Wednesday, 18 July 2018

Brexit Fudge

In my previous post on this subject a month back I said "I really believe that neither side will be served by an final outcome which is half in, half out...that would be the worst outcome for the UK". The white paper which was agreed at the recent gathering at Chequers offers exactly that - it is a complete cop out and fudge.

From the very start of her time as PM, Mrs May has said Brexit means Brexit. On the day she became PM in July 2016 she stood outside 10 Downing St and said :

"There must be no attempts to remain inside the EU, no attempts to rejoin it by the back door and no second referendum. The country voted to leave the EU and, as Prime Minister, I will make sure that we leave the EU".

At the time, I took those words at face value but I am now wondering how sincere she was then or has she changed her mind and bottled out of pushing through some tough policy decisions? I honestly do not understand how she gets from that statement to what is laid out in the white paper.

In the crunch meeting of the cabinet at Chequers in early July, the PM presented her white paper which set out her detailed position on Brexit which prompted the resignation of Brexit Secretary David Davis, Brexit Minister Steve Baker and Foreign Secretary Boris Johnson. It seems clear from the statement of Baker that for several months there has been a secret 'establishment elite' set up by the cabinet office working on a parallel plan to deliver a much softer Brexit to the plan the Brexit Secretary and DExEU had been working on. He calls it EEA-lite.

It feels to me there are some very powerful interests who have decided they want an outcome of 'business as usual' whilst at the same time giving the appearance of delivering on the Brexit vote. I imagine the Chancellor and some senior civil servants such as Heywood, Robbins and other senior mandarins have been shaping the direction of travel for some time. I have heard it referred to as the 'Hotel California' option where you can check out any time you like but never leave.

This is a plot which would not seem out of place in the 'House of Cards' political drama. I am wondering who is really controlling our PM behind the scenes. Everything is certainly not how it looks on the surface...maybe that is how real politics works, tell everybody one thing whilst secretly planning to do the opposite.

Proposals on Trade

The PM repeats her mantra that we are leaving the customs union and the single market... if she says it enough times it will be true.

The phased introduction of a new Facilitated Customs Arrangement that would remove the need for customs checks and controls between the UK and the EU as if in a combined customs territory, while enabling the UK to control tariffs for its own trade with the rest of the world and ensure businesses pay the right tariff...

This is effectively a plan to remain in the single market for goods but not services which account for 80% of our economy. Mrs May can sell this on the basis of free-flow of goods and no hard border in NI whist seemingly retaining the freedom to negotiate trade deals with other non-EU countries such as the USA. Note the word 'phased'...this is a fudge and designed to get the government past the next election in 2022

A common rulebook for goods including agri-food, covering only those rules necessary to provide for frictionless trade at the border – meaning that the UK would make an upfront choice to commit by treaty to ongoing harmonisation with the relevant EU rules, with all those rules legislated for by Parliament or the devolved legislatures.

This is not a common rule book, it is the EU rule book and any trade deal we want with other countries would have to comply and this ties us indefinitely to the EU and would compromise our ability to strike our independent deals with some of the largest economies - the likes of India, China and US who would likely negotiate deals directly with the EU rather than the UK.

Mrs May has now set out her Brexit stall which, even before it is watered down during further negotiations with the EU, will satisfy neither remainers or leavers. It will be BRINO - Brexit in name only and we will be neither fully in or fully out. What an absolute shambles we seem to have made for ourselves.

In the referendum the question was very simple - do you want to leave the EU or remain in the EU? The outcome was leave but this is now being reinterpreted as leave means half-in and half-out. If that had been a third option on the ballot paper I wonder how many people would have voted for it.

Her judgment is not the best. She called a general election in 2017 which badly backfired and resulted in her party losing their majority. She offered to stay on as PM as long as they wanted her.
She is now gambling again. Maybe she has an addiction problem and needs some help.

The Options

I am really not at all sure where things will go from here.

Parliament breaks up for the holidays next week which will provide some time for all sides to reflect. We voted to leave the EU, Article 50 was triggered last March and most of the MPs accept we will leave but cannot agree on what formula this will take. 

If a Chequers-based deal can be agreed by the end of this year, then this would need to be approved by Parliament. The SNP and Labour would not be in favour and there will likely be a large number of ERG MPs against so I cannot see it getting approval. If rejected then the PM would have to resign and call a general election.

I believe the EU are unlikely to agree the Chequers proposals unless drastically watered down in which case we could move to no deal and leave on WTO rules. After all, our PM has always said no deal is better than a bad deal. This is how we operate with countries outside of the EU and it is the basis for trade between the EU and USA. Of course, it would not preclude a trade deal with the EU at a later date when the economic benefits to both sides became clearer.

However a no deal situation would likewise need the approval of Parliament and may also be rejected with the same result.

There are some calling for a second referendum. In my humble opinion this is a non-starter. This needs to be authorised by Parliament which is very unlikely and, whilst there was overwhelming support for the first, there would be little support for a second. Also, what would be the question asked in a second referendum..surely not the same as the first? A second referendum would not resolve this issue...what then, a third referendum?

This is unravelling at a rate of knots, the government are losing credibility and if something is not done quickly we will face the prospect of a national emergency. It's anyone's guess how this will end up but I honestly cannot see a good outcome from where we are now. 

Maybe time to stockpile some tinned food and get hold of a generator.

As they say, interesting times!

Monday, 9 July 2018

My Strategy is Evolving

As it is over 3 years since I last reviewed my investing strategy, I thought maybe time for an update on where I am going with it.

Looking back to early 2013 when I started this blog, it is clear there has been quite a significant move. Back then I was focussed on a portfolio of individual higher yielding UK shares combined with a ‘basket’ of investment trusts to generate the natural income I required in retirement.

Fast forward to 2018 and the individual shares are all sold along with some of the investment trusts in both ISA and SIPP drawdown. They are replaced by a large portion of Vanguard index funds and a few more diversified ITs such as Scottish Mortgage, Mid Wynd, TR Property, HICL Infrastucture and Capital Gearing.

My circumstances have changed this year as I now receive my state pension. It will be £8,450 for the coming year and this is around £2,000 per year more than I had been expecting when I last reviewed my strategy in 2015 which has come as a pleasant surprise. It means I have less need for income from my investments - ISA and SIPP. This means I need to reassess my plans and make a few changes to my portfolio to reflect the new situation.

The Next Phase

My focus over the past 10 years has involved funding my decision to take early retirement from age 55 yrs. Therefore the plan had been to generate income from my investments to bridge the gap to state pension...and now that part of the journey is mission accomplished!

There now needs to be a plan for the next decade and beyond which takes account of my changed situation.

I follow a fairly simple lifestyle - it seems to me the easiest way to grow wealthier is learning to live with less, because living with less has a higher success rate than attempting to make a fortune, and fortunes tend to push aspirations and desires higher anyway. I am lucky in that I seem to always have had an ability to live within my means so, whilst my lifestyle remains modest - some would say frugal - this is more by design and choice. I accept most people would happily spend the additional money on more holidays, clothes, new car maybe and a host of other delights. However for someone who likes a simple life, spending money on these things would be a bit pointless. Plato said "The greatest wealth is to live content with little".

One book that had a big impact for me in the 1970s was Erich Fromm 'To Have or To Be' which I suspect is as relevant today as it was 40 years ago. I probably did not realise at the time but it no doubt shaped the way I look at life.

As generating income is no longer required, I am now free to consider more options. My basic income needs are now secure with the start of the state pension which will rise year on year to keep pace with inflation. The capital which has been used in my SIPP and ISA to generate the income needed to live on over the past 10 years is now released for other uses. I could think about a better house in a more expensive final move maybe... and also consider a combination of capital preservation and a return to some options for growth. Some themes I have in mind would be technology, biotech, new wave energy and AI/robotics.

Where I am up to now?

Now in my mid 60s, I am hoping for another 20 years if I am lucky. Well, the first thing to say is I accept there are no perfect strategies - what works for one investor possibly will not work out for another. Also, each person will be at a slightly different stage, different goals, varying timeframe etc. The can therefore be no 'one-size-fits-all'.

That said, obviously some strategies have more chance of a good outcome compared to others.

I am hoping equities will continue to provide a better return than bonds so I will continue to tilt in their favour for a while longer. The UK income trusts have done the job required but global diversity is a better option. The resignations of the Brexit secretary followed by the Foreign Secretary today has thrown the whole process into turmoil and I suspect this will put further pressures on sterling for some time.

I was fascinated by the research highlighted in a recent post which suggested the higher returns from equities were generated by just a handful of individual stocks. Therefore to have a chance of generating this outperformance over bonds, I need a global index fund which should include the 1 in 20 companies which deliver or hold an actively managed fund which has a good chance of identifying and holding some of these big performers in its portfolio.

I will therefore continue working towards a core of global low cost multi-asset such as my Lifestrategy, HSBC Global Strategy etc. which will increase to around 60% of my portfolio (currently 40%) and then several satellite holdings of actively managed globally diverse funds such as Scottish Mortgage and Mid Wynd which can hopefully add a little extra return.
(click to enlarge)

My UK equity income trusts and other income holdings are no longer needed so I will be looking to replace them at some point. My managed investment trusts have provided mixed returns in recent years. Some have done very well - Nick Train’s Finsbury Growth & Income and smaller company specialist Aberforth for example, others are more 'steady Eddies' such as City of London - whilst others have struggled - for example Edinburgh which has now been sold.

All the evidence suggests that most actively managed funds do not consistently beat the market over time - but some do! For example Finsbury, Aberforth, Polar Capital Technology and Scottish Mortgage have outstanding records over the past decade despite taking a huge 50% hit to their share prices in the market turmoil of late 2008.

I know I can never achieve a perfect portfolio - I am continuing to believe in the concept of ‘good enough’.

Feel free to share any thoughts with others in the comments section below - how is your strategy evolving?

Monday, 2 July 2018

Baillie Gifford Managed - Portfolio Purchase

Following on from my purchase of Polar Capital Tech last week, I have now decided to add this global multi-asset one-stop managed fund to the mix.

This £3.4bn fund invests in a mix of global shares, bonds and cash..but not property. It is listed in the 40% to 85% for the Mixed Investment 40-85% Shares Sector. It tends to hold 70 to 80% allocation to shares and a bias towards growth-focused companies. 

Overall, long-term performance has been good and return over the past 5 years has been 70.8% compared to 43.0% average for the sector. However I would expect the fund with 70 to 80% equities to perform better than the ones with 40 to 50% equities over the past few years.

The fund has ongoing charges of 0.43% and a current turnover of ~15% p.a. which reflects the managers commitment to long term buy/hold. 

I appreciate the focus on patience at Baillie Gifford which means the managers will make their assessment on portfolio holdings over a long period, maybe up to 10 years. This helps to remove the pressure to react to market volatility and peer pressure on performance.


This is a global fund with a wide geographic mix of mainly equities. The main breakdown is UK 20%, USA 20%, Europe 17%, Asia Pacific 12% and Emerging Markets 7%. The rest is made up of global bonds which are a mix of government and corporate as well as around 6% in cash. This is a managed fund so the geographic mix as well as the balance between equities/bonds will fluctuate.

Some of the larger equity holdings include Amazon 2.2%, Netflix 1.1%, Facebook 0.9%, Prudential 0.9%, Nestle 0.8%, Diageo 0.7%. In addition to stand-alone equities, the fund holds several of its own funds such as BG British Smaller Companies, BG Japanese Smaller Companies and BG Emerging Markets Growth fund.

7 Yrs Comparison v VLS 80
(click to enlarge)

This fund would certainly do a similar job to the likes of Vanguard Lifestrategy 80 or HSBC Global Strategy Dynamic as a global multi-asset stand alone option for those who are happy to keep things very simple. This fund will therefore become a part of my multi-asset core portfolio alongside Lifestrategy and HSBC Global Strategy.

My initial purchase price is £10.62. I will see how things develop and compare to my Vanguard funds but may well be looking to build a larger stake in this fund over time. At the present however, I would prefer sterling to be a little higher so will reassess when the £ is back above £1.40 (currently $1.32).

My asset allocation has shifted as a result of recent sales/additions and is probably best depicted by a pie chart which I will update from time to time on my 'portfolio' page.
July 2018  (click to enlarge)

Feel free to comment below if you have any thoughts on the BG Managed fund.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Wednesday, 27 June 2018

Polar Capital Technology - Portfolio Purchase

My need for income generation is now much reduced following the start of my state pension and therefore I will begin to tilt my strategy more towards growth.

In January 2017, I added Scottish Mortgage to my SIPP and have recently topped up the holding. Earlier this year I added Mid Wynd to my ISA and this week I have added a third tech-focussed trust Polar Capital Technology.

Launched in 1996, the trust has grown rapidly and now has assets under management of over £1.7bn. It is a global trust however 70% of the holdings are listed in the US. The trust is managed by a team and led by Ben Rogoff since 2006.

The trust has 107 holdings (currently) and the top 15 account for 50% of the portfolio and include Microsoft, Alphabet (Google), Apple, Facebook, Tencent, Amazon and Intel. These tech companies are fundamentally transforming the way we live our lives in a similar way to the impact of the industrial revolution.

The combined market cap. of the so-called FAANG stocks - Facebook, Apple, Amazon, Netflix and Google - now exceeds the total annual GDP of the UK. I believe the long term growth prospects for this sector offer investors significant rewards. Yes, these tech stocks have done well since the market turmoil of 2008/09 and there is likely to be some volatility but I see no reason why the sectors ability to disrupt and grow should not continue.

3 Yr Comparison v Scottish Mortgage
(click to enlarge)

Over the last five years the trust has delivered a total return of 201% compared with 162% for the DJ World Technology Index.

Here's a link to the latest monthly factsheet (pdf). The trust is due to report full year results in July.

For me, these three holdings which includes SMT and Mid Wynd will account for around 15% of my portfolio (SIPP/ISA). Some investors will avoid technology investments as they are perceived to be higher risk global equity options but maybe in the long run it is higher risk not to hold the sort of companies which are shaping the future. Of course these holdings will mostly be covered in a low cost global index fund and the likes of Vanguard Lifestrategy will continue to be my core holding and my tech trusts forming part of a wider, diverse portfolio.

My initial purchase price is at £12.50 which represents a 2% discount to NAV and as with SMT, I will look to top up during periods of share price weakness down the line.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Saturday, 23 June 2018

Brexit Vote Revisited

One of the benefits of having my own blog is the opportunity to have a say on anything I like.  Of course most of the articles I write are on investments and personal finance related matters. A couple of years back I wanted to put down some of my thoughts on the Brexit debate and outcome. At times it seems like the country has spoken of little else since then and now at the second anniversary there will be more media debate and analysis so apologies in advance and if this subject is a real turn-off ...feel free to skip.

So, June 24th 2016 and I was very surprised at the outcome given all the dire warnings of immediate economic armageddon if we voted to leave from just about every establishment figure from George Osbourne (who?), Mark Carney, Christine Lagarde from the MFI, Barak Obama and a host of so called experts and economists.  Indeed we were told there would need to be an emergency budget the day after if we voted 'Leave'.

Here is my last post which summed up my thoughts on the matter shortly after the referendum.

The Treasury estimated that up to 820,000 jobs would disappear within two years of a vote to leave. Two years on and the reality is that more Brits are in work than at any time since records began. There are now over 1.5 million more jobs created since the referendum...currently ~32 million.

The Democratic Process

In years past, one way to resolve an issue would be an armed battle between two sides. I think we have moved on a little since then and most sensible people would agree that this method is a bit crude and unsophisticated and maybe the better solution is to debate the issues and then have a vote. Of course, the vote must be free and fair and everyone affected should take part. This is democracy and it only works if both sides agree beforehand to accept the outcome...if one side does not accept the outcome then we may well return to the old ways of doing things.

We have a general election every five years. There are some close results, sometimes within just one or two votes either way and there could be several recounts but it is traditional that one person is elected and the losers accept the decision of the voters. They can redouble their efforts next time round.

So, there was a debate in Parliament in June 2015 on whether to hold a referendum and after all the debates, the MPs overwhelmingly voted by 544 to 53 to hold a referendum on whether we should leave or remain in the EU. This was also supported by the House of Lords. It would be decided by a simple majority of 50% +1. There would be a simple question - "Should the UK remain a member of the EU or leave the EU?". Everyone aged 18 or over could vote.

The government sent out a leaflet before the referendum advocating a vote for 'Remain' with a promise that it would implement the decision of the electorate.

What is more, everyone's vote counted unlike a general election when voting is on a constituency level and many votes are 'wasted'. In the referendum, every vote for and against in every part of the UK counted and when every vote had been counted the final figure was 'Remain' 16.1 million (48.1%) and for 'Leave' 17.4 million (51.9%). The turnout on the 23rd June was very high at over 72%. If the majority of 1.3 million people were to stand finger tip to finger tip, the line would stretch from the UK to the football World Cup in Russia. Here's the BBC results breakdown

The Aftermath

Like most people in the country, I was surprised by the outcome. I voted to leave but really did not expect the majority would vote to leave. I thought it may be close but I was of the opinion that it would be 55% remain similar to the referendum in Scotland in 2014.

I would have been disappointed but I would have accepted the outcome like a good democrat and moved on.

A year later and we had another general election which placed Brexit firmly at the top of the agenda. There was not much difference between Labour and Conservative.

"As we leave the EU, we will no longer be members of the single market or customs union" Conservative Manifesto 2017

Immediately after the election, John McDonnell said “I think people will interpret membership of the single market as not respecting that referendum.” This was consistent with Labour’s manifesto, which promised to retain the “benefits or the single market and the customs union” without being a member of either.

The Liberal Democrats offered an alternative to the main parties with their pledge of a second EU referendum on the Brexit deal.

The Tories increased their share of the vote to 42.4% but lost 13 seats and their majority, Labour narrowed the gap increasing their share to 40% and gained 30 seats and Lib Dems managed just 7.4% of the vote and a gain of 4 seats. The big losers were the SNP who lost 21 seats and UKIP who lost their only MP and managed just 1.8% of the vote compared to 13% in 2015.

Of course there has been much analysis and discussion post the referendum. I have seen articles which suggested 'leave' voters were too stupid to realise what they were voting for. I think what has caused most disappointment/sadness on a personal level is the refusal on the part of a hardcore of remain voters to accept the outcome. I can understand their disappointment and maybe shock/disbelief but surely the very essence of out democracy is that we accept the decision of the majority.

For sure those 33 million people who cast a vote cannot possibly have understood all the implications of the vote. For me, I guess mostly it was a 'gut feel' like so many other decisions in life which defy precise logical analysis. Yes I read the papers and listened to the TV debated in the lead up. I discussed with friends and relatives and researched online but at some point, maybe a month or so beforehand, I had more or less made my decision. I will not know until maybe 10 years after we have left (if we actually leave) whether it was a good decision or completely bonkers. If I had to vote again tomorrow, it would be exactly the same.

I am very much of the same opinion as MSE's Martin Lewis who made the point "The principle of our democratic process far outweighs any benefits from remaining in the EU" (Question Time 3/5/18)

There have been challenges in the courts, calls for the referendum to be run again, objections from the SNP who think the result should not apply to them because Scotland voted remain - even though a year earlier they lost their own referendum as Scotland voted to remain as a part of the UK.

There have been anti Brexit rallies in London, Oxford, Bristol and elsewhere and now we have a campaign from the usual suspects...Chuka Umunna, Anna Soubury, Lord Adonis, the Lib Dems/Greens for a 'people's vote' on the final deal organised by remainers whose motives I mistrust as I believe they really don't accept the decision of 2016 and don't want our elected MPs in Parliament (all elected after the referendum) to have the final say on whatever deal is agreed with the EU after 2 years of intense negotiations.

It is not surprising these anti-Brexit rallies are in London and university town as the clever people tended to vote remain. I noted at the time that 29 out of 30 areas with the most graduates voted 'Remain' whilst 28 out of 30 areas with the fewest graduates voted 'Leave'. I have seen figures which suggest as many as 80% of under 40s with a degree voted remain. However, when it comes to democracy, everyone's vote carries equal weight. Having a degree does not mean their vote is worth more and believing you know more than others does not confer a right to override the decision of the majority. 

The fact these people are persisting in their efforts to undermine the referendum reflects their misplaced sense of superiority and demonstrates how out of touch they are with ordinary people. Whilst purporting to promote liberal values, social mobility and inclusion these clever people hold in contempt the poorer working-class people from the North who despite all the warnings of dire consequences voted leave and refused to bow down to the so-called experts.

For me, a referendum on the final deal is a non-starter. It would undermine the 2016 referendum. If the Brexit vote was about anything, it was about sovereignty and returning power from the EU to our Parliament. Therefore it should be our elected MPs in the Commons who have the last word on the final deal when the negotiations are concluded.

I can accept that these people are not happy with the decision to leave. I can accept they genuinely believe that leaving the EU will be a disaster for our economy and jobs but it seems to me that just as I cannot possibly know how things will turn out after we leave, neither can the may not be so good but also it may work out better than they fear. The most legitimate course in my humble opinion, would be to wait a reasonable time after we actually leave to see how things settle down and how our economy performs and if not happy after say 5 years, THEN start a campaign to rejoin the EU.

Of course, no one can predict the longer term consequences of leaving but so far it has been business as usual but then again we have not yet left. Of course there is no shortage of clever people who 'know' this will be a huge mistake and want to save us from a dire future. They are driven by fear of the unknown and prejudice which is understandable as they probably have more to lose than some other less educated people however for all their further education, in reality, they have no more insight into how things will turn out than the rest of us.

In..Out..Shake It All About..

I really believe that neither side will be served by an final outcome which is half in, half out...that would be the worst outcome for the UK. Many want us to remain as part of a customs union but that would mean we could not independently strike our own trade deals with other countries and therefore severely compromise our freedom as a sovereign country which I think was at the heart of what those voting for leave actually wanted. We therefore need to find a solution which results in independence and the UK becoming free to make our way and, of course, free to make mistakes just as it was before 1974.

At the end of the day, I believe the real division is not between those who voted one way or the other. I believe it is between those who respect democracy and those who persistently refuse to accept the outcome and are doing anything they can to delay, reverse, obstruct and generally undermine. This is not good for our country and for those involved in the negotiations with the EU. It is negative and I strongly believe with just 9 months to go, we need more people to look at the positives which could come out of all this if we approach things with confidence and optimism.

If the final outcome is a UK which is little different from how things were as members of the EU then we will all end up the poorer. Brexit must happen, democracy demands that the wishes of the 17.4 million people is respected...I do not like to think about the consequences if the relatively small but influential group of clever people get their way and we do not get what we voted for.

So, where are you with all this? Did you vote leave or remain? Did you know what you were voting for? Do you accept the outcome or are you not yet reconciled to leave? Have your say in the comments below...we still have freedom of speech, it's a democracy!

Tuesday, 19 June 2018

SIPP Drawdown - Year 6 Update

It's June, another 12 months have rolled by and time to review my SIPP drawdown portfolio at the end of its sixth anniversary. Here’s a link to the previous update of June 2017.

The original plan when I started drawdown in 2012 was to generate a rising natural income from which I would withdraw 4% income which I calculated should be sustainable over the longer term without depleting the capital. Three years later the plan was revised following the unexpected introduction of pension freedoms in April 2015.

I have also changed tack on how the income is generated. In the early years the plan was to focus on investment trusts and my Coventry BS PIBS which could generate a natural income of at least 4%. In the past couple of years my PIBS have been redeemed as expected and I have moved the portfolio to incorporate lower cost, globally diverse index funds and a focus more on total return. Therefore the Vanguard Lifestrategy funds have replaced some of my investment trusts.

Portfolio Changes

Over the past 12 months I have used most of the surplus cash to make some additions to my portfolio. Last year I added TR Property which I also hold in my ISA. More recently I added HSBC Global Strategy Balanced which is very similar to my VLS funds and, looking towards capital preservation, I have added Capital Gearing.  Finally, I have topped up my Scottish Mortgage holding by taking advantage of a dip in the share price earlier this year. Although this global growth trust represents a modest percentage of my portfolio it has made quite a significant contribution to the value over the past 18 months with a share price rise of 60%.

I will be reviewing my strategy as the state pension has now kicked in but it is possible I will dispose of my Edinburgh IT in the coming year due to poor performance over the past couple of years. I may also dispose of the iShares Corporate Bond ETF as this area is adequately covered by my VLS & HSBC funds.

I will review also whether I still need to hold a cash buffer of around £4,000 or 10% of Lifestrategy value which could be drawn for 'income' during bear market periods. If I can get by on just the state pension if necessary then I am thinking the cash buffer is surplus to requirements. On the other hand, it is always useful to hold some cash in the mix to take advantage of opportunities which will arise during the next downturn and pick up a couple of bargains.


There has been a little more volatility in the markets over the past few months and I expect there will be more to come until the outcome of Brexit negotiations becomes clearer. We are currently looking at the imposition of tariffs by the US and a possible trade war involving China, Canada, Mexico and the EU. The whole of 2017 was fairly plain sailing but there are always events to spook the markets and volatility has to be accepted as a part of investing.

So far this year the markets appear to brush aside the political uncertainty <cue market correction>. There was a brief dip in the FTSE below 7,000 in March followed by a quick rebound. Over the 12 months, the FTSE 100 has seen a modest increase of 1.4% from 7,524 to currently 7,631...just over 5% including dividends. My SIPP portfolio is now more fully invested compared to June 2017 and whilst there has been some drag from holding cash, it is pleasing to see a modest gain of 5.3% over the year. Over the longer period, the starting value in June 2012 was £62,000 and taking account of monies withdrawn, the portfolio has risen above £100,000.

Returns have been mixed over the past year. Edinburgh -6% and HICL -10% have been the main underperformers. On the positive side are Scottish Mortgage +33% and Aberforth +13% and new addition TR Property +17%. My core holdings of Lifestrategy 60 & 40 have provided stability and an increase of £1,125 or 3.9% compared to 2017.

Here is the portfolio
(click to enlarge)


In June 2012 when I started this series on my drawdown journey, the FTSE 100 was 5,500 and has risen to 7,631 - a gain of 38.7%. If we add in average dividends of say 3.7%, this gives a rough total return of 61%

In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £181 - a gain of 72.3% or annualised average of 9.0% p.a.

Taking account of the income withdrawn over the past 6 years of £19,400, the total return including income is 77% which is very satisfactory and works out at an average annualised return of 10.0% p.a.


The original aim of the sipp drawdown was to generate and withdraw a steadily rising natural income from my investments trusts to keep pace with inflation.

Under the 
pension freedom changes which took effect from April 2015, I am now able to drawdown as much or as little as required. As my pension was my main source of taxable income, it made sense to reduce the pot by transferring the capital tax free to my ISA on the basis that it would be taxed when my state pension started. Over the past three years I have taken out £32,000 tax free. Some of this has been needed for income (£10,350) and the rest has been invested in my ISA to generate more tax-free returns.

I realise I have not recorded drawdown income taken from the portfolio so will factor this into future reports. The first full year was a modest £2,800 after year 1 and this has gradually risen to £3,600 which is a 28% uplift over the 6 years.

(click to enlarge)
Many of the income trusts have been sold and my PIBS redeemed so there is now less natural income. Over the past year this income reduced from £2,075 to just £1,395. This has been withdrawn plus a further £2,205 from the cash surplus making a total of £3,600 for this past year - a small increase on the previous year.

State Pension

I have relied upon income from my SIPP to supplement my ISA income and bridge the 10 year gap between early retirement at age 55 yrs and state pension. This part of the journey is now 'mission accomplished' whoo hoo!

My state pension has just  commenced and I will therefore be less reliant on the income from my SIPP for essential living costs and it will become more for discretionary spending or more likely remain invested. Unlike an annuity which, once purchased means the capital lump sum is lost forever, any residue in my SIPP will pass on to my children and free if I go before 75 yrs and thereafter possibly 20% or tax free depending on circumstances. For those interested here's a link on the AJ Bell site.

I will receive a state pension of £8,450 over the coming year and as this is taxable, it will limit the tax free sums I can take from my SIPP to around £3,400. Any pension money withdrawn above this amount will be taxed at 20%. I have now plugged the additional income including cost of living increases into my s/sheet for the next 10 years...a total of around £100,000 which will be very welcome indeed.

I retired from paid employment at the age of 55 yrs and obviously at the start of the process there is some uncertainty on the big question of what is a sustainable level of income to draw down. My starting point was ~4.0% and since commencing drawdown this has been well within the average level of growth of 9% or so generated by the portfolio over the past decade which gives me more confidence that this level of drawdown could continue longer term if needed. Which leads to the next point....

.....nope..not for me....

Having been a saver all of my adult life and living well within my means, I find it quite a challenge to become a 'spender' now the extra funds are available! I possibly no longer need the 4% income from my pension as living expenses are covered by the state pension. Frugal Freddie is unlikely to morph overnight into Lavish Larry...I have not so far been looking online for deals on a Caribbean Cruise or along to the showrooms looking at a new Lamborghini so I now need to review my investment plans and decide how to proceed from here on. I will probably post a little more on this when I get used to the new situation.

Obviously I am reasonably happy with my first few years of self-managing a flexi-drawdown sipp portfolio. For the first 3 years, the dividend income predictably rolled in much as planned and importantly, increased each year a little ahead of inflation. For the past three years I have withdrawn significant lump sums tax free and placed the excess which I did not require for income in my ISA. Of course, there are no tax liabilities for all monies subsequently withdrawn from my ISA. 
I will have less need for income from my SIPP in the future and will therefore slim down some of the income-focussed investments and look at some global growth and possibly one or two 'themed' investments.

So, all in all, happy days!

If you are managing your SIPP drawdown or you are planning to do this, feel free to share your experience in the comments below.

Monday, 11 June 2018

Become A Dragon - Owning Shares

Why do some people own shares on the stockmarket? Maybe you are exploring investing for the first time and want to understand a little more about it. Many people are fed up with the low returns on cash savings and are looking at options for a better return with stocks & shares.


Whether we agree with the system or not, the fact remains that here in the UK we live in a developed capitalist economic system. It is predominantly a self regulated system with minimal intervention from the state. This is the opposite of a communist system which operates in the likes of Cuba and North Korea where the economy is largely run by the state which controls the means of production.

Under our system therefore, capital is valued more than labour and those who set up and own a business usually make much more money than the employees of that business. Capitalism has provided us with our smart phone from the likes of Apple or Samsung for example, Google which we all use to search the web (and more), advances in drugs and medicine which is helping us all to live longer, from Amazon we have the Kindle e-reader and more recently the voice-activated Echo speaker with Alexa, we now have the electric car and just around the corner is the driverless car and the promise of our online shop delivered by drones! A lot of people criticise the system but continue to buy into many of the latest must-have technology.

The stockmarket is basically a product of a capitalist system. It is a place where a business can be listed and basically enables the business owner to raise capital in return for a share of the future profits in the business. Therefore the owner does not need to risk his/her own savings or borrow money secured on his own house for example.

Many will be familiar with the popular TV programme 'Dragon's Den' where someone with a new business idea will 'pitch' this to the Dragons who hold all the cash and who may, if they like the business and see potential to make money, agree to invest their own money in return for quite a substantial share of the business.

Become A Dragon

Anyone with some capital, therefore, can become a 'dragon'. They may not wish to take a punt on a new start up but can buy shares in the many hundreds of established companies listed on the London Stock Exchange known as the FTSE. They then become a part owner of that company and they will share in the future success of the business as the share price rises and may also receive regular dividend payments.

I guess many new investors who 'dabble' with stocks & shares do not think of themselves as part owners of a company but more likely they are taking a punt on the share price rising and making a profit at some point when the shares are sold. They probably regard it as an online transaction carried out via their online broker and possibly not much different to an online purchase from their favourite retailer.

Here's a short extract from an interview with Warren Buffett, possibly the most successful investor of the past 60 years:
"Imagine you’re buying an ownership stake in the convenience store around the corner from your house. Automatically you’ll think about the competition, suppliers, prices, etc. You’ll have to think both about the specific location as well as its competitive position in the market.
Similarly, while buying stocks, you need to think about all these things – just as the people running the business do.
When you buy a stock, you’re not just buying a piece of paper or a ticker symbol. Buying the stock of a company is buying an ownership stake in a BUSINESS".

Think Big

It is therefore possible for anyone to become a part owner in some of the largest companies in the world such as Facebook ($550bn), Apple ($950bn) and Amazon ($800bn) which are listed on the US stockmarket NASDAQ.

With the introduction of the low-cost online brokers and access to the internet, it is fairly simple to open an account and buy into any of the large, well-established global businesses. Certainly it is far easier than starting your own company from scratch.

Buffett's again..." Owning a profitable, growing business is one of the few paths to wealth. It’s something anyone can do today with a meager amount of savings. You can start a business or buy one (Buffett often refers to farms or apartment buildings). Or you can take a simpler approach by buying a portion of a business through the stock market".
"Owning a decently profitable business over a long period of time will compound your net worth. And you can diversify into multiple businesses (via an index fund) to increase your chance of success. A savvy investor might try to buy shares of businesses for less than they’re worth".
The returns from owning a small share in a company or more commonly many companies held via collective investments will far exceed the return from holding cash in a deposit account. Over the past 50 years the average annual return from equities after inflation has been 5% each year compared to just 1.2% from cash (according to Barcap Equity Gilt study). That means a sum of £10,000 invested in 1968 would now be worth £90,000 whereas the same amount in a savings account now worth only £18,000.

Invest or would think this would be a no-brainer yet only a small percentage of the population actively choose to invest on the markets. Many think it's far too gambling at the casino or say they just do not understand finance. They would probably go to great lengths to research their next phone deal, holiday or car purchase but will not think to put the same time and effort into understanding something which could enhance their wealth and lifestyle in a fundamental way.
One of the reasons for running this personal finance blog is to help those who want to understand this important subject get an understanding of the basics. Of course some people will sadly never grasp finance and I am not naive to believe investing is for everyone, many just do not have any spare cash to invest, for others to some extent it will depend on temperament and the ability to remain patient but I am sure there are many people who could do a decent job of it if they put in a little time and effort. 

I subscribe to the philosophy of legendary investor Ben Graham who said “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”

I was completely unaware of the stockmarket until I was in my 30s. It was never talked about in my immediate or extended family and was not covered at school. Most of what I now know has been acquired through a process of experimentation combined with an ongoing interest in learning from others with more experience. Some of the blogs I follow (see right) hold a great wealth of investing knowledge which I find invaluable.
I believe in keeping things fairly simple..have a basic strategy, hold low cost global index funds to capture the whole market, match your allocation mix to your timeframe and temperament, maintain a realistic expectation of future returns, hold through thick and thin and don't second-guess the market (as I often do!), automate as much as possible and make use of tax breaks and free money from employers/'s not really rocket science.
Over to you...why do you invest? Is it rewarding? Was it difficult to settle on a strategy? Leave a comment below and share your experience with others.