Ever since launching this blog quite a few old friends have got in touch to ask for advice. You’d think they’d want to know about table tennis, coffee, gambling, or anything really that I claim to be a bit of an expert at. But nope, the most common thing I get asked is for my opinion on how someone should invest their savings. I’m not sure why they think I’m the best person to ask, but hay-ho. I can’t tell you what to do (I don’t think I’m legally allowed), but I can tell you what I do.
The stock market, and investing in general is really complicated. Noone really knows exactly what is going on and the banks seem to thrive off making it as difficult to understand as possible. After all, if it was easy we wouldn’t need to hire them to do our investing for us… All this confusion added to a big dollop of scepticism about the financial system in general means that the average person isn’t going anywhere near the stock market. They seem to think it’s safer to keep their money in cash or to invest in bricks and mortar.
When I started investing I didn’t have a clue what was going on. What is a pension? What are stocks and shares? What is so special about the age 65? What happens if you don’t have a pension?
After getting bogged down and I realised I didn’t really care about the answers to these questions, I just wanted easy steps I could follow which would get me the best possible return and mean I’d be financially safe for life. Unfortunately I couldn’t find anything, so I created my own.
Here is my entire investment process in just one sentence:
I opened a Stocks & Shares ISA account at Halifax Sharedealing and set up regular automatic investment into the Vanguard LifeStrategy 80% Equity Acc fund, investing the same amount each month calculated to max out my yearly ISA allowance.
And that’s it. One fund, one website, no hassle. I know that from when I started investing it will take a maximum of 26 years before my little ISA is earning more money than I spend. Much sooner if I ever decide to move out of this stupidly expensive city.
Why Halifax Sharedealing? It is currently the cheapest broker around. Regardless of the size of your ISA it costs £12.5 a year plus £2 per regular trade.
Why regular monthly investment? Known as dollar cost averaging, it means I have little risk from the monthly movements of the stock market. If the stock market is cheap I buy. If it is expensive I still buy. Plus if I know money is coming out of my bank account each month, I can’t spend it.
Why an ISA? Any money made tax free! And, unlike a pension, if I decide to retire at 45 I am allowed to take money out without getting taxed.
Why Vanguard Life Strategy Fund? It is a low cost wrapper of the low cost index trackers I want to own. It allows me to own a bit of almost every major company in the world. Whenever you hear about a company making lots of money, a portion of that is coming to me. Ka-ching.
Why 80% Equity? Basically the higher proportion of equities, the more I should make in the long term, but the more short term volatility there will be. Because I am planning on investing for at least 26 years I don’t mind volatility.
Why an accumulator fund? Because compound interest is where most of the gain is from.
Why does it take 26 years to hit retirement? Because £30k a year is more than enough for me to live on. So £15k a year invested is a savings rate of about 33%. Meaning 26 years to financial independence.
DISCLAIMER: Stocks & Shares aren’t the only way I invest, but they are the most catatonically simple and I suspect will prove to be the most profitable in the long term. I also invest in property, peer-to-peer lending and in the companies I start.