Money To The Masses http://moneytothemasses.com Putting you in control Mon, 08 Feb 2016 13:21:09 +0000 en-GB hourly 1 80-20 Investor Best of the Best Selection – February 2016 Updatehttp://moneytothemasses.com/8020-articles/80-20-investor-best-of-the-best-selection-february-2016-update http://moneytothemasses.com/8020-articles/80-20-investor-best-of-the-best-selection-february-2016-update#comments Fri, 05 Feb 2016 17:20:06 +0000 http://moneytothemasses.com/?p=21447 A total of 13 funds from January's 27 funds make it into February's selection. Below I list this month's selection in full with the 13 funds that regained their place in black while the new additions are in green. Just as last time, I have included the full list sorted alphabetically by name and then by risk category. February's Best of the...

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A total of 13 funds from January's 27 funds make it into February's selection. Below I list this month's selection in full with the 13 funds that regained their place in black while the new additions are in green.

Just as last time, I have included the full list sorted alphabetically by name and then by risk category.

February's Best of the Best Selection - (A-Z by fund name)

(funds unchanged from last month are in black while new additions are in green)

 

FundSectorISIN CodeRisk Level
Artemis - US Extended AlphaNorth AmericaGB00BMMV5G59High risk
Aviva Inv - European PropertyPropertyGB00B4KZRT07Medium risk
AXA - Framlington JapanJapanGB0003500179High risk
Baillie Gifford - Global BondGlobal BondsGB0031761793Medium risk
BlackRock - European Absolute AlphaTargeted Absolute ReturnGB00B4Y62T40Low risk
CF - Miton Defensive Multi AssetMixed Investment 0%-35% SharesGB00B010Y517Low risk
F&C - Responsible Sterling BondSterling Corporate BondGB00B23YHT07Low risk
Fidelity - Global DividendGlobal Equity IncomeGB00B7FQHJ97High risk
Fidelity - Global Enhanced IncomeGlobal Equity IncomeGB00BD1NLL62High risk
Fundsmith - EquityGlobalGB00B4LPDJ14High risk
Henderson Inst - Overseas BondGlobal BondsGB0007673055Medium risk
IFSL - Tilney Bestinvest Defensive PortfolioMixed Investment 20%-60% SharesGB00B39VH700Low risk
Investec - Global FranchiseGlobalGB00B7WN9P32High risk
Jupiter - Absolute ReturnTargeted Absolute ReturnGB00B5129B32Medium risk
L&G - Global Technology IndexTechnology & TelecomGB00B0CNH163High risk
L&G - UK PropertyPropertyGB00BK35DS04Low risk
Legg Mason - IF Japan EquityJapanGB0033507467High risk
Liontrust - European GrowthEurope Excluding UKGB00B1GKBD09Medium risk
Liontrust - UK Smaller CompaniesUK Smaller CompaniesGB0007420788Medium risk
M&G - Emerging Markets BondGlobal Emerging Market BondGB0031958738Medium risk
Man GLG - Continental European GrowthEurope Excluding UKGB00B0119370High risk
Premier - ConBrio Sanford Deland UK BuffettologyUK All CompaniesGB00B3QQFJ66High risk
Royal London - Sustainable Managed Growth TrustMixed Investment 0%-35% SharesGB00B6YBY313Low risk
Standard Life Investments - AAA IncomeSterling Corporate BondGB0006161516Low risk
Standard Life Investments - Emerging Market DebtGlobal Emerging Market BondGB00B8K56P77Medium risk
Standard Life Investments - Global Real EstatePropertyGB00B0LD3V96Medium risk
Threadneedle - Global BondGlobal BondsGB0001533685Medium risk
Threadneedle - UK Social BondSterling Corporate BondGB00BF233790Low risk
Vanguard - LifeStrategy 20% EquityMixed Investment 0%-35% SharesGB00B4NXY349Low risk

February's Best of the Best Selection - (grouped by risk)

Here is February's shortlist grouped by their risk category (funds unchanged from last month are in black while new additions are in green):

 

FundSectorISIN CodeRisk Level
L&G - UK PropertyPropertyGB00BK35DS04Low risk
BlackRock - European Absolute AlphaTargeted Absolute ReturnGB00B4Y62T40Low risk
Threadneedle - UK Social BondSterling Corporate BondGB00BF233790Low risk
Vanguard - LifeStrategy 20% EquityMixed Investment 0%-35% SharesGB00B4NXY349Low risk
Standard Life Investments - AAA IncomeSterling Corporate BondGB0006161516Low risk
F&C - Responsible Sterling BondSterling Corporate BondGB00B23YHT07Low risk
Royal London - Sustainable Managed Growth TrustMixed Investment 0%-35% SharesGB00B6YBY313Low risk
IFSL - Tilney Bestinvest Defensive PortfolioMixed Investment 20%-60% SharesGB00B39VH700Low risk
CF - Miton Defensive Multi AssetMixed Investment 0%-35% SharesGB00B010Y517Low risk
Henderson Inst - Overseas BondGlobal BondsGB0007673055Medium risk
Threadneedle - Global BondGlobal BondsGB0001533685Medium risk
Baillie Gifford - Global BondGlobal BondsGB0031761793Medium risk
Jupiter - Absolute ReturnTargeted Absolute ReturnGB00B5129B32Medium risk
Standard Life Investments - Global Real EstatePropertyGB00B0LD3V96Medium risk
Liontrust - UK Smaller CompaniesUK Smaller CompaniesGB0007420788Medium risk
M&G - Emerging Markets BondGlobal Emerging Market BondGB0031958738Medium risk
Standard Life Investments - Emerging Market DebtGlobal Emerging Market BondGB00B8K56P77Medium risk
Aviva Inv - European PropertyPropertyGB00B4KZRT07Medium risk
Liontrust - European GrowthEurope Excluding UKGB00B1GKBD09Medium risk
Legg Mason - IF Japan EquityJapanGB0033507467High risk
Man GLG - Continental European GrowthEurope Excluding UKGB00B0119370High risk
Fundsmith - EquityGlobalGB00B4LPDJ14High risk
Fidelity - Global Enhanced IncomeGlobal Equity IncomeGB00BD1NLL62High risk
Investec - Global FranchiseGlobalGB00B7WN9P32High risk
Fidelity - Global DividendGlobal Equity IncomeGB00B7FQHJ97High risk
AXA - Framlington JapanJapanGB0003500179High risk
Artemis - US Extended AlphaNorth AmericaGB00BMMV5G59High risk
Premier - ConBrio Sanford Deland UK BuffettologyUK All CompaniesGB00B3QQFJ66High risk
L&G - Global Technology IndexTechnology & TelecomGB00B0CNH163High risk

 

The funds that dropped out of the Best of the Best Selection

For reference the funds from last month that dropped out of the 80-20 Best of the Best list are listed below. Many of them remain in the Best funds by Sector selection:

 

NameSectorISIN CodePortfolio
Artemis - Pan-European Absolute ReturnTargeted Absolute ReturnGB00BMMV4J16Low risk
Artemis - US SelectNorth AmericaGB00BMMV5105High risk
AXA - Framlington UK Smaller CosUK Smaller CompaniesGB0030310857Medium risk
Baillie Gifford - AmericanNorth AmericaGB0006061740High risk
Henderson - Fixed Interest Monthly IncomeSterling Strategic BondGB00B7GSYN71Low risk
HSBC - Open Global PropertyPropertyGB00B84L7Q94Medium risk
Investec - Monthly High IncomeSterling High YieldGB0031141681Low risk
Jupiter - EuropeanEurope Excluding UKGB0006664683High risk
L&G - Emerging Markets Government Bond (US$) IndexGlobal Emerging Market BondGB00B7MJV331Medium risk
Natixis - Loomis Sayles U.S. Equity LeadersNorth AmericaGB00B8L3WZ29High risk
Schroder - Monthly High IncomeSterling High YieldGB0009505693Low risk
Standard Life Investments - Global Equity UnconstrainedGlobalGB0004483540High risk
Standard Life Investments - Higher IncomeSterling High YieldGB0000938844Low risk
Standard Life Investments - UK Equity Income UnconstrainedUK Equity IncomeGB00B1LBSR16Medium risk

 

Commentary

The stock market had its worst ever start to a year on record. That is an incredible statistic. At one point the FTSE 100 had fallen by nearly 10% in the first few weeks of January alone. In fact nearly every major stock market around the world entered bear market territory during the month, meaning that they had fallen 20% since their highs of last year. Of course that means that the riskier equity based funds within the 80-20 Investor Best of the Best Selection finished the month down. But there were some stand out performers in the low risk end of January's Best of the Best Selection which paid off. The table below shows the average return over the month of the 80-20 Portfolio vs the market and the average fund manager.

NameReturn %
80-20 portfolio-1.36
Average cautious managed fund-1.87
FTSE 100-2.86
Average managed fund-2.95

Just like last month, once again the 80-20 Investor Best of the Best Selection outperformed over 90% of professional fund managers running managed portfolios. In a month where apparently everyone was losing money a number of funds in January's Best of the Best Selection made money, some more than 3%, as shown below. What is pleasing is both the Japan fund and Emerging Market Bond fund, which I was nervous about, performed fantastically. Luckily the 80-20 Investor algorithm doesn't have emotional jitters.

FundReturn %
Henderson Inst - Overseas Bond5.04
Threadneedle - Global Bond4.89
L&G - Emerging Markets Government Bond (US$) Index4.45
Legg Mason - IF Japan Equity3.19

The move to more defensive assets has continued this month with an increased exposure to property, bonds and cautiously managed funds. Once again the preference for global bonds over UK bonds continues. Overall the asset mix has become much broader and more equally balanced with the lowest direct equity exposure ever for the portfolio (see below). This diversification should hopefully fare well if markets continue to tumble.

The Asset mix

The current asset mix of the new Best of the Best Selection is shown below with last month's figures in brackets:

  • Alternatives 16% (3%)
  • Global Fixed Interest 19% (22%)
  • North American Equities 14%  (19%)
  • European Equities 12% (15%)
  • UK Equities 11% (18%)
  • Property 11% (4%)
  • Japanese Equities 9% (6%)
  • UK Corporate Fixed Interest (i.e UK bonds) 8% (6%)
  • Emerging markets 0% (4%)
  • Cash 0% (0%)

80-20 Investor's outperformance continues even during the market sell-off

As you know the Best of the Best Selection is the shortlist of the best funds highlighted by our 80-20 Investor algorithm split into high, medium and low risk categories. This shortlist is updated at the start of every month.

The green line in the chart below (click to enlarge) shows how a portfolio would have performed since inception (in August 2014) if it had been split equally between the Best of the Best Selection funds and then switched each month when each new shortlist was published. I have also charted the performance against that of the FTSE 100 (the black line) and the average balanced managed fund (red line) and the average managed fund with up to 85% equity exposure (blue line). In reality the 80-20 Investor's asset allocation typically lies between these two as it usually has 60-85% exposure to equities at any one time. So they provide a good comparison of how fund managers with a similar remit have fared over the same period.

80-20 Investor ourperformance

80-20 Investor ourperformance

As you can see, since launch in August 2014 the 80-20 Investor portfolio has HUGELY outperformed the average managed fund and the market.

All performance figures are net of fund charges. The material in any email, the MonetotheMasses.com website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions and Privacy Policy
Neither MoneytotheMasses.com/80-20 Investor nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested.
Information provided by MoneytotheMasses.com/80-20 Investor is for general information only and not intended to be relied upon by readers in making (or not making) specific investment decisions.
Appropriate independent advice should be obtained before making any such decisions. Leadenhall Learning (owner of MoneytotheMasses.com/80-20 Investor) and its staff do not accept liability for any loss suffered by readers as a result of any such decisions.
The tables and graphs are derived from data supplied by Trustnet. All rights Reserved.

 

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The Global Income fund Heatmaphttp://moneytothemasses.com/8020-articles/the-global-income-fund-heatmap http://moneytothemasses.com/8020-articles/the-global-income-fund-heatmap#comments Thu, 04 Feb 2016 16:08:44 +0000 http://moneytothemasses.com/?p=21434 Following on from the creation of the UK equity income Heatmap, which empowers 80-20 Investor members to quickly build a portfolio of UK income funds to provide a sustainable growing income, here I launch the Global Income fund Heatmap An important part of building a sustainable income stream is to diversify it, and that includes geographically. There are countless income...

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Following on from the creation of the UK equity income Heatmap, which empowers 80-20 Investor members to quickly build a portfolio of UK income funds to provide a sustainable growing income, here I launch the Global Income fund Heatmap

An important part of building a sustainable income stream is to diversify it, and that includes geographically. There are countless income opportunities for investors if they broaden their horizons and invest in shares globally. Just because you are based in the UK you should not just invest in the UK. So that means investing in global equity income funds as well as UK equity income funds to produce an income portfolio.

Global equity income is a relatively new area and as such there are far fewer global equity income funds to chose from, compared to UK equity income funds. However there are still some good opportunities. That is why I've applied the same rigorous research process to the global equity income sector as I did to its UK focused peer.

How to use the Global Income Heatmap

When choosing global income funds to complement your UK equity income portfolio you want to choose funds that have:

  • a decent current yield
  • that have recent average annual payout growth in excess of inflation (which is currently only just above 0%)
  • have a track record of growing its payout year on year even when other funds have cut theirs.

While the choice is limited there is still quite a big disparity between current yields and commitment to growing payouts (even though few have a long track record) which is why research such as this is crucial. I like the look of a fund like Artemis Global Income which has grown its payout even when other funds were cutting theirs. Also the fund has a current yield of nearly 4%.

You can quickly see how the Income Heatmap turns building and diversifying an income portfolio from an expensive laborious process into a simple and quick job.

The Global Income Heatmap

Key: a green box indicates that the annual payout was higher that year than in the previous year. A red box indicates that the payout was cut compared to the previous year. An empty (white square) means that the fund was not in existence at that point in time.


2015 global income funds

If a fund is not in the list this will be because it either does not have a sufficient dividend history or size. Or it will be because it is not a member of the Global Equity Income sector.

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Where should I invest £100,000 to generate income?http://moneytothemasses.com/saving-for-your-future/investing/reader-q-where-should-i-invest-100000-to-generate-income http://moneytothemasses.com/saving-for-your-future/investing/reader-q-where-should-i-invest-100000-to-generate-income#comments Wed, 03 Feb 2016 20:00:18 +0000 http://moneytothemasses.com/?p=9037 Reader Question: I've been made redundant and have £100,000 to invest. My mortgage is low and almost paid off so need to invest for an income boost. Do I buy a house or where else could I get decent return? My response: Essentially what you are asking is how to invest £100,000 to generate income...

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Get an answer to your financial question onlineReader Question:

I've been made redundant and have £100,000 to invest. My mortgage is low and almost paid off so need to invest for an income boost. Do I buy a house or where else could I get decent return?

My response:

Essentially what you are asking is how to invest £100,000 to generate income now.

(Note: if you are investing for growth rather than income I've created a free short series of emails that show you the techniques and tools that turned £100,000 into £1.1 million. It's free for a limited time only. Each of the concise emails will take you just 2 minutes to read and will tell you the simple techniques and tools the City fund managers use - which you can now use too.)

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How to get £25,000 a year pension by saving just £32 a monthhttp://moneytothemasses.com/saving-for-your-future/pensions/how-to-get-25000-a-year-pension-by-saving-just-32-a-month http://moneytothemasses.com/saving-for-your-future/pensions/how-to-get-25000-a-year-pension-by-saving-just-32-a-month#comments Tue, 02 Feb 2016 17:51:35 +0000 http://moneytothemasses.com/?p=21395 If you don't already save into a pension don't worry about it. It's probably refreshing to hear that right? After all every other financial expert out there will be scathing about your lack of planning. Other money experts and financial advisers like to paint themselves as the picture of superhero perfection so they can charge people a...

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If you don't already save into a pension don't worry about it. It's probably refreshing to hear that right? After all every other financial expert out there will be scathing about your lack of planning. Other money experts and financial advisers like to paint themselves as the picture of superhero perfection so they can charge people a fortune to be let in on their secret. But don't listen to them. When it comes to financial planning it's never too late. Also while these 'superheros' ignore the fact that reality gets in the way of our best laid plans I don't.

Who can realistically contribute several hundred pounds a month to a pension when they have children, for example? That is why I produced this article at the request of a UK national newspaper and why I've reproduced it here. In this article you will:

  • find out how you can get a £25,000 a year pension (more than the national average wage) from £32 a month, even if you are starting from scratch, versus the superheros' claims that it will cost you at least several hundred pounds a month
  • find out how much you should start paying into your pension each month
  • put a plan into action
  • finally stop worrying about what's going to happen to you in retirement

Remember, you need to plan for your retirement otherwise it will never happen. No one is going to do it for you.

Start by breaking down your goal

Yes it is possible to retire on £25,000 a year (which is a bit more than the national average wage) by saving just £32 a month. Everyone who reads this article is surprised that it is possible but I want to assure you it is. All I am doing is using financial planning techniques, from a career spent in financial planning, that a financial adviser would want to charge thousands of pounds to tell you.

Typically an adviser (or indeed the press) will use current annuity rates and an assumption that you will take 25% of your pension pot as a tax free cash lump sum to calculate the size of pension pot you need to provide an equivalent income of £25,000 a year. If we assumed a male was to retire at age 65 with an income of £25,000 a year he would need a pension pot of £666,666!

That is an eye watering amount for you to have to pay into your pension throughout your working life. For many it would equate to saving £500+ a month. But don't worry I will tell you why that is an unnecessary amount. For starters most people will have paid off their mortgage by the time they retire bringing their required income down i.e you won't need money to pay your mortgage each month once you retire. Therefore most people need a retirement income of around 2/3 of their salary to maintain their standard of living. So that brings down the required gross pension to £16,666, from £25k.

If we also ditch the idea of raiding your pension and taking a massive lump sum, instead using it to just produce an income in retirement, the required pension pot now drops down to around £330,000 which is a bit more sensible. Not everyone needs to have a tax free lump sum especially if they have cleared their mortgage.

Your boost from the state pension

When planning your retirement you next need to take account of all of your retirement income. Assuming that will receive a full state pension (as most people do) this amount under the new rules equates to £8,093 a year. Not bad at all.

So deducting that from the £16,666 income from above leaves us with needing to generate £8,573 a year gross income. To generate this income you now only need £171,460 in your pension pot when you retire. Already that is far more achievable. But I've not finished yet. As you can see momentum is building!

Start paying into a pension today

Now the power of compound returns mean that the sooner you start putting money into a pension the less you have to save a month.

To get a pension pot worth around £171,460 by age 65 you would need to save

  • £374 a month if you are aged 30
  • £530 a month if you are aged 40
  • £894 a month if you are aged 50

These are big numbers but don't worry I'm going to reduce them further.

Keep charges low

Now the above figures are assuming that you pay an annual charge on your pension (such as a SIPP) of around 1.5%. Yet these days it is possible with Exchange Traded Funds (ETFs) and tracker funds to get the annual charge much lower. Charges have a huge impact on the size of your pension fund over time. Or in other words it means your pension pot grows quicker which means you can contribute less each month.

If in my example above the 30 year old cut their charges by investing their pension fund into etfs or tracker funds then they would need to save just £305 a month. We are getting there!

Your boost from investment risk

Now one of the benefits of starting to save for retirement early is that you can take a little more risk. The above figures assume an average return of 5% a year in excess of inflation. If that 30 year old took more risk and the average annual return was say 8% a year above inflation then it would mean he would only need to save £105 a month and still achieve the required retirement income. Of course there is no certainty of achieving 8% a year return but it is not unrealistic.

Your boost from the tax man

This is the crucial bit. Pension contributions enjoy generous tax reliefs. For every £8 a basic rate (20%) tax payer pays into a pension the tax man adds £2. Or in other words every £100 of pension costs them just £80. For higher rate (40%) tax payers the relief is even more generous meaning every £100 in a pension costs them just £60. They would still £80 into the pension each month and the tax man would add £20, while the other £20 tax relief is claimed back via their tax return.

So for the 30 year in our example the cost of the pension is now £63 a month assuming they . are a higher rate tax payer. For other ages and tax bands see the table below.

Your boost from your employer

This is where it gets interesting. Some employers will match employee pension contributions up to a limit if they join the company scheme. If your employer does offer this facility then you would be foolish not to take advantage of it.

Yet this will soon be available to everyone under the Government's auto-enrolment scheme. In a nutshell every employer in the UK will have to contribute to a pension for their employees, as will the employees themselves. So even if your employer doesn't match contributions now they will have to a certain extent in the near future.

So if an employer matched an employees pension contributions then that 30 year old would pay just £32 a month net and get it topped up to £200 by his employer and HMRC.

Below I show you the final minimum amounts, taking account all of the above factors, based on age and income tax rate. You will be amazed how little you need to contribute (less than you probably spend on coffee each month). Plus it is and is a long way from the tens of thousands of pounds a year an adviser would tell you that you have to save. Don't forget the more you pay the more advisers can earn, which can not happen if you plan your retirement yourself.

Your minimum pension contribution based on your age and earnings

Find your approximate age and your tax band in the table below to see the net monthly contribution you need to make to get a £25,000 a year pension. For most people they will spend more on coffee and alcohol a month than the amounts shown below. By just diverting the money to their pension instead they would give themselves a comfortable retirement. The key point is that it is never too late to achieve your retirement dream.

AgeNet monthly contribution 20% tax payerNet monthly contribution 40% tax payer
30£42.00£32.00 (you pay £42 into the pension & claim £10 extra tax relief via you self assessment)
35£57.60£43.20 (you pay £57.60 into the pension & claim £14.40 extra tax relief via you self assessment)
40£80.00£60.00 (you pay £80 into the pension & claim £20 extra tax relief via you self assessment)
45£120.00£90.00 (you pay £120 into the pension & claim £30 extra tax relief via you self assessment)
50£188.00£141.00 (you pay £188 into the pension & claim £47 extra tax relief via you self assessment)

Congratulations you have now achieved something most people never do, that is to visualise your retirement plan. What we've done is taken a seemingly Everest sized mountain and reduced it to a more leisurely walk.

Think of your minimum contribution amount that we've worked out as your base camp. It is your contingency plan that will ensure that you have a comfortable retirement. But there's more great news. Even if your employer isn't contributing now, they inevitably will. But more importantly as you start paying the monthly amount into a pension your career will advance. Your children will get older. You will get pay rises. It all means that you will inevitably be able to comfortably increase your monthly contributions when you want meaning that your retirement income will be even higher.

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How big does your pension pot need to be to retire when you want?http://moneytothemasses.com/saving-for-your-future/pensions/how-much-does-my-pension-pot-need-to-be-to-retire http://moneytothemasses.com/saving-for-your-future/pensions/how-much-does-my-pension-pot-need-to-be-to-retire#comments Tue, 02 Feb 2016 12:00:16 +0000 http://moneytothemasses.com/?p=19674 How big should my pension pot be? Hi Damien, I have been saving the same monthly amount into a pension plan for a number of years. Although I am not near retirement age I don't know whether I am saving enough or too little. While I would like to retire at age 55 I don't know...

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how much does my pension need to be to retireHow big should my pension pot be?

Hi Damien, I have been saving the same monthly amount into a pension plan for a number of years. Although I am not near retirement age I don't know whether I am saving enough or too little. While I would like to retire at age 55 I don't know if this is realistic. So how much does my pension pot need to be if I want to retire at age 55? Is there a simple way to work out how much I need to be putting into my Self Invested Personal Pension (SIPP) each month. I am realistic and realise that I might not be able to retire at age 55. So how much do I need to retire at age 60 or 65? Apologies for asking so many questions at once

Best wishes

S Timpson

The answer:

Most people realise that they can't rely on their state pension for their retirement income and so need to fund their own retirement. At present the basic state pension is £115.95 a week which equates to just over £6,000 a year.

You don't mention your age or how much income you need in retirement or how much you are currently paying into your pension. But that doesn't matter as I will first of all tell you how to retire when you want to and then show you a simple pension pot calculator which will tell you how much pension you need to retire at your chosen age of 55 and how much you should be paying in now.

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Chatterbox – February 2016http://moneytothemasses.com/chatterbox/chatterbox-february-2016 http://moneytothemasses.com/chatterbox/chatterbox-february-2016#comments Mon, 01 Feb 2016 17:32:35 +0000 http://moneytothemasses.com/?p=21457 The place to talk about investing, what’s in your portfolio or ask questions via the comments section below.    

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The place to talk about investing, what’s in your portfolio or ask questions via the comments section below.

 

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MTTM Podcast 73: Must have Cashback apps, iPhone privacy flaw & Passwords to avoidhttp://moneytothemasses.com/news/podcast/mttm-podcast-73-must-have-cashback-apps-iphone-privacy-flaw-passwords-to-avoid http://moneytothemasses.com/news/podcast/mttm-podcast-73-must-have-cashback-apps-iphone-privacy-flaw-passwords-to-avoid#comments Mon, 01 Feb 2016 09:44:28 +0000 http://moneytothemasses.com/?p=21359 Listen to Episode 73 Click on the media player below to listen to Episode 73 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'. Subscribe to the podcast You can also subscribe to the show via iTunes   Show transcript coming soon...

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Listen to Episode 73

Click on the media player below to listen to Episode 73 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'.

Subscribe to the podcast

You can also subscribe to the show via iTunes

 

Show transcript coming soon...

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The UK Income fund Heatmaphttp://moneytothemasses.com/8020-articles/the-uk-income-fund-heatmap http://moneytothemasses.com/8020-articles/the-uk-income-fund-heatmap#comments Fri, 29 Jan 2016 17:33:10 +0000 http://moneytothemasses.com/?p=21339 Most investors can be classed as 'growth investors'. That means they are focused on growing their investments by seeking the best return. In reality that total return is made up of growth in the capital value of their investments and the income they produce. The automatic reinvestment of that income boosts investment returns by the magic...

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Most investors can be classed as 'growth investors'. That means they are focused on growing their investments by seeking the best return. In reality that total return is made up of growth in the capital value of their investments and the income they produce. The automatic reinvestment of that income boosts investment returns by the magic of compounding. That is, the income can be used to buy more fund units or shares which in turn can produce even more income and capital growth and so on and so on.

Yet there is second group of investors known as 'income investors' who want to live off the income that their investments produce while the capital value of their investments hopefully grows at the same time. The trouble is that picking the right investments is incredibly difficult even if you decide to invest via funds (unit trusts).

The common mistakes income investors make

Income investors and financial advisers make the same mistakes when trying to build an income portfolio.

  • They focus purely on current yield
  • They don't analyse the actual pounds and pence funds pay as income
  • They don't take into account the effect of inflation
  • They don't build a portfolio that can provide a rising income into the future that can beat inflation

How to generate a sustainable income from your portfolio

For true income investors the capital value of their portfolio is secondary. In essence as long as the portfolio keeps pumping out the required income the capital value is irrelevant. So even if markets crash as long as the funds keep paying out dividends then their income and lifestyle will remain unaffected.

So the first rule of income investing is to invest in funds that will not cut their dividends. The trouble is how do you pick a fund manager who is good at picking shares that are unlikely to cut their dividends when the going gets tough? This will be particularly important going forwards as I explain in my article Protecting your portfolio income from dividend cuts.

Furthermore if you want your income to maintain its purchasing power then it needs to grow over time in excess of inflation. So the second rule is to invest in funds that will grow the income they produce year on year. Otherwise your income will not be large enough to keep pace with the price rises of the things you like to buy. So how then do you also identify funds that will grow the income they pay out over time?

How to build the perfect income portfolio

80-20 Investor provides not only the research to help growth investors but also income investors. To empower members to quickly build a portfolio that can provide a sustainable income stream is no mean feat. It has taken weeks of research, research that would cost thousands of pounds if you were even able to obtain it from another investment professional.

The new Income Heatmap below (click to enlarge) summarises this research into a neat visual aid. The research analyses all the main UK equity income funds that aim to provide investors with an income stream. It analyses the actual pounds and pence that investors have received from these funds going back 10 years as well as how this income has grown over time. It also looks at the current yield that you can obtain from these funds and it's recent annual growth rate.

It is worth mentioning that different funds pay their income at different times of the year and at different frequencies (monthly, quarterly or yearly). So in order to provide a regular monthly income stream to live off you should create a cash buffer containing one year's worth of income and invest the rest of your money in an income portfolio. You can then withdraw money each month from your cash buffer to live off while at the same time your income portfolio tops the pot up as and when the dividends are due. In this way at the end of 12 months your cash buffer should be worth the same as it was at the start of the year. So long as your desired income does not exceed your portfolio's yield you will be fine.

One final point to bear in mind is that you should consider diversifying your income portfolio by investing in one or two global equity income funds too. Have a look at the equivalent Global Equity Income Heatmap for more information.

How to use the UK Income Heatmap

When choosing income funds you want to choose funds that have:

  • a decent current yield (anything above 4% is good)
  • that have recent average annual payout growth in excess of inflation (which is currently only just above 0%)
  • have a track record of growing its payout year on year even when other funds have cut theirs.

Therefore I like the look of a fund like Fidelity Moneybuilder Dividend which has grown its payout even when other funds were cutting theirs. Also the fund has a current yield of 4.23% and has grown its payout recently far in excess of inflation.

You can quickly see how the Income Heatmap turns building an income portfolio from an expensive laborious process into a simple and quick job.

The Income Heatmap

Key: a green box indicates that the annual payout was higher that year than in the previous year. A red box indicates that the payout was cut compared to the previous year. An empty (white square) means that the fund was not in existence at that point in time.


Best UK income funds 2016 A-Z

 

If a fund is not in the list this will be because it either does not have a sufficient history or size. Or it will be because it is not a member of the UK Equity Income sector.

Also one or two of the most consistent income payers are investment trusts (the above funds are unit trusts). Read my article Protecting your portfolio income from dividend cuts for my favourite income producing investment trust.

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Get the best return on your £50,000 investmentshttp://moneytothemasses.com/saving-for-your-future/investing/where-should-i-invest-50000-for-the-best-return http://moneytothemasses.com/saving-for-your-future/investing/where-should-i-invest-50000-for-the-best-return#comments Wed, 27 Jan 2016 11:11:17 +0000 http://moneytothemasses.com/?p=18844 Where should I invest £50,000 to £100,000? I have inherited £50,000 and want to invest the money to get the best investment returns. I want to invest £50k myself to keep costs down rather than pay a financial adviser to do it for me. So where is the best place to invest £50,000 for growth? Damien's response: (The following response...

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Where should I invest £50,000 for the best returnWhere should I invest £50,000 to £100,000?

I have inherited £50,000 and want to invest the money to get the best investment returns. I want to invest £50k myself to keep costs down rather than pay a financial adviser to do it for me. So where is the best place to invest £50,000 for growth?

Damien's response:

(The following response is by Damien Fahy, one of the most widely quoted investment experts in the UK national press, including The Telegraph and The Sunday Times)

This is a great question. I have broken my answer into two parts, the short answer and the long answer. The short answer quickly shows you the kind of assets and funds you should invest in and the percentage exposure to each.

The long answer will show you how to invest £50,000 whether you are a beginner or a complete novice. It will show you:

  • What the best savings rates are for £50,000
  • The types of assets you could invest in
  • The potential return and where to invest £50k
  • How to choose your own portfolio of funds
  • A simple solution for beginners
  • Plus I invest £50,000 of my own money so people can see how I actually do it

The short answer:

I recommend that you first download the factsheets* for the following Conservative, Balanced and Adventurous Growth portfolios from the UK's leading stock broker. Next open each and scroll down to the asset allocation section to see the relevant split of assets (such as UK equities) suitable for each risk level. Asset allocation is the number one thing investors get wrong when running their own money, so the information in these factsheets is invaluable. You can also see the kind of returns you can get versus cash.

Of course you can just invest in these portfolios if you wish but you can also use the information in the sections titled the 'Portfolio's top 10 underlying holdings' and invest in the funds directly yourself as part of your own portfolio. The factsheets also handily provide commentary on each of the underlying funds as well as a market outlook.

The full answer:

Below I walk you through how to get the best return on your £50,000 or £100,000 investment.

Best savings accounts for £50,000

The first thing you need to determine is how long your investment timeframe is. Or in other words when will you need to access your £50k. A good rule of thumb is that if you need to access your money within the next 5 years then you should just put your money into a savings account. That is because investing in assets other than cash carry the the risk of your losing money. Therefore the shorter your investment timeframe the greater the likelihood you could be forced to crystalise a loss. Investments move up and down over time so you need to be comfortable with this.

However, cash is a valid investment asset in its own right. If you do decide to put the money in a savings account then you need to make sure to get the best savings rate. If you plan to put £50,000 or more into a savings account then I suggest you read ‘The biggest mistake made by larger savers’ guide*. It contains advice on how to get the best interest rates on your money and how to protect. your savings from the eventuality that your bank or building society goes bust.

Aside from that here is a round up of the best savings rates available right now.

If you do opt for putting the money into a savings account then you need to stay on top of things as the interest rate will likely fall over time, especially if the account had an introductory offer.

To get round this I use a rate tracker email alert tool*. You simply enter your email address and the details of the savings accounts you choose or currently have and the the system will:

  1. Tell you if you are getting a good deal
  2. Email you when there are better deals out there than your existing account. Make sure you put in the current balance for each of your savings accounts to get the best out of the tool

If you do opt to put your money in a savings account then you would likely get under 3% interest a year, and even this will be liable to income tax if it is outside of a cash ISA. Remember to ensure that your savings are covered by the Financial Services Compensation Scheme so your money is sage should your bank go bust.

Investment ideas for £50,000

So assuming you are happy with investment risk what types of asset could you invest in?

Buy-to-let property

As a nation we have a love affair with property. Yet, despite what people tell you the reality is that house prices tend to only keep pace with inflation, having increased by just under 3% a year over the last 50 years. However that masks some huge market falls.

Part of the reason for its popularity is that property is relatively easy to understand. You buy a house, get people to live in it for rent. Then you sell it when you get fed up. Well that's the theory anyway. The problem is that it is seldom that straight forward.  While the average gross rental yield in the UK is around 5% this doesn't take into account  a whole host of costs. such as the mortgage cost, insurance, letting agent costs (if used), void periods, repairs and eventual selling costs.

The reason people do make money on property is that they often use their money (say £50,000 or £100,000) as a deposit and take out a buy-to-let mortgage to buy the property. Or in other words they leverage their investment. Would you borrow money and invest it in the stock market? The answer would almost certainly be no, but people are more comfortable with the idea when it comes to property.

Buy-to-let’s biggest attraction is that it is seen as low risk and easy to understand. Yet the problem is it’s a difficult investment to manage which is why it is not a great investment for most people.

Investing in assets via funds

Personally I prefer to invest via funds. Funds are collective investments which pool investors money together so they can benefit from economies of scale and reduce costs. There are thousands of funds out there investing money in a range of assets from shares, bonds, commodities and property. Funds are run by a manager whose job it is to analyse a company's accounts, in the case of funds investing in shares, and pick the best shares to buy.

What this means is that you can then pick the best funds for you and build a portfolio which covers a range of assets such as those mentioned in the next section. Without using funds it would be very difficult to build a diverse and cost effective portfolio if you bought assets directly. The beauty of funds (be they investment trusts, investment trusts or exchange traded funds) is that you can buy and sell them very easily.

I strongly suggest that you download the guide to investing in funds* to find out all you need to know about how to invest in funds. To accompany this the top-rated funds to invest in guide* provides a good reference point for the best quality investments across major investment sectors.

Basic asset types and historic returns

You can invest in funds via a Stocks and Shares ISA or a pension. The beauty of doing so is that you can then build a portfolio of funds to maximise your returns. Below I list two key asset types you will likely invest in and their potential returns.

  • Equities (shares) - these are company shares traded on the stock exchange. Yet as a UK investor you do not just have to invest in UK shares, you can invest in shares from around the world. Some investors do invest in shares directly after researching a company, yet this carries much higher investment risk than investing via a fund as you'd be lumping all your eggs in one or two baskets. For example, a manager of a fund specialising in UK equities would typically invest in between 50 and 100 different companies. Shares are typically medium to high risk investments. According to the Barclays Equity Gilt Study equities have produced an average return of around 5.5% a year over the last 50 years. Yet in that time there have been big market falls as well as rallies.
  • Bonds - bonds are loans to companies or governments that are tradable. They are low risk investments and have historically moved in the opposite direction to equities. Again, there is a whole range of types of bonds from around the world which dictates the types of risks and returns you might expect. Average annual returns from UK bonds over the last 5 years is around 3%.

Follow me as I invest £50,000 of my own money

The key to successful investing is knowing what to invest in and when. This is where the world of financial services tries to pull the wool over people's eyes. They do this by making out that it is far more complex than it is but also overstating their own expertise. For example, most financial advisers have no investment expertise, instead picking from a short list of funds often promoted by the people actually running them.

That's why no other commentators or IFAs run an open portfolio to show how good they are at investing. It is for this reason that I actually invest £50,000 of my own money for the benefit of 80-20 Investor subscribers. 80-20 Investor is my DIY investing service which teaches people how to run their own money and make sure they are in the best performing funds. I continually update subscribers with the funds I buy and why.

I have been running the portfolio for 9 months and in that time we've experienced market-sell offs, a Chinese equity market collapse, a commodity crash and Europe almost imploding as a result of the Greek debt crisis.

Yet despite this, within just the first 9 months my portfolio is comfortably beating professional fund managers running their own portfolios. The portfolio is also comfortably beating the UK stock market which is down almost 12% over the same period. The reason I have been able to do this is that I have moved in and out of markets at the right time using the 80-20 Investor algorithm.

You can find out more about 80-20 Investor here and see how it can help even complete novices run their own money. The chart below (click to enlarge) shows how the 80-20 Investor algorithm (green line) has performed versus the average fund manager (blue line) and the UK stock market (red line) since inception in August 2014.


linechart (2)

Advice on how to invest your own money

If you want to run your own money then it is possible to build your own investment portfolio successfully. The three key things that all successful investors do is

  1. keep costs down - they do this by keeping investment charges low
  2. minimise tax - you need to ensure that you pay as little tax on your profits as possible. You can do this by investing in funds within a Stocks and Shares ISA or a pension
  3. stick to a proven investment strategy

The last one is the biggest stumbling block for DIY investors. But what strategy should you choose when running your own money? How can you work out where to invest and when?

I answered these questions by analysing the performance of (plus talking to) fund managers and looking at the tools and strategies the most successful ones use. On top of that thousands of academic papers have been published on the topic some of which have analysed investment markets going back as far as 100 years. Yet it is possible to distil this down so that you can invest your money with just a few minutes effort a month.

It is exactly how I invest my own money (such as the aforementioned £50,000). From my research I discovered:

  • The one thing keeping investment professionals up at night
  • The most important skill in fund management
  • Why fund managers underperform & the 1st advantage DIY investors have over them
  • The second advantage you have over professional fund managers
  • The simple tool to help you beat the market
  • The most important investment lesson you will ever learn
  • The investment process fund managers want to keep to themselves
  • I finally answered the question of whether passive or active investing is best
  • Why you should stop reading the money pages & how to build a portfolio

As a result I created a FREE short series of emails that shows you the techniques and tools to help you succeed at DIY investing. It's FREE for a limited time only and covers all of the points above and more. Each of the concise email aims to equip you with knowledge of how to run your own money independently. Plus, you will also receive the '39 simple ways to pay less tax' ebook when you sign up.

Alternatively, the simple & cheap solution for beginners

But if you want to simply benefit from the cost savings associated with running your own money but don't want to manage your own portfolio then, there are a couple of companies who can manage stocks and shares ISAs on a discretionary basis for a relatively low fee. One of the few companies that does is Bestinvest. They run a selection of four portfolios (Aggressive Growth, Growth, Defensive and Income) which are tailor-made based on their in-house investment research. They have produced a useful guide which explains how they run each portfolio* and it will help you decide which is appropriate for you. Bestinvest then manage the underlying investment selection for you, meaning that you don't have to do anything. Bestinvest have won numerous industry awards for their investment service including Wealth Manager of the Year.

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MTTM Podcast 72: What is a Bear market & what to do, Should you avoid over 50s Plans?http://moneytothemasses.com/news/podcast/mttm-podcast-72-what-is-a-bear-market-what-to-do-should-you-avoid-over-50s-plans http://moneytothemasses.com/news/podcast/mttm-podcast-72-what-is-a-bear-market-what-to-do-should-you-avoid-over-50s-plans#comments Mon, 25 Jan 2016 12:28:09 +0000 http://moneytothemasses.com/?p=21264 Click on the media player below to listen to Episode 72 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'.  You can also subscribe to the show via iTunes   Show transcript coming soon...

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Click on the media player below to listen to Episode 72 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'.

 You can also subscribe to the show via iTunes

 

Show transcript coming soon...

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