Steak's Growth Portfolio

[Steak]

First time posting here so hope it is the right section. Thankfully I have eventually found a decent investment forum.
Need some advice from more experience posters. I'm 39 and intend retiring at 60. This is my plan.....
I started investing 3 years ago and also started a pension 3 years ago.
I have £20000 in a L&G workplace scheme. 50% in L&G US index tracker + 50% in European index tracker. I used trackers to keep the cost down plus get efficient exposure to the US. i intend to hold the US till near retirement. Not sure about the European. I put in 7% of my basic salary which my compamy matches. £265 a month. Should I just combine to a global tracker?

I hold 12 investments in an ISA through Hargreaves. I drip feed £440 a month, £40 into each fund. I will also add from next month an extra £40 to be held back until the end of the year then top up the worse performing fund. Investments are:-
Open ended funds Acc. units
Fundsmith £1682 +24%
First state global listed infrastructure £1656 + 24%
Lindsell Train UK eqity £1521 + 23%
Baillie Giff emerging markets £1605 +11%
Old Mutaul UK smaller cos £1410 + 10%
M&G Japanese smaller cos £1077 + 9%
Axa Fram global tech £1601 + 7%
Axa Fram biotech £1271 + 7%
Barings German growth £2661 + 6%
Henderson European smaller cos £1051 + 5%
Baillie Giff Grater China £1433 + 4%

Shares:- Impax asset management £3135 + 22% divi's will be re-invested. They have a progressive divi. plan and is also a high growth investment in a niche area.

Using an compound calculator assuming 6% annual growth and £40 a month contributions (21 years) each average fund should be worth £25000.
My plan (not sure need advice) is to combine 4 funds into 1 monthly paying income fund holding smaller companies combine another 4 into 1 monthly paying income fund holding large caps and leave the other 4 investmenst in equity funds, acc. units. My work pension i will take out 25% and hold in cash in a bank account for emergencies or stock market severe corrections. i will take 1 lump per year keeping under my personal tax level for a holiday. Until 70 when i believe i will need to take it all out? Before retiring i will swith the pension pot into something a bit more defensive than holding trackers.

Question:- If a monthly income fund is paying 4% yield does this mean it pays out 4% of my capital monthly? I know it can fluctuate and there is obviously charges. Forgive the silly question but i dont know much about yields and income and as you can see it is vitally important to my retirement plan.
Any advice, opinions would be most welcome. many thanks in advance. Please be gentle it is first time posting my portfolio.

[dspp]

Steak,

Welcome to TLF.

This thread is more about Dod's Growth Portfolio and it is possible that one of the Moderators will split you off onto another thread so that people can follow the discussion.

What you are seeking to do is, in general, called FIRE: Financial Independence / Retire Early. There is actually a section of this site dedicated to that. viewforum.php?f=30 . Mind you it is a long haul between where you are and where you want to be, and a lot of life's happenings will complicate things between now and then, life does that (spouses, children, health .......). I suggest you take a read through some of the discussions on that.

You'll need to think through and explain how you will pay for housing, both now and when retired, as that is an important financial consideration.

Regarding yield it is generally stated on an annual basis. If it is a monthly fund it pays out 1/12 of that 4% each month.

Regarding what you are investing in, my personal opinion is that it is fairly middle of the road selections you are making and there is nothing necessarily wrong with that. I am not an expert (some hereabouts are) so don't put any faith in anything I say. The key thing is to stick with saving as much as you can as often as you can, and keep the spending down. Good luck.

Regards, dspp

[edit: up on the top right is a private messages counter. Keep an eye on that, especially if your post disappears. Just click on it to follow through to the PM inbox. It is quite likely that one of the Mods will relocate it and send you a PM to tell you where to go and find it.]

[tjh290633]

Just an odd thought. My approach was to aim for income from my investments and reinvest the dividends. That way I could use the way the income grew as a measure of progress, rather than focussing on the capital value. I found that I got better results from the income generators, rather than the "growth" shares, in terms of total return.

You seem to have a well thought out plan, but never be afraid to change direction if one of your sectors disappoints. On the other hand, sectors go out of favour and come back into favour on market whims, so being a little contrarian can be a good tactic.

Good luck with your portfolio.

TJH

[argoal]

Hi Streak welcome to TLF.

I think that it is great that you have a clear straightforward plan as that is at least 75% of the battle if you want to retire early. Obviously, in life things will happen that mean the plan needs to be flexed from time to time but as long as you track progress occasionally you will be able to adjust as necessary along the way.

I'm pretty much retired at 55 after putting together a similar type of plan 10 years ago to retire at 57.

I'll add a couple of points that might be worth thinking about.

1. Assuming that you are a 40% tax rate payer, it would be more tax efficient to increase your contributions to your pension rather than necessarily put money into an ISA. You will almost certainly be a basic tax payer at 60 so have an effective tax saving of 20% excluding any tax free lump sum that you may be able to take at 55, if it is still available. You are pretty unlikely to hit the lifetime pension allowance (~£1M) so that should not be an immediate worry.

2. My work pension is also in L&G trackers and I think they offer teriffic value with very low costs. (no other connection to L&G)

3. Be careful about your assumption of 6% growth on the funds. I would assume a lower real growth (after inflation) percentage. If you haven't factored in an expectation for inflation then you should probably not assume that the low inflation environment we have seen for the last 10+ years will continue.

4. The funds look expensive to me. In long term investing cost matters - a lot!
These funds may do better than a global tracker fund(s), but will cost around 1% more per year in charges.

5. Your stock/bond ratio (100%/0%) suggest that you have a high risk tolerance! Could you stomach following the plan for 10 years and then see the portfolio lose 40% of its value in short order without panicking? If not, then add some government bonds or cash to the mix to help you sleep at nights.

Regarding your specific questions:

1. A global tracker in your pension account seems like a good idea unless you know something about the development of the global economy over the next 20 years that others don't. (possibly mixed with some bonds)

2. Regarding the 4% yield income fund; from some it will be a mixture of capital and income. It really depends on the fund. You have time to think about the execution of this part of the plan so don't worry unduly as the landscape might be different in 20 years time. You may have a number of reasonable options to chose from for generating income when the time comes.

Good luck

[YeeWo]

The Old-Chestnut of Income v Growth is (IMHO) best resolved by doing a bit of both and making sure your investments are measured on an XIRR basis in Excel. This way you can see the time bound return from a NPV perspective including any dividends you may/may not of received!

I agree with the points made about diversification into some lower risk assets. Index linked UK Govt bonds perhaps?

I know it's a very long time away, but do you envisage buying an annuity or going into drawdown?

Good Luck!

[Steak]

Firstly apologies for hijacking the last thread.
“To make god laugh make plans” has rung true over the years. I have a wife and kids so only too aware of unexpected outgoings. I have various bank accounts to budget for life’s expenses ie bills, holidays, cars etc.

At last I have found like minded people I can converse with that understand my plans/terminology etc. Though I am no expert but as you say at least I have an idea of a plan.
Some excellent responses thank you.
I didn’t fully think about inflation. My work pension contributions will rise each year with my payrise so that would dampen inflation a bit. Each year I will increase my contributions to my ISA to neutralise inflation. Can’t believe I overlooked doing that in my ISA. Near retirement date I will increase my contributions greatly and as you say will diversify a percentage away from equities. As I’ve still got at least 15 years yet I can live either the swings of the market. Monthly contributions should afford cost price averaging to some extent.
My pension contributions are salary sacrifice. My thinking was only match the company contributions to get the “free” money from my employer. Put the rest into ISA so I can get it out tax free but that’s assuming basic rate will still be 20% and no tax on ISA’s...........mmmmm who knows, anyone’s guess that.
If I invested in income units I would get charge for re-investing the divi’s so better off with Acc units.
As it stands annuities are rip offs. Some that I have seen would take over 30 years to get my money back so I’m aiming for drawdown. As I stands at the moment I also get a full state pension at 67......at the moment.
Which brings me to yields. I know yields may be completely different in 20 years but all my investing is aiming towards, hopefully drawing down the natural yield. School boy error. I thought 4% yield a month meant a payout of 4% a month of my capital. I am informed this is wrong. I’d only get 1/12 of 4% a month if the fund pays out monthly. Completed gutted. I will also look at investment trusts nearer the time. Just not cost effective through HL during my accumulation period.

[OLTB]

Firstly apologies for hijacking the last thread.
“To make god laugh make plans” has rung true over the years. I have a wife and kids so only too aware of unexpected outgoings. I have various bank accounts to budget for life’s expenses ie bills, holidays, cars etc.

At last I have found like minded people I can converse with that understand my plans/terminology etc. Though I am no expert but as you say at least I have an idea of a plan.
Some excellent responses thank you.
I didn’t fully think about inflation. My work pension contributions will rise each year with my payrise so that would dampen inflation a bit. Each year I will increase my contributions to my ISA to neutralise inflation. Can’t believe I overlooked doing that in my ISA. Near retirement date I will increase my contributions greatly and as you say will diversify a percentage away from equities. As I’ve still got at least 15 years yet I can live either the swings of the market. Monthly contributions should afford cost price averaging to some extent.
My pension contributions are salary sacrifice. My thinking was only match the company contributions to get the “free” money from my employer. Put the rest into ISA so I can get it out tax free but that’s assuming basic rate will still be 20% and no tax on ISA’s...........mmmmm who knows, anyone’s guess that.
If I invested in income units I would get charge for re-investing the divi’s so better off with Acc units.
As it stands annuities are rip offs. Some that I have seen would take over 30 years to get my money back so I’m aiming for drawdown. As I stands at the moment I also get a full state pension at 67......at the moment.
Which brings me to yields. I know yields may be completely different in 20 years but all my investing is aiming towards, hopefully drawing down the natural yield. School boy error. I thought 4% yield a month meant a payout of 4% a month of my capital. I am informed this is wrong. I’d only get 1/12 of 4% a month if the fund pays out monthly. Completed gutted. I will also look at investment trusts nearer the time. Just not cost effective through HL during my accumulation period.

Hi Steak - it's good to understand your current position and plan for the future. I too am planning for the future (looking to start working fewer days and drawing from SIPP in about 14 years time) and just a few comments to those that have been added:

At retirement and beyond, I intend to keep the vast majority of assets invested in equities / ITs and you state that you will diversify a percentage away from equities. As I see it, at retirement, if I have a 30 year window of income requirement then I would like my income (and capital) to be in assets that have the chance to keep up or exceed inflation, rather than dampening down that potential by moving away from equities.

Also, my SIPP is with HL and I think their costs for ITs are pretty fair - there is a maximum charge of £200 p.a. with shares and ITs (more for unit trusts and OEICS) and as my SIPP holds only shares, ITs and ETFs, a £200 p.a. fee along with all the functionality and services I'm very happy with that.

Having read other posts from contributors here, the compounding effects from re-invested dividends are where huge differences in final outcomes can be made. I therefore re-invest dividends once charges are reasonable (about the £1k level) and will keep doing this until I need to draw. Contributors on the HYP board have also said that when it comes to drawing from your investments at retirement, restricting your drawing to say 75% - 80% of dividends received and re-investing the rest is a good long-term practice as well (for those leaners years when dividends may reduce for one reason or another).

Anyway, that's my little contribution - hope it helps and glad to have you on board.

Cheers, OLTB.

[Steak]

Yes makes complete sense. I will be leaving a percentage of my portfolio in equities to compound.
I will probably also switch to investment trusts depending on costs.
I will probably go part time for a year or two to adjust to retirement but while I will still be young enough and hopefully in good health I want to enjoy my retirement as much as I can.
As you all know my decisions are going to massively effected by tax law and pension rules and “reforms” not to mention various governments fiddling the books and trying to steal my money.
So for now I will stick to the plan of putting away as much away in monthly contributions as I can and see where I am in 15 years.
One question :- should I swap IPX for a high income fund and reinvest the dividends? As I don’t contribute anything to this stock.

[OLTB]

One question :- should I swap IPX for a high income fund and reinvest the dividends? As I don’t contribute anything to this stock.

Wouldn't like to say - I'll swerve that!

Cheers, OLTB.

[Steak]

Ha Ha fair enough.

[Hariseldon58]

Regular investing in a diversified portfolio through thick and thin , reinvesting income and reducing costs to the bare minimum.

Thats all there really is to say but....you have to believe it and have real faith to keep going through the inevitable periods of poor performance and not to lose resolve and sell things or juggle your portfolio from those areas which have done badly for you to other apparently more promising investments ,( it ends badly if you do that !)

The tendency is to feel that you need to do something, research and pick the best and most promising funds covering the areas which you think are going to drive performance, emerging markets, smaller companies, biotech, China and Germany, tech etc, been there and done that, it generally doesn't work out as the predicted outperformance is either in the price or the region/stock type flourishes but not the individual companies or it unexpectedly does really poorly.

The income stocks proved to be very successful for me for many years until they didn't.......low interest rates have made income producing assets prized and some companies increase the dividends paid artificially because thats what investors want and you end up overpaying.

I could go on but suggest visiting Monevator , really useful info.

When I had a relatively small portfolio, the more complex the portfolio and the more individual investment trusts and trackers etc I had, I now have a very simple passive portfolio using ETFs from Vanguard and a couple of other elements targeting value, costs are under 0.15%, transactions are few and far between and the portfolio has provided a very generous lifestyle over recent years with a portfolio that is not dissimilar to a Vanguard Lifestyle 100 plus some cash/property.