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currency considerations
currency considerations
Firstly, I am not wealthy. A UK state pension will represent a majority of my retirement income.
A handful of years left of Class 2 NI contributions.
So I am sterling exposed.
I own half a cheap house here as well, so more sterling exposure, but I do have a reasonable sum in an ISA that is mostly cash.
I picked up some IT exposure focusing internationally when things looked obviously cheaper recently but things aren't as obviously cheap now and sterling is obviously in the toilet.
Next move?
W.
A handful of years left of Class 2 NI contributions.
So I am sterling exposed.
I own half a cheap house here as well, so more sterling exposure, but I do have a reasonable sum in an ISA that is mostly cash.
I picked up some IT exposure focusing internationally when things looked obviously cheaper recently but things aren't as obviously cheap now and sterling is obviously in the toilet.
Next move?
W.
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- Lemon Half
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Re: currency considerations
Does your retirement plan involve spending a lot of non-sterling currency? If not then maybe it's not much of a problem.
Earn pounds, spend pounds - exchange rate doesn't really matter.
Scott.
Earn pounds, spend pounds - exchange rate doesn't really matter.
Scott.
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- Lemon Slice
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Re: currency considerations
Would it help, soliciting 'help', if you were a bit clearer in what you want?
'Next move?' with a 'currency considerations' heading against the skeleton of a retirement funding plan is somewhat vague.
I'm inclined to think currency issues are not a big thing in your affairs, as they aren't in mine, and a 'next move' regarding an overall financial strategy could be a more productive discussion. But I don't know if you're interested in that subject.
'Next move?' with a 'currency considerations' heading against the skeleton of a retirement funding plan is somewhat vague.
I'm inclined to think currency issues are not a big thing in your affairs, as they aren't in mine, and a 'next move' regarding an overall financial strategy could be a more productive discussion. But I don't know if you're interested in that subject.
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- Lemon Slice
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Re: currency considerations
swill453 wrote:Does your retirement plan involve spending a lot of non-sterling currency? If not then maybe it's not much of a problem.
Earn pounds, spend pounds - exchange rate doesn't really matter.
Scott.
This is a commonly held view and true to an extent but a drop in the sterling exchange rate should result in the cost of imported items, such as food, cars, etc., becoming more expensive. Sterling has been a pretty consistent underperformer over the decades.
TP2.
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- Lemon Half
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Re: currency considerations
TahiPanasDua wrote:swill453 wrote:Does your retirement plan involve spending a lot of non-sterling currency? If not then maybe it's not much of a problem.
Earn pounds, spend pounds - exchange rate doesn't really matter.
Scott.
This is a commonly held view and true to an extent but a drop in the sterling exchange rate should result in the cost of imported items, such as food, cars, etc., becoming more expensive. Sterling has been a pretty consistent underperformer over the decades.
TP2.
Yet food, cars are cheaper not more expensive. Your point is valid but the non-£ cost input into many goods and services isn't that great, and productivity offsets it too.
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- Lemon Quarter
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Re: currency considerations
Being sterling exposed only matters if you are having to spend in foreign currencies. If the pound falls a lot, that will put up the cost of imported goods, essentially feeding inflation. The state pension is index linked, so provided the government does not renege on that index linking, you are immunised to a certain extent from a falling pound/inflation.
One thing you might like to consider is delaying when you take your state pension. Live off your capital for a year or 2 instead. If you take this option, you are essentially buying an index linked annuity from the government at a rate of about 5.9% before tax on the foregone pension payments. At present that is an extremely good deal compared to the market, even if you have to pay 20% income tax on it. Again, the risk here is a future government reneging on the inflation protection.
The other "Next move?" I can think of is that if you are not already doing it, you should consider paying as much as you can into a SIPP, drawing from your ISA if you have to. Round tripping money from ISA to SIPP and back will boost it by 6.25% before costs, compared to just leaving it in the ISA. That assumes you drawdown your SIPP 25% tax free and the rest at 20% tax. If you can drawdown at less than 20%, with some money falling within your personal allowance, you gain more. Combining state pension deferral with your SIPP may mean you are able to withdraw more from your SIPP at 0%. You need to look at the costs, including platform fees, trading costs and spreads before going down this route though. It can be done very cheaply, but ultimately depends on the platform and investments you choose.
One thing you might like to consider is delaying when you take your state pension. Live off your capital for a year or 2 instead. If you take this option, you are essentially buying an index linked annuity from the government at a rate of about 5.9% before tax on the foregone pension payments. At present that is an extremely good deal compared to the market, even if you have to pay 20% income tax on it. Again, the risk here is a future government reneging on the inflation protection.
The other "Next move?" I can think of is that if you are not already doing it, you should consider paying as much as you can into a SIPP, drawing from your ISA if you have to. Round tripping money from ISA to SIPP and back will boost it by 6.25% before costs, compared to just leaving it in the ISA. That assumes you drawdown your SIPP 25% tax free and the rest at 20% tax. If you can drawdown at less than 20%, with some money falling within your personal allowance, you gain more. Combining state pension deferral with your SIPP may mean you are able to withdraw more from your SIPP at 0%. You need to look at the costs, including platform fees, trading costs and spreads before going down this route though. It can be done very cheaply, but ultimately depends on the platform and investments you choose.
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- Lemon Quarter
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Re: currency considerations
hiriskpaul wrote:The state pension is index linked, so provided the government does not renege on that index linking, you are immunised to a certain extent from a falling pound/inflation.
I like all the qualifications in that sentence! I think hiriskpaul is well aware of the gotchas!
GS
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- Lemon Quarter
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Re: currency considerations
hiriskpaul wrote:Round tripping money from ISA to SIPP and back will boost it by 6.25% before costs, compared to just leaving it in the ISA.
Which ways are the more cost effective? viewtopic.php?p=323103#p323103
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Re: currency considerations
1nvest wrote:hiriskpaul wrote:Round tripping money from ISA to SIPP and back will boost it by 6.25% before costs, compared to just leaving it in the ISA.
Which ways are the more cost effective? viewtopic.php?p=323103#p323103
I was thinking more in terms of low platform and dealing costs, low spreads, no stamp duty, etc. For small SIPPs, Vanguard is hard to beat. No trading costs at all, very low to zero spreads, low fund management fees all for a platform fee of 0.15%. They don't have any drawdown mechanisms yet, other than transferring out to another broker (for free), but they have said they will introduce drawdown this year and there will be no additional charges.
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Re: currency considerations
A nice brokerage for holding multiple currencies is ii as you can convert once (incurring a charge) and then leave that currency as-is, buying and selling stocks denominated in that currency, seeing dividends paid in that currency adding to the holdings of that currency. A standard trading account and ISA combined will cost around £10/month however, but they do allow one 'free' trade/month against that, so if you do trade regularly that cost is in effect reduced.
If at the start of 1972 you stacked your cash under a bed, left it as-is, then RPI inflation would have eroded the purchase power of that cash at a rate of 5.7%/year.
If instead you held hard currencies of physical gold, US$ and £'s in equal measure (rebalacing to a third each, each year), then the value would have lost -1.5%/year.
If you opted to invest half the £'s in UK stock, keep the other other £'s under the bed, and invested half the US$ in US stocks, kept the other half of US$ under the bed ... then you'd have seen the value gain +2.5%/year relative to RPI inflation.
If all of the £'s were invested in UK stocks, all of the $'s invested in US stocks, then the value would have gained over +6%/year relative to RPI
For UK £'s a FT All Share tracker fund and for US$'s a US S&P500 tracker fund are good enough. Accumulation funds are better as that avoids having to manage dividends (that maybe incur costs in the process). And each of those can be held for 0.06%/year (fund) costs (in both cases Unit Trusts i.e. HSBC's S&P500 fund, and Vanguards UK FT All Share fund).
iweb is another broker that looks reasonable to me for avoiding the £10/month cost, but does incur costs in other ways such as trading in/out of currencies rather than being able to leave currencies as-is. Here are iWeb's links to those funds ...
https://www.markets.iweb-sharedealing.c ... 00B3X7QG63
https://www.markets.iweb-sharedealing.c ... 00B80QG615
Many don't see gold as a currency and hate the idea of holding any other than perhaps just a little. But at times it is the currency that shines relative to others such as the primary reserve currency (US$) and/or our domestic currency (£). At other times it lags, that's just the way the cookie crumbles. Diversifying equally across all three can be better than being heavily concentrated into one alone- as in all cases (concentration risk is one of the greatest risks).
The image below shows the total return accumulation/growth where £ and $ were invested in their respective stocks/funds (excluding costs/taxes and assuming rebalancing all three back to around equal weightings/value each year). It's a thumbnail image so you have to click it to see a larger/readable version
Whether you prefer to hold all of £ and $ currencies in their respective stock markets, or just part, and perhaps where some of £'s for instance are instead kept in a savings account earning interest ... or whatever, is a personal comfort factor. Some say its best to neither be fully in hard currencies (stuffed under a bed), nor all in stock. Markowitz for instance (an American economist) originally opted for 50/50 on the basis that
But for others higher potential rewards from all-stock may take precedence over the lower potential rewards from 50/50 stock/cash
Benjamin Graham also liked 50/50, but with a range of no less than 25% stock, no more than 75% stock optionality. i.e. a conservative investor should hold at least 25% in stocks. As a extension to that earlier image for instance if £'s were kept as hard currency under the bed, all of $'s were invested in US stocks, then that provided a +2.3%/year benefit relative to RPI inflation. And of course if instead those £'s were deposited in a savings account earning interest, then that would have further enhanced rewards.
If at the start of 1972 you stacked your cash under a bed, left it as-is, then RPI inflation would have eroded the purchase power of that cash at a rate of 5.7%/year.
If instead you held hard currencies of physical gold, US$ and £'s in equal measure (rebalacing to a third each, each year), then the value would have lost -1.5%/year.
If you opted to invest half the £'s in UK stock, keep the other other £'s under the bed, and invested half the US$ in US stocks, kept the other half of US$ under the bed ... then you'd have seen the value gain +2.5%/year relative to RPI inflation.
If all of the £'s were invested in UK stocks, all of the $'s invested in US stocks, then the value would have gained over +6%/year relative to RPI
For UK £'s a FT All Share tracker fund and for US$'s a US S&P500 tracker fund are good enough. Accumulation funds are better as that avoids having to manage dividends (that maybe incur costs in the process). And each of those can be held for 0.06%/year (fund) costs (in both cases Unit Trusts i.e. HSBC's S&P500 fund, and Vanguards UK FT All Share fund).
iweb is another broker that looks reasonable to me for avoiding the £10/month cost, but does incur costs in other ways such as trading in/out of currencies rather than being able to leave currencies as-is. Here are iWeb's links to those funds ...
https://www.markets.iweb-sharedealing.c ... 00B3X7QG63
https://www.markets.iweb-sharedealing.c ... 00B80QG615
Many don't see gold as a currency and hate the idea of holding any other than perhaps just a little. But at times it is the currency that shines relative to others such as the primary reserve currency (US$) and/or our domestic currency (£). At other times it lags, that's just the way the cookie crumbles. Diversifying equally across all three can be better than being heavily concentrated into one alone- as in all cases (concentration risk is one of the greatest risks).
The image below shows the total return accumulation/growth where £ and $ were invested in their respective stocks/funds (excluding costs/taxes and assuming rebalancing all three back to around equal weightings/value each year). It's a thumbnail image so you have to click it to see a larger/readable version
Whether you prefer to hold all of £ and $ currencies in their respective stock markets, or just part, and perhaps where some of £'s for instance are instead kept in a savings account earning interest ... or whatever, is a personal comfort factor. Some say its best to neither be fully in hard currencies (stuffed under a bed), nor all in stock. Markowitz for instance (an American economist) originally opted for 50/50 on the basis that
if the stock market rose a great deal, I would regret it if I was completely out of it. Conversely, if stocks fell a great deal and I had nothing in bonds I would also have regrets. So, my 50-50 split minimised maximum regret
But for others higher potential rewards from all-stock may take precedence over the lower potential rewards from 50/50 stock/cash
Benjamin Graham also liked 50/50, but with a range of no less than 25% stock, no more than 75% stock optionality. i.e. a conservative investor should hold at least 25% in stocks. As a extension to that earlier image for instance if £'s were kept as hard currency under the bed, all of $'s were invested in US stocks, then that provided a +2.3%/year benefit relative to RPI inflation. And of course if instead those £'s were deposited in a savings account earning interest, then that would have further enhanced rewards.
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