investing platform is also InvestEngine, one reason being that they are the lowest priced at just 0.25%, which is insanely cheap compared to all the competition. FYI, they offer both a DIY service (which is free) and a robo-investing service (for a rock-bottom fee).

And Nutmeg, the market leader, has a competitively priced option at 0.45%, which is their ‘Fixed Allocation’ style. Welcome offers for both of these are also on the MU Offers page.

What Should You Invest In?

We’ve covered a lot of ground so far, but now you need to decide what to invest in and there’s a lot of noise everywhere leading unsuspecting noobies down the wrong path. Beginners often associate investing with buying Bitcoin, but cryptocurrency is pure speculation and highly volatile. It might be okay to speculate with a very small percentage of your money, but the bulk of your investments should be in funds containing global stocks and maybe some government bonds and gold.

Also, much of the excitement of investing comes from buying individual stocks and getting rich quick, and that is probably why many of the investing apps gamify investing. If you boot up an app like Freetrade or Trading 212, they place popular stocks and trendy themes in prominent positions within their apps. You can’t blame them because that is likely what most of their customers want.

Avoid the top movement tables and trends, avoid speculative punts on stocks, and avoid any investment which gives 3x exposure using leverage. And as a beginner avoid shorting, which aims to profit when something goes down. We think beginners should ignore all this noise and build a portfolio of ETFs that track global stocks. An ETF is simply a fund that holds a collection of securities such as stocks.

For example, the Vanguard FTSE All-World ETF (VWRL) invests in stocks from all around the world and contains almost 4,000 stocks including for example big names like Apple, Amazon, Nestle, and Toyota. An investor who builds a portfolio like this is placing their trust in the economic growth of the world’s biggest and best companies.

Our personal choice and what we invest in ourselves is what we call the Ultimate Portfolio, which contains just 5 carefully selected ETFs which have been chosen for their low cost, tax efficiency, and general awesomeness.

Where Can You Research Investments?

When investing in ETFs you can’t beat the website JustETF.com and the ETF provider’s own websites. JustETF.com has a free-to-use ETF screener that allows you to filter down so you can find ETFs in areas that you want to invest in. But before taking the plunge we always check out the ETF provider’s own site to examine further. Some of our favourite ETF providers are iShares, Vanguard and Invesco.

If you’re investing in individual stocks, you really need to analyse stock data and be able to screen stocks for good fundamentals. We use a site called Stockopedia, which is truly fantastic but it’s not cheap. Fortunately, we have arranged with them a 14-day free trial followed by a 25% discount for new customers through this link.

The best free site is Yahoo Finance but it’s worlds apart from the premium sites like Stockopedia!

How Much Can You Lose And How Safe Is Your Money?

Investing is risky and you could lose all your money but invest wisely across a diversified portfolio of ETFs and this is highly unlikely.

The largest crash for the US S&P 500 in modern times was the global financial crisis from 2007, which saw losses of 57%. Looking back to 1929, the Great Depression witnessed a crash of 86%, but a lot has changed since then with far better regulation of financial markets, so we doubt it could ever be this bad again.

If you invest in individual stocks, you could very likely see even bigger declines than what we just looked at and it’s a very big possibility that an individual stock might never recover. If you invest in a broad index fund such as an ETF tracking the world you have history on your side, which has seen valuations only ever increase in the long-term.

In terms of how safe your money is with your chosen platform, it should be protected by the Financial Services Compensation Scheme, which protects your investments up to £85,000 but do check. Your platform also has to segregate customer money from their own.

Note, that the FSCS doesn’t protect you against picking a dud stock but rather protects against platform failure.

There’s a lot more we want to cover but are conscious that it might be too much detail in a beginner’s guide. We hope you have found this guide useful and if you did get value consider subscribing to the email list here.

As a beginner investor, what were your biggest investment fears? Join the conversation in the comments below.

Written by Andy

Featured image credit: SkazovD/Shutterstock.com

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

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An 8-Step Plan For Surviving A Crash (& Making Huge Profits From It!)

Whether or not the next big crash is just around the corner, is years away, or is happening right now, you can’t do much about it. You can’t prevent it; you can’t predict when it will happen, or by how much the markets will fall.

All you can do is take steps to ensure your portfolio survives; and thrives.

In this post, we want to share with you our 8-step plan for surviving a market crash, that we’ll be following. Not only should you survive it, but come out far richer than you were before. Let’s check it out!

FYI: Moneyfarm have recently lowered their minimum investment to just £500, and when you sign up via our special link they’ll give you the first 6 months without fees on account balances between £500 and £5,000.

Alternatively Watch The YouTube Video > > >

Pre-Crash Step 1: Portfolio Health Check

This step involves getting your house in order as much as you can before the proverbial hits the fan. First, check your holdings are not too heavily weighted towards any one industry or worse, one company. In 2008, the banking sector’s neck was on the line. In 2020, it was hospitality and travel.

Maybe the next crash will be tech. Or energy. No-one can know beforehand, so you just need to be well diversified.

If you can’t withstand a downturn because maybe you’re approaching retirement, you can even build a portfolio that is designed to weather bear markets. You can buy defensive stocks, many of which pay dividends; hold more government bonds; own gold; or buy an annuity. The trade-off for this safety is that these portfolios are likely to underperform in bull markets.

You could for instance hold a chunk of your portfolio in the Xtrackers MSCI World Consumer Staples ETF (XDWS), with an OCF of 0.25%. This filters for large & mid cap developed world companies which provide goods and services considered essential. Look at the top holdings: these guys aren’t going anywhere in a recession. People still need to eat, wash, and smoke regardless of the economy.

It’s common amongst stock investors to apply stop-losses to their shares. A stop-loss will automatically sell your shares if the market price falls below the stop-loss price you set.

But when the market crashes, all of your stocks will likely go down regardless of their individual fundamentals, including your defensive stocks like food companies, and broad geographical ETFs that you’d never want to sell. We would not use stop-losses on these investments.

Pre-Crash Step 2: Plug The Holes In Your Home Finances

Be sure you are comfortable enough with your home finances that you wouldn’t feel the need to have to sell your investments during a crash to pay the bills.

If that sounds like you, maybe sell some positions while the sun is shining, so you don’t have to do it mid-storm.

Or better still, long-term you could even structure your career so as to have a recession proof income, such as by becoming a doctor or a teacher. A stock market crash often comes hand in hand with recessions and job losses, so consider if your job is essential.

Step 3: When The Crash Comes, Do Nothing.

So, you turn on the news, and the markets are crashing. Everyone is selling, banks are withholding credit, and companies are going bust left, right and centre.

The best thing you can do (other than breathing into a paper bag) is nothing. At least not immediately.

Crashes typically take months to hit the bottom – you have lots of time to think before you act. The stock market crash of 2020 took 33 days to fall by 34% from the all-time-high to the bottom. Plenty of time to come up with a plan of attack.

But the Corona Crash was a flash-in-the-pan compared to the much more serious stock market crashes of the modern era. The Dotcom Crash took two years to climb down from the pre-crash high to the bottom, from Aug 2000 to Sep 2002. And the Subprime Mortgage Crisis took one and a half years from Oct 2007 to Feb 2009.

If you’ve been building up a large investment pot over many years, a hasty decision to sell when the markets are down could set your portfolio back by years or even decades. There are some events that you just can’t come back from. So, take your time, do nothing in haste, and move on to Step 4.

Step 4: See Through The Noise

The grim-faced commentators on the news will be reporting the crash from the assumption that their viewers have just lost a lot of money, and many will have done, because in a panic they foolishly sold their investments, even their diversified ETFs, and realised their losses. They saw the market plummeting and thought they’d better do something.

But you chose to do nothing. You held the line. You realise that you own just as much of the world economy with your global ETFs now as you did the day before the crash – it’s simply that the world is now temporarily worth less. All is well. You can move on to Step 5.

Step 5: Manage Leverage On The Way Down (If Applicable)

If you’re using any leverage to invest, you’ll no doubt have been making epic returns during the good times, but when the market is crashing we’re willing to bet your fingernails get bitten almost to the bone with panic.

If you are using leverage to invest, keep a close eye on it during a downturn that it doesn’t balloon out of control, and be ready to deleverage if need be. Adding new money monthly as you earn it during a lengthy recession is one way to do this.

Selling leveraged positions in a downturn is usually an extremely costly decision because you’re selling at a magnified low. Leverage enhances price movements in both directions.

Step 6: Buy, Buy, Buy!

Once you’ve composed yourself, you need to try and see the crash as we do, which is as a major opportunity. Unless you’re about to retire or are really highly leveraged, a stock market crash is about the best thing that could happen to you.

A young investor who sees their £10,000 portfolio slashed to a £5,000 portfolio in the mother of all crashes should pop open the champagne – so long as they did their prep. £10k is also largely irrelevant in the grand scheme of things, as one day presumably you’ll be counting your portfolio in the hundreds of thousands, and the buying opportunity is more important.

A falling portfolio doesn’t matter if you’re not about to retire.

That’s stuff which you bought in the past, and as long as the investments were high quality and well diversified it should one day recover back to its pre-crash price and then some. What matters is what you do now, and with prices at irresistible lows, it’s time to go all-in and buy up as much of the world’s assets as you can while they’re on a fire sale.

You likely won’t ever get a better buying opportunity in your lifetime.

We drip-feed any spare cash into the market as it’s earned monthly, called pound-cost averaging. It’s the right thing to do since trying to time the market means cash lies around potentially for years making no returns – but pound-cost averaging means there’s unlikely to be any spare cash available for investing when a market crash comes along.

We know this isn’t everyone’s cup of tea, but we’ll be better prepared for the next crash now because we know a lot more about available sources of credit for investing – in other words, using leverage.

Any new leverage that you take out while prices are cheap is a potential opportunity to make some killer returns, as and when the markets recover. This is not an excuse to overstretch yourself – only use leverage if you understand the risk.

Step 7: Rebalance

If you invest in a range of asset classes like stocks, bonds, gold, property and so on, a significant crash in the stock market is a good time to rebalance your portfolio.

In a crash, bonds and gold are likely to have shot up in value, while your stocks and property will be valued very cheaply.

Let’s keep it simple and say your portfolio was made up of 70% stocks and 30% bonds before the crash. Market values may well have shifted such that your stocks now make up 40% of the value of your portfolio and bonds 60%.

In this case, it’s logical to sell half your bonds, and use the proceeds to buy stocks. You now have many more stocks to take advantage of the market climbing up again. The bonds have already done their job on the way down.

Step 8: Don’t Worry About Missing The Bottom

If you missed out on the bottom and have spare cash to drop into the market, don’t fall into the trap of thinking you’ve missed your chance, hoping for a double-dip that never comes.

It’s guaranteed that many of your mates down the pub will be doing just this.

They think it’s only worth investing at the very bottom, and since they missed their chance, they’re now waiting for it to happen again. But it probably won’t. Don’t worry about not getting the perfect price – a good price will more than do.

Don’t Be Like Everyone Else

The reason people lose money when the market crashes is that they panic and sell. If you’re investing in highly diversified index funds or similar, all you really need to do is hold your nerve and do nothing, and you won’t lose money long-term.

But we intend to do better than that and use crashes as springboards to bounce our portfolios to new heights, and to do that all we need are these 8 steps.

How are you preparing for the next crash, or are you just ploughing on regardless? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: TeodorLazarev/Shutterstock.com

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

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Why Stocks Soared While The World Burned | The Covid Bull Market

For a couple of years that have been so bad, it’s hard not to wonder why the stock market has been so good.

As lives were lost around the world, and millions of people were put on the unemployment list due to actions taken to tackle Covid-19, the global stock markets soared – none more so than the S&P 500, which for the last year has acted as though it is immune to bad news.

Everywhere, there is chaos.

  • On the streets, tensions about race are boiling over.
  • On the M25, selfish eco-protesters bring Greater London to a halt in an ever-escalating war on climate change.
  • Australians are beaten by police for leaving their homes and shot at with rubber bullets.
  • In the White House, Biden schemes to raise the corporation tax rates not just in the US, but on companies around the world in a G7 deal.
  • And lockdowns everywhere have inflicted irreparable damage to businesses.

Meanwhile, millions of investors continue to plough money into stocks because the charts keep moving higher and higher. The difference between the actions of the stock market and the reality of real life has rarely been starker than in 2020 and 2021.

Today we’re looking at the various reasons why the stock market continues to soar in bad times, and the lessons we can learn from some of the stocks with the most interesting stories to tell from the pandemic.

Alternatively Watch The YouTube Video > > >

The Bulletproof S&P 500

The market was rocked in March 2020, as stocks plunged for about a month, but then something strange happened.

Even as the media was losing its head over the covid-19 virus (and this has not changed 18 months later), and as America burned from street protests, and as millions of people were laid off and businesses shuttered due to government lockdown policies – the market just recovered and then boomed as though nothing had changed

An outgoing president seemingly refusing to accept the outcome of an election (supposedly the market’s nightmare scenario), and then the Capitol building being stormed in what the media reported as a “coup”, did not stop the S&P from soaring. At time of filming, it’s just below an all-time-high at around 4,500, well off the top of this chart

It’s a far cry from the start of the pandemic, when billionaire hedge fund manager Bill Ackman went on the airwaves to warn that “hell is coming”. Maybe it did for many – but not for him, nor for investors generally.

How can it be that food banks are overwhelmed and people can’t afford heating or even housing, while stocks are hitting all-time highs? Let’s now look at what can be learned from the bull market of the last 18 months.

Lesson 1: What Goes Down Doesn’t Always Bounce Back

Investors, like everyone else, were initially in denial about the realities of Covid-19 when it first began to take hold globally in early 2020. Indeed, in Jan and Feb 2020, the market continued to record all-time highs.

What we saw then was that while stocks often rise slowly, they also fall fast. Once the world caught on to what Covid-19 might bring as countries like Italy were ravaged, stock prices collapsed, wiping off 34% percent of the value of the S&P 500 from mid-February to mid-March.

We’re all familiar with the sudden rebound that then happened for most stocks, but some were not so lucky. Exxon Mobil is an example of a stock that fell, and stayed down.

While the stock market as a whole enjoyed a bull run in the second half of 2020, fossil-fuel energy companies floundered, after a brief hopeful recovery that I took full advantage of at the time, telling investors to Buy, Buy, Buy!

The woes of Exxon and the Oil & Gas industry teach us the importance of not holding faith in a commodity or industry just because it’s previously always done well.

A unique unforeseen event like a global lockdown can change everything. People didn’t need Oil & Gas when they were not travelling to work or going on holiday, but the resulting fall in share prices were perhaps short-sighted –  oil prices are slowly coming back, though they have not yet reached their pre-crash peak.

Lesson 2: Central Bankers Wield God-Like Power Over Stock Markets

At the start of the crash, no-one had any idea of what the future looked like, how deep the crash would be, or how long it would last for.

But extraordinary measures taken by America’s Federal Reserve and similar central banks in the UK and elsewhere reassured financial markets and investors that major corporations would not be allowed to fall apart.

Most analysts point to the actions of the Fed in the US as being the most important factor in restoring confidence during market turmoil, since America holds around 55% of the value of the world’s companies and many economies around the world are impacted by the success or failure of America.

In March 2020 they announced a series of big support packages, including saying they would buy both investment-grade and high-yield corporate bonds (basically, it would lend to businesses, whether they were risky or not). Stock prices immediately about-turned and started marching upwards.

In the words of Invesco’s chief global market strategist, “The Fed can be very, very powerful, almost omnipotent, when it comes to the stock market.” Some companies were able to capitalise on the soothing words of the Fed more than others.

Boeing stock didn’t recover at first, as questions still hung over the viability of its operations, but with the markets in a giddy ecstasy over the Fed’s interventions, Boeing was able raise $25bn of cash from the markets in a corporate bonds issue, allowing it to avoid the need for government help.

Boeing’s smashing success in getting itself out of a hole financially, and the resulting rise in its share price, was mirrored by a few other companies including Nike, who’s stock price gained 35% in a week following a $6bn bond issue. Its stock price has not stopped climbing since.

Stake, an app that specialises in trading US stocks, are giving away free stocks to new customers – including Nike stocks, which are currently trading at around $150 each. If you want to invest in US stocks and pick up a free share in one of Americas great companies, just follow the link here and fund your account within 24 hours.

Lesson 3: Some Bulls Run Faster Than Others

The S&P 500 bottomed out 33 days after the crash started, and since then has continued to climb, powering ahead of its pre-crash highs.

While growth was mostly strong across the board, some industries did much, much better than others. Technology companies – which make up a significant chunk of the value of the stock market – soared on the back of remote working and the need for better entertainment and communication tech in the home.

A representative stock of the tech boom is Apple. It’s responsible by itself for much of the growth of the S&P 500, since Apple makes up 6% of the value of the index and has itself grown by 156% since the bottom of the crash.

The point here is to be highly diversified, so you own the industries of the future, whichever they turn out to be. You can’t know before a major economic event what the specific circumstances behind it will be.

This time it was a virus, which killed oil and promoted tech. The next one could be a war that promotes defense stocks like Boeing, or a shortage of an essential raw material that promotes mining stocks. Or an event we can’t even imagine.

Lesson 4: ‘Temporary’ Keeps Being Redefined

Back in spring of 2020, the markets were confident that within a year, the pandemic would be over. Of course, it wasn’t.

But the general attitude remains that within months, life will be back to normal. People who believe the pandemic will be over within 12 months have been in a majority throughout the pandemic (which has in fact been ongoing for well over a year), other than a brief couple of months of pessimism prior to the vaccines being announced.

Even in June 2021, more than half the UK population believed everything will be back to normal within the next 12 months.

This optimism for a speedy return to normal has run throughout the pandemic.

American Airlines, representing the struggling aviation industry, fell and flatlined after early signs of recovery when it became obvious in early Summer 2020 that summer holidays would, after all, be cancelled.

But the vaccines, announced in November 2020, led to a steady climb of recovery, until Spring 2021, when the markets were faced with the cold hard reality of another summer without travel.

What the story of the airlines underlines is that stock prices swing on human emotion – when things looked hopeful prices rose, and when looked bleak they stagnated or fell.

No doubt if there are lockdowns in 2022 people would be hailing 2023 as the year when things get back to normal!

Lesson 5: 2021 Could Have Looked Very Different

The lucky timing of the vaccine announcements in late 2020 gave the stock market a booster shot of confidence that 2021 would be an incredible year of reopening and growth, with markets going into overdrive again from that point onwards.

The company responsible was Pfizer, the pharmaceutical giant that released the first covid vaccine. Interestingly, the news in November 2020 that Pfizer had come along to save the world only resulted in a temporary increase to its share price. It’s only now, in late 2021, that Pfizer’s share price is benefiting from its ongoing role in the pandemic.

Companies that provide the people with what they want tend to be rewarded with share price growth. And in a world where viruses may now cause more havoc, the desire to own big healthcare companies in your portfolio has surely grown.

Lesson 6: Where America Leads, The World Follows

It looks like the US is poised to emerge from the pandemic before much of the rest of the world, by spending its way to an economic recovery that many less affluent countries cannot afford. But opportunities remain for economic growth longer-term in the emerging markets, which right now are being ravaged by the pandemic.

Stocks like Nvidia, whose revenues come predominantly from emerging economies, may benefit from an economic recovery in those regions. The emerging markets have faltered in 2021 while the developed world led by the US has seen runaway growth.

With vaccines becoming more and more available, we think emerging markets will catch back up with the developed world, and companies with strong exposure to the emerging markets may stand to do rather well in the coming years.

Lesson 7: Where Else Could Investor Money Go, Anyway?

With interest rates, and hence bond yields, so low, investors don’t really have a more lucrative alternative asset class to put their money in. This is helping to keep the stock market buoyant.

As long as interest rates stay low, it’s stocks all the way!

It’s Hard To Think What, If Anything, Will Spook Investors

A big one could be when taxes are inevitably raised both in America and in the UK. Increasingly our governments are going after investors’ wealth. Biden in the US is keen to tax capital gains and corporate profits to the hilt, and Boris in the UK has recently increased dividend taxes, and said corporation taxes will increase to 25%.

Invesco comments again, that they “think on a short-term basis, we could see a sell-off if there is a risk [of a tax rise] that appears imminent, but we have to recognize that all current risks are being cushioned by this incredibly accommodating Fed. … It’s a powerful upward force on stocks that can counteract the downward forces.”

The Stock Market Is Not The World

The past 18 months have been a wild ride for both the economy and the stock market, but in different directions.

It’s clear that the stock market is not representative of the whole economy, much less society. The stock market represents one piece of the economy — long-term future corporate profits — and so long as there is confidence in those being high, the stock market will be too.

What’s your view on the rising markets, and will stocks continue soaring? Join the conversation in the comments below, and don’t forget to bag that free stock with Stake, worth up to $150!

Written by Ben

 

Featured image credit: Adirach Toumlamoon/Shutterstock.com

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

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Best S&P 500 ETF For UK Investors (And How To Choose Yourself)

Hey guys, in today’s post we’re going to help you pick the best S&P 500 ETF to invest in for UK investors. There are many different ETF providers (such as Vanguard, iShares, Invesco, plus many more) each offering multiple S&P 500 ETFs. With so much choice, how do you know which is best?

Should you be investing in accumulation or distributing ETFs? Which fund domicile should you pick? Why does this S&P 500 ETF have a vastly different price to another similarly named one? What’s the difference between physical and synthetic replication? Should you choose a hedged ETF or not? Where do you go to research ETFs?

We’re not just going to tell you what our favourite S&P 500 ETF is because what’s right for us might not be right for you. We’re going to answer all these questions and more to give you the knowledge to pick the right S&P 500 ETF for your portfolio. Let’s check it out…

Alternatively Watch The YouTube Video > > >

To invest in any ETF, you’re going to need an investment platform. If you head over to the Best Investment Platforms page, there we have hand-picked our favourite investing platforms and put together a comprehensive cost comparison table.

Also check out the Offers page to get free stocks worth up to £200 with investing apps like Freetrade and cash welcome bonuses of £50 when new customers sign up to investing platforms like InvestEngine.

Why You Need An S&P 500 ETF

The S&P 500 is the leading index of US companies, making up about 80% of the market cap of the US and about 47% of the world’s market cap. Or in other words the constituents of the index are vital to every investor’s portfolio.

The S&P 500’s popularity as an index also means that there is huge demand by investors, which has led to a price war amongst the companies producing index trackers. As a result, you can invest in an S&P 500 ETF for almost free of charge.

Which S&P 500 ETF Is Best?

Our favourite is the Invesco S&P 500 ETF (SPXP), because it has excellent performance, is enormous with £8bn in assets, and has a rock bottom fee of just 0.05%, tight spreads, is listed in London, trades in GBP, is accumulating – and is synthetic.

This is a very popular ETF, so it is likely that it’s available on most investment platforms. The one downside to this ETF though is the market price, with each share currently priced at around £600.

In these circumstances it can very handy if your investment platform offers fractional investing. InvestEngine is one such app and as mentioned they are currently giving new customers a £50 welcome bonus when you sign up via this link.

Where To Begin Your Research?

First things first, we pretty much start all our ETF research using the ETF screener at justetf.com. It’s a super powerful tool that’s free to use and allows you to filter down on different criteria to find ETFs you can then research further. In this case we’re looking for S&P 500 ETFs, so we can select that index from the dropdown. Bear in mind if you’re looking for a hedged version or an equal weight version these will be listed as a separate index.

There’s big list of ETFs available and actually there’s even more than what is initially shown in the ETF screener because each of these will have multiple listings with different listed currencies and on different exchanges. We exclusively stick to those on the London Stock Exchange and stick to those traded in GBP where we can.

Which Currency Should You Choose?

Each ETF can have several currencies associated with them. Many people are exposed to currency risk without realising it because of confusion when it comes to the currency labels applied to ETFs. Just because an S&P 500 ETF is listed in pounds does not mean you have avoided exchange rate risk between pounds and dollars. This is about to get complicated, but we’ll do our best to clear this up.

Fund currency or base currency refers to the currency that an ETF reports in and distributes income in, which for most S&P 500 ETFs will be in USD. Your investment platform will convert any income you receive into pounds but will likely charge you an exchange rate fee for doing so. More on this shortly.

IUSA listings

Then there is the Trading Currency. Looking at the IUSA ETF as an example, if we look at the Listings section, we can see a bunch of listings on different exchanges and the currency of each. For this particular ETF there are two listed on The London Stock Exchange – one in dollars and one in pounds.

Because your investment platform will likely charge you FX fees you want to go for the one in pounds to avoid that fee. The trading currency has no impact on the returns of the ETF once they have been converted back into pounds.

And finally, there are currency hedged ETFs. These are designed to eliminate (as much as possible) currency risk. Hedged ETFs will normally have the term ‘GBP Hedged’ in their names, but always check the product’s factsheet or webpage to make sure.

Personally, we don’t use hedged ETFs because we think over the long-term currency movements don’t really matter too much. Hedged ETFs are often a little more expensive than their unhedged counterparts but for S&P 500 hedged ETFs they are still excellently priced.

Fund Domicile

Where your ETF is domiciled is super important. Typically, ETFs are domiciled in Ireland or Luxembourg due to tax reasons. Where possible we almost always pick ETFs domiciled in Ireland because Ireland has a tax treaty with the US whereby the dividends paid by US companies are only taxed 15% rather than 30%. But pick a synthetic ETF and that tax comes down to 0%.

Replication Method: Physical vs Synthetic ETFs

Okay so that last point was probably very clear until we mentioned the word synthetic. The goal of each ETF is to replicate its index as closely and as cost-effectively as possible and there are a few different methods that an ETF can use to achieve this.

The first and most straightforward is physical full replication. These literally buy all the stocks in the index, and hence it’s fully replicated.

Another method is Physical Optimised Sampling. This is where an ETF only invests in some of the stocks in the index as they determine this is all it takes to replicate the performance. This might be done to lower costs. In most cases we’ve seen these ETFs will buy the majority of the stocks in the index and sometimes even all of them. They may miss some of the tiny ones that have almost zero impact on the index.

We’re not big fans of Optimised Sampling because you don’t really know what and why certain stocks are missing. Before investing in this type of ETF do check that the past returns are in line with the index by looking at the tracking difference. Any major difference or wild yearly swings should be a red flag. It’s also worth checking the number of holdings in the index by downloading the index factsheet (search google for this) and comparing it to the number of holdings in the ETF. The closer the better.

And finally, there is Synthetic or Swap based replication. The ETF doesn’t buy the exact stocks within the index, instead it owns a different basket of stocks or securities and swaps the return of this basket with an investment bank or banks for the return of the index.

The advantages of doing this is it can be cheaper, and it avoids certain dividend withholding taxes such as those collected by the US. So, in the case of an S&P 500 synthetic ETF, they have a performance enhancement over their physical counterparts.

Typically, the S&P 500 yields 2% and the tax is 15%, so the improvement is 30 basis points every year. That is in our opinion not to be sniffed at and is why this is our favourite method of replication whenever it enhances performance as in the case of US stocks.

However, not all synthetic ETFs are created equal, and they do carry more risk than a physically replicated ETF. If you don’t understand them, we suggest you avoid them. If you’re interested in learning about how synthetic ETFs reduce counterparty risk, here is some bedtime reading.

Distribution vs Accumulation

Either you choose an ETF that distributes the dividend to you or one that automatically reinvests the cash within the fund. With accumulation funds you don’t receive more shares but instead the value (and the share price) of the ETF increases.

If your intention is to reinvest the dividend into the same fund and you’re investing within an ISA, then it makes financial sense to opt for an accumulation fund. S&P 500 funds are very likely to have their fund currency in US dollars and so will distribute their dividends in dollars. Your platform will convert this to pounds and will likely charge you an FX Fee for the privilege.

Moreover, if you have to manually reinvest the income yourself, then you will have to pay the bid offer spread and possibly trading commissions. Long story short, accumulation funds will save you money.

Despite the small savings, if you’re investing outside of an ISA we suggest going with the distributing type because otherwise it can get very complicated for tax purposes. You could end up paying tax twice with accumulation funds. Dividends rolled up into accumulation units are known as a ‘notional distribution’. They are taxable in exactly the same way as income units.

As we invest in ETFs primarily through an ISA, the only time we’d want the dividend paid out is if we needed to live on that income.

UK Reporting Status

You want to make sure your ETF has UK Reporting Fund Status otherwise you will have to pay up to 45% tax on the gains. You can check this on the ETF factsheet and webpage. As we only ever invest in London listed ETFs, all the ETFs we have ever looked at have had UK reporting status but it’s worth double checking.

OCFs, Tracking Difference, And Spreads

ETFs should be very cheap because you’re not paying for an expert fund manager, and S&P 500 ETFs are especially cheap. A good place to start for the least amount of effort is to choose an ETF with a low Ongoing Charges Figure (OCF).

However, it’s important to note that the quoted fee is not necessarily what you pay. ETFs will not match the index return exactly and the difference is known as the tracking difference. The difference between the index return and the ETF return is the real cost that you incur.

That’s the theory. In practice, what we do to find the best performing ETF is to sort them by their 3-year performance on justetf.com. Towards the top happens to be our favourite, the Invesco S&P 500 ETF.

Another thing investors want to keep an eye out for is the size of the spread when you buy and sell. A big spread is bad. A general rule of thumb is that the larger the fund size, the lower the spread due to increased trading volume. Most of the S&P 500 ETFs have billions of dollars of assets under management, so this is probably not a major concern, but it’s definitely something you might want to check for any other ETF.

We check spreads using Hargreaves Lansdown’s website for free and you don’t need to be a customer. Bang in the ticker in the search box and scroll down to the Costs section. The indicative spread is listed here. For our favourite, it is tiny at just 0.03%.

Does The Price Of An ETF Matter?

This is a common question we get asked. The market price of an ETF is not important. What matters, is the percentage change in the ETF price. If the index goes up 10%, you want your ETF to also go up by 10%.

The price of an ETF will usually correspond to its Net Asset Value (NAV). The NAV equals the value of the ETF’s securities and other assets, minus its liabilities, divided by its number of shares.

There’s a great article on justetf.com that explains it very well, linked to here.

Finding The Best S&P 500 ETF For You

Now that you’re armed with the necessary knowledge you can use the ETF screener on justetf.com to find the best S&P 500 ETF for you.

The best S&P500 ETFs

Some of you may still feel you need your hand holding, so to finish off we’ve put together this table with our favourite S&P 500 ETFs for various circumstances. The tickers are all for the GBP versions listed in London.

If you’re new to investing and are not 100% sure what you’re doing, we think you won’t go far wrong with Vanguard and iShares. Most of their funds are huge, competitively priced, and are in most cases physically replicated, which many investors feel more comfortable with. The last 2 in the table are hedged ETFs.

What’s your favourite S&P 500 ETF and why? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Imagentle/Shutterstock.com

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

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Best ETF Portfolio: Now You Can Invest In The Ultimate Portfolio For Free

Back in late 2020 we designed a portfolio that we called The Ultimate Portfolio. As the name suggests it was a portfolio that would passively beat the global market and be easily managed. It was built for our purposes, but it was also put together in such a way that anybody could take it and adjust the allocations to fit their own view of how the world economy would develop.

The Ultimate Portfolio was built with simplicity in mind, but more than that – it was built to avoid nasty dividend withholding taxes as much as reasonably possible.

In this post we’re going to give a recap of what the Ultimate Portfolio is and look at how it has performed. We’re going to look at why you should be investing in this portfolio, the best platform to invest through, and lots more.

The response to the first video was so enthusiastic that we’ll also dedicate some time at the end of this post to answer many of the questions that we’ve received about the portfolio since the original video. Let’s check it out…

Alternatively Watch The YouTube Video > > >

What Is The Ultimate Portfolio?

For a full rundown be sure to watch the original video or read the article after this one, which we’ll link to in the description below. In that video/post we really deep dive into the portfolio and look at country and sector allocations, which we won’t repeat today. Let’s now jump into the portfolio to get an overview.

The portfolio in excel

The main part of the portfolio consists of 3 equity ETFs. The first and biggest holding is in the Invesco MSCI World ETF (MXWS) and we have it make up 64% of the equity allocation. This gives exposure to the large and mid-caps of the developed world, and is dominated by the US, which is of course the largest stock market in the world. This specific world tracker has some unique qualities, which makes it stand out from all other ETFs, which we’ll get to soon.

The next ETF is the iShares MSCI World Small Cap ETF (WLDS) which in our portfolio consists of 18% of the equity allocation, and the third ETF is the iShares Core MSCI Emerging Markets IMI ETF (EMIM). We have also allocated 18% of the equity to this fund, a slightly heavy weighting which is a play on China and India doing well over the coming decades.

We personally think that the portfolio benefits from some precious metals and think both the iShares Physical Gold ETC (SGLN) and iShares Physical Silver ETC (SSLN) are great, low-cost investments for achieving this. We now allocate 8% and 2% of the overall portfolio to these respectively.

In our own portfolios we also have small allocations to Peer-To-Peer Lending and some individual stocks, and I have a large percentage allocated to Buy-To-Let property, but the Ultimate Portfolio of ETFs is the core around which we’re now building our Freedom Funds.

We also used to have an allocation to Cash in our investment portfolios, extra to our emergency savings, but we’ve changed our minds about holding cash as an individual asset class. As Ray Dalio says, “cash is trash”.

Cash was originally in the portfolio to allow us to buy more stocks if there was a crash, but we now have better knowledge about using leverage, so prefer to go down this avenue if and when an opportunity arises.

The Best Investment Platform For This Portfolio

When we first announced this portfolio there was no way to invest in it with zero trading fees, but things have thankfully changed since then. InvestEngine, have since burst onto the scene and injected some much-needed competition, and better still they listen to their customers.

A few months back we reviewed InvestEngine and we collated a bunch of ETFs requests that you guys wanted to be included, and we’re thrilled to announce that InvestEngine have already made available many of these, including all the ETFs in our Ultimate Portfolio. Keep the requests coming guys!

With InvestEngine you can build a portfolio of fractional ETFs for FREE using their DIY service. That’s right, you can now invest in the Ultimate Portfolio with zero platform fees with InvestEngine. You just set the percentage allocation for each ETF, and you’re done! And rebalancing your portfolio is as simple as couple of clicks.

InvestEngine is the only free trading platform right now that is available to new customers that has all of the ETFs of the Ultimate Portfolio denominated in pounds sterling, making it the obvious choice for people wanting to follow our strategy.

If you want to give them a try, new users will receive a £50 welcome bonus if you use this link.

How Has The Ultimate Portfolio Performed?

Portfolio performance by ETF

Here is how each ETF has performed in each of the last 5 years and we’re really happy with those returns, with some massive profits coming from the developed world – both the large and the small caps.

The Emerging markets has disappointed this year so far and so has gold and silver, but remember this is a long-term strategy that is designed to capture growth wherever it happens in the world, and in the last year that growth was in the developed world. Precious metals’ poor performance was probably to be expected after an incredible 2020. In 2020 our gold ETF was up 20% and our silver ETF up 41%.

The beauty of a portfolio like this is that you don’t need to spend much time monitoring the portfolio and trying to second-guess the markets. So, we’re not going to analyse in any detail why the emerging markets has been doing poorly this year, but we know it’s driven by China.

According to the BBC, the slump comes after a series of crackdowns by Beijing on its technology and education industries.

Let’s now focus on the equity component of the portfolio and compare it to Vanguard’s FTSE All-World ETF (VWRL), which is a great benchmark for what an investor could get with zero effort.

Portfolio comparison to a benchmark World Tracker (VWRL)

The Ultimate Portfolio is neck and neck with the Vanguard ETF, with a slight underperformance in 2019, and 2021 ytd, but it performed better in 2020. The slight underperformance in 2019 and 2021 ytd is massively driven by the weak returns in the emerging markets. The largest position, the Invesco MSCI World ETF – which only holds developed world stocks despite the name – has beaten the Vanguard ETF for 4 consecutive years.

To be fair the allocation we have chosen is more forward looking, purposely weighted towards the Emerging Markets, but you don’t need to use the same percentage allocations as us. We think emerging markets and small cap stocks will do better over the long-term. If you don’t agree with us, no problem, simply adjust the allocation as you see fit.

Why This Portfolio?

There are so many great things about the portfolio: First, it’s super simple. There are just 3 equity ETFs and 2 further ETFs if you include gold and silver. This means it’s much easier to manage and keep track of, and if you’re not using a free trading app, then a small portfolio like this can save you a tonne in trading commissions. This simplicity also means you can easily change the allocation to whatever you want.

The portfolio does not mix and match index providers, with all 3 of the equity ETFs tracking MSCI indexes. This means we’re not crossing index providers and doubling up or omitting some stocks. This happens because each index provider categorises countries and market caps differently.

The Ultimate Portfolio is also super cheap (see table above). The OCF for the equity in our allocation is just 0.22% which coincidentally is the same as the Vanguard FTSE All-World ETF we looked at earlier. This OCF comes down a fair bit if you reduce the allocation to Small Caps, which the FTSE All-World ETF doesn’t have.

Better still, the Ultimate Portfolio has huge tax benefits that other portfolios don’t. The Invesco World ETF, which makes up the bulk of the portfolio, is synthetic. Synthetic ETFs avoid dividend withholding tax from a small number of countries such as the US. Index investors have been unforgiving when it comes to fees, and we think taxes should be treated with the same contempt.

The portfolio covers 99% of the market cap of the world and can be as passive as you like it to be. You can invest in this portfolio and forget about it and go and get on with your life while your money grows.

Or alternatively, you can use it as the core of your portfolio and bolt on any investments you want as satellites. Some people like government bonds, so could easily bolt on an ETF for this such as the iShares Global Government Bond ETF (SGLO), just like we have done with precious metals. If you want to add a thematic ETF, again, this is easily done! Likewise, if you think crypto is heading to the moon, then by all means invest in this also.

Alternatives If You Don’t Trust Synthetic ETFs

We think the distrust of synthetics is way overdone and stems from a lack of understanding. The synthetics we use do hold physical stocks, but swap the returns with investment banks for the returns of a specific index – in this case, the MSCI World index. At the end of the day, the ETF holds a basket of quality collateral. The Invesco ETF currently has Amazon, Intel, Google, Facebook, Berkshire, and so many more incredible stocks physically held behind the scenes.

Moreover, the SWAP counterparty risk is spread over multiple investment banks, which further reduces any risk. And finally, if you’re somebody who feels safety in numbers, then the Invesco ETF has you covered – the ETF has $3.2bn of assets under management.

If, however you still think there is excessive risk, then there are plenty of physical ETFs tracking the same index. One option is the HSBC MSCI World ETF (HMWO), which actually costs a little less at just 0.15%. Another is the iShares MSCI World ETF (SWDA) costing 0.20%.

Why We Pick Accumulation ETFs

Eagle eyed viewers may have noticed that the Ultimate Portfolio consists of accumulation ETFs, rather than distributing. This is done deliberately because we’re using an ISA and we will be reinvesting the income anyway. There is a slight cost advantage of using accumulation ETFs. If you have the income distributed and reinvest manually you have to pay the bid/offer spread each time.

If we weren’t using an ISA and were using a general account instead, we would probably go for distributing ETFs because it’s easier to differentiate between capital gains and income, which makes for less of a headache when calculating tax.

Your Questions Answered

Now we want to take some time to answer your questions about the portfolio from our previous video.

First question: “Is it worth setting up a portfolio like this if you already have a Vanguard portfolio and is it worth keeping both?” We personally would not be running too many portfolios. It’s pointless when they’re all doing similar things. All you’re doing is incurring more fees. It’s better for you to build the best portfolio you can and watch it like a hawk. I personally have this portfolio in my ISA and a different one in my SIPP.

The question is, “do we have alternative suggestions for the Invesco ETF because their investment platform doesn’t offer it.” They’re asking whether the Vanguard FTSE Developed World ETF will do.

We wouldn’t let the tail wag the dog. If you want to invest in this portfolio (or any for that matter) and your platform doesn’t offer the ETF or stock, then we would seriously consider changing platforms. Having said this, you shouldn’t pay over the odds to gain access to a specific investment. As we said earlier, we wouldn’t mix index providers because of the overlap or omission of stocks. FTSE is different to MSCI.

The question is, “do you feel this portfolio offers you enough exposure to the bond market and other commodities like agriculture, oil etc?” This portfolio has zero exposure to bonds and its only exposure to commodities (other than gold and silver) is through mining stocks that are part of the 3 equity ETFs. If you want exposure to something just bolt it on.

“For a beginner would you still recommend Vanguard and if so, what fun is best?” Top comedy award goes to the reply from Chris, advising the best fun is when you go to Disney Land.

Assuming the original question was a typo and really meant fund, we obviously think the funds in the Ultimate Portfolio are best. But having said this, we love Vanguard because they charge competitive prices across their entire fund range. If we were building an entirely Vanguard portfolio it would probably be 85% Vanguard FTSE Developed World (VHVG) and 15% Vanguard FTSE Emerging Markets (VFEG).

“What is the dividend yield of this portfolio?” As we’re in the building-wealth stage of our lives we focus on total return and not just the dividends. The Invesco ETF is synthetic and so there is no dividend, and the other ETFs are accumulation, so no yield for these either. In all cases, the dividend you would get is factored into the total return.

Jim says he “thinks the US exposure is a bit high”. We can totally see his point. The US market looks so expensive right now, but we think this is where the majority of the best companies in the world are, so want it to have enormous exposure to these. However, having said this, because we have slightly overweighted the Emerging Markets compared to a typical world index we’re not as heavy in the US as we might have been.

“Gold and Silver, if you can’t touch it you don’t own it. You can also hide physical from the tax man, even when you are dead.” Finished with a cheeky smile. Okay, so we don’t condone tax evasion but it’s a very good point regarding the precious metals. The argument is that paper gold and silver can easily be taken away from you by corrupt governments and other malevolent people.

The way we see it, because we’re investing relatively small sums into the gold and silver allocations of this portfolio, there is too much cost and hassle to own physical gold. Owning the physical might be something we consider when we’re genuinely rich. The paper metals in the portfolio are at least doing a job of protecting us somewhat against economic downturns.

What do you think of the Ultimate Portfolio? Join the conversation in the comments below.

Written by Andy

 

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