The Boy’s Annual Investment Update 1

It’s been pretty mcuh a yeat since we started investing for out child, how has recently celebrated his 1st birthday. We had a great day and a lovely weekend with family. He’s growing up fast, trying desperatelyt o speak, poitning at his balloons and getting really close to standing upsupported.

In terms of his investment in my ISA, this currently stands £2005.39. This includes some recent inputs following his birthday but doesn’t include the most recent child benefit payment which is in my bank account. It does this for just over 3 weeks every month because of the timings of HL’s regular savings.

My target is to reach £20,000 by the time he is 17 or 18 (I haven’t decided yet). I’m confident we are on track, which I’ll return to later.

 

His portfolio breaks down as follows:

The explanations of this are below with their 28/2/107-28/2/2018 performance in brackets (although I haven’t necessarily been invested in them for that long nor seen that performance).

BlackRock consensus 100 (+7.47%)

This is his ‘Port Fund’! Rather than invest in a bottle of port or wine for his birthday to be opened at a big birthday in the future, I decided to invest £100 of the money received at his Christening to buy one in the future. I chose this because it seemed similar to Vanguard LS (it was initially invested in VG LS 80 but I changed because I thought I wanted to keep that open for the future – hence the higher initial cost. £100 should be seen as the baseline for this). I’ll just let this one grow.

FP Crux European Special Situations, Liontrust Special Situations and Schroder US Mid Cap Growth. (+14.56%, +7.53%, -2.91%)

These are the ones that his monthly investments have been going into. I started them before I had even heard of Vanguard and tracker funds. I was seduced by their past performance but there are some fees north of 0.71% here. They’ve been up and down over the last year and the European fund has been doing well. The US fund has, however, been beaten by trackers in the last year.

As such I’ve stopped paying into the European Fund and the US Mid Caps. Instead, £50 per month will go to the HSBC tracker, and £25 still to Liontrust. Part of me is curious to see how an Income fund goes and its UK based so I am prepared to keep it.

I’m still unsure whether or not to keep these or sell them to consolidate into other funds.

HSBC FTSE All World Index (+7.58%)

This purchase only settled yesterday for the first time with a £265 of birthday money input. I chose it based on the fact that it was All World rather than developed world and as such has some emerging markets in it. It was started in 2014 and is similar to VG LS 100 but the charges are slightly less (0.16% vs 0.22%). This will replace the two fund above as a monthly contribution target.

Marlborough UK Micro-Cap Growth (+23.54%)

This money was initially in the HL Income Select Fund and one of his first purchases. Again, this was before I had heard of tracker funds and I was seduced by HL and the novelty of monthly dividends. I sold it a while back and put it into this. This satisfies my itch for ‘active’ funds and yes, I know I’m going on past performance, but I’m happy with my decision.

Vanguard LifeStrategy 100 (7.36%)

I’m a big fan of this fund and will probably keep it for a very long time. I don’t have a regular saving here but every time his savings account hits £100 (a combination of small gifts or the remaining £7.20 each month from child benefit) I buy some of this. It’s been quite high this year but due to the recent fluctuations the growth has been a little lower. The figure above also includes an injection of £260 of birthday money.

Overall performance

According to HL the portfolio has gained 0.42% in total. However this fugure is pretty meaningless given that over 25% of the portfolio was invested in the last 2 days. Plus some of them are not the original investment fuigures of £100 becuase I originally invested in other funds.

 

Factors affecting the performance are the recent ‘correction’ which did fall on the day when the monthly savings take place, which was good. Nevertheless, any of the monthly savings were put in as markets were going up – higher than they are now.

But I’m happy with this performance and looking forward to the coming years to see how else it goes.

Inputs

The child benefit saving is doing well and I like it. It equates to just over £993 a year. The total inputs are probably a little flattering because he got some cash when he was born, some cash for his christening and some recent birthday cash which was rather large. We can’t count on these in the future so total contributions will probably be closer to £1000pa. Nevertheless, we’ve put in lots to start which, through the miracle of compounding, will see us right.

Target

In terms of my target of £20,000 by the time he is 17 of 18, this is what that looks like:

Assuming the current £2000 lump sum and £82 per month investment, a decent 6% growth rate and 2.5% inflation it looks at follows:

By the time he is 18 = £26,352.65 (£34,041.29 ogoring inlfation).

By the time he is 17 = £24,492.83 (£31,156.22 ignoring inflation).

Of course this does not include anything we take out, which is possible as he gets older, but also doesn’t include any extras we put in.

So overall, a great start I think! There are quite a few points here that I aim to elaborate on in future posts and I think the next year will see some further consolidation of the portfolio. But also some growth hopefully!

HL Income Select Fund – Sold

Back in March, at the start of my investment for the boy, he received some money. Being bombarded by some of the marketing from Hargreaves Lansdown, and not really knowing anywhere near what I know now, I bought £100 worth of their in-house ‘HL Select UK Income Shares’ for £1 each.

The fund is ‘a portfolio of high-quality, dividend-paying UK shares, chosen and managed by our experts in the convenience of a single fund. The fund aims to offer an attractive and growing level of income with long-term capital growth potential.’

What interested me was the transparency – they would publish their holdings, and importantly – the managers write a weekly blog to share their strategy and thoughts on the market, why they have bought certain shares and why they are holding on to others.

I think they initially said that they would pay a monthly dividend of 0.3p, which sounded ok and different to the normal process of annual dividends. After about 6 months they would assess this.

The fund had a big uptake of people; the fact sheet currently says it has a size of £232 million. The total charge is 0.6%.

After an initial spurt of growth (see below, the fund went South and never really recovered back up to the initial £1 price. Similar issues that have affected Neil Woodford (Friends Provident especially – although HL stuck to their guns initially they got out of it sooner than Woodford).

Share price since launch – 11th Jan 2018.

The HL Top 10 as of 12th Jan

 

As such, I decided to sell this fund at the start of December for £96.90, a loss of £3.10. I decided to go for another fund that HL keep pushing; Marlborough UK Micro Cap Growth. This is a bit more sporty, much more volatile but seeing as this was an initial £100 that was available for investment over 18 years or so, it fitted my overall strategy.

Knowing what I know now – I know it’s not a passive fund. The net charge is 0.75%. But I’m happy if it perhaps scratches the itch to be more active or have something that (currently) beats the market and provides great returns. I sold the HL fund because of poor performance – even thought it was based on income and should have been slow and steady.

After a month of investment the fund is up 7.41%. So my £100 has gone down to £96.90 but is now back up to £104.08. I know that past performance isn’t an indicator of future performance. But I am happy with getting rid of the HL fund, which was under performing, and swapping for something a bit ‘racier’ in comparison to the rest of the portfolio which has a very long-term outlook.

As always, do your own research.

My SIPP Choices

After much deliberation I put into action my SIPP plan in June by investing in a portfolio. This was based on varied reading on Monevator, DIY Investor, the books of John Edwards on DIY Income and DIY Pensions, and a host of other sources and blogs.

Having looked into my overall risk profile and risk tolerance, which came out as ‘High’, I’ve gone with a Smarter Portfolio 100, or 100% equities and no bond allocation just yet. At age 31 and a long time horizon on my side, I can do this quite comfortably. I can ride out the waves and take advantage of investing regularly.

I think it’s important to note that this isn’t a totally passive fund and although more than half of it is in trackers, there are some tilts here and as such I have some actively managed funds.

Based on the arguments of Hale, I’ve gone for a Global Smarter 100 portfolio and the tilted version at that (p.133 of ‘Smarter Investing’. This includes  some nods towards global smaller companies, global value and emerging markets value and small. This breaks 100% down into the following percentages.

Global – Market (developed) 45%

Global – value (developed) 15%

Global – smaller companies (developed) – 15%.

Emerging markets – market. 10%

Emerging markets – value and small. 5%

Global commercial real estate (REIT). 10%

Into this I have come up with the following portfolio and percentages. These are a mixture of tracker and some managed funds in the cases where there is no tracker fund available.

Global – Market (developed) 45%	Charge	Proportion	Weighted Charge
Vanguard FTSE Developed World ex-UK Equity Index Fund	0.15%	45%	0.07%

 

This felt like a bit of a no-brainer to me. This is the bulk of the portfolio and forms the core equity return of the portfolio. It excludes the UK, although this is represented elsewhere in the portfolio.

 

Global – value (developed) 15%
Artemis Global Income	0.72%	7.5%	0.05%
CF Woodford Equity Income	0.60%	7.5%	0.05%

I’ve gone for active managed funds here and split the 15% into 2 lots of 7.5%. I wanted some exposure to the Woodford fund (although I know this will be unpopular with many and goes against a lot of the thoughts on funds in general!) Artemis offer some global exposure and some very good past performance.

 

Global – smaller companies (developed) – 15%.
Vanguard Global Small-Cap Index	0.38%	7.5%	0.03%
Invesco Perpetual Global Small Companies	0.90%	7.5%	0.07%

I think that smaller companies is an area where some active management is useful. But I’ve also gone for the VG tracker. It’s quite early days and to be honest I don’t think there is enough data to fully placate me and let me trust that they have got this right.

 

Emerging markets – market. 10%
VG Global Emerging Markets	0.80%	7.5%	0.06%

I’ve gone for the VG option here as it is one of the cheaper options and it gives a general market flavour. Interestingly this isn’t a tracker but an actively managed fund from Vanguard managed by 3 different companies, each with a specialism in a different sector or area.

 

Emerging markets – value and small. 5%
Templeton Emerging Markets Small	1.66%	7.5%	0.12%

As with value, emerging markets and small sectors, I think some active management is useful. Here I’ve gone for one of the best based on prior performance.  I am aware of the high charge here and this is something I will monitor. However this is a ’tilt’ and a way of saying I think these will beat the market and see this as the premium to pay. I’ll monitor this in the future.

 

Global commercial real estate (REIT). 10%
BlackRock Global Property Secs. Eq. Tracker Class H	0.20%	10.0%	0.02%

Finally, Tim Hale recommends some diversification and this is the relatively defensive aspect of the portfolio rather than opt for bonds at this stage. I’ve gone for a tracker that has performed relatively well.

 

Costs and actual contributions

My overall weighted charge is 0.47% plus the 0.45% HL platform fee. If, as they seem to be planning, VG are planning to have a SIPP option, then I may well decide to open up a SIPP over there at the lower platform fee and split the SIPP to include those funds that they offer over on their platform.

At the moment, the portfolio isn’t at the percentages it needs. Because it is relatively small and I can’t quite set up a monthly Direct Debit (and I’m awaiting the tax relief of 25%), £100 was the minimum I could add. So those that should be around 7.5% are closer to 10% but I will adjust as required.

Thanks to the wonders of HL portfolio analysis, these are the breakdowns of my portfolio:

 

And in pictorial form:

 

So there we have it. After months of research and planning, this is my SIPP portfolio allocation.

Checking NI Contributions, State Pension and Voluntary Payments

After reading some of the comments yesterday over at The Matrix Experiment I decided to check out my National Insurance contributions. It’s actually pretty easy; all you need to do is go here:

Check your National Insurance record

You’ll need a government gateway ID and account but this is all pretty easy if you have your passport/P60/payslip to hand. I was set up within 5 minutes and suitably surprised with the ease of use of a government service! If you’re already self-employed or doing a self-assessment return then chances are you’ve already got the account that you need.

It turns out that I’m in a better position that I thought! Here is my record at age 31:

So I have 10 years of full contributions, which is more than I’d calculated. This is partly because of 3 surprising ‘Full year’ contributions when I was a teenager – essentially when I was at college. I didn’t know this but I got ‘National Insurance Credits’ at that age, presumably because those in full-time education can’t really earn NI contributions but those who choose to leave can.

In order to claim the maximum state pension at age 67 (currently) I need to make 35 contributions. Thus I have 36 years to make 25 contributions. Easy. I will presumably do that by the time I’m 56ish.

If I don’t pay anything more in, I would still get a state pension of £43.62 a week. Assuming I make the full amount of contributions, this goes up to the full £159.55 (currently).

Where I have incomplete years, I have still contributed something. This means that I am able to send of a cheque to make up for contributions if I so desire.

These are £265, £583, £389, £408. So a total of £1645. So my question is, at what point (if any) does it make sense to pay these and, possibly, is there a reason not to pay these?

The annual pension divided in 35ths means £237.86p. So for each extra year I top up,  I get that much extra each year from age 67 (or whatever it turns out to be). If I choose to pay the £1645 to HMRC now then it is worth an extra £951.44 per year.

However, what if I pay that £1645 into my SIPP? Plugging that into HL, assuming an annual charge of 1% total (to include platform fee) and 5% annual growth, by the time I am 60 it would be worth £2440, or as they say at around 4% pa, £91 per year income.

So it’s a case of don’t pay the contributions and at age 60 get £91 per year extra or pay the contributions and get and extra £951.44 per year from age 67.

This seems like a no brainer. Pay the contributions.

However, this assumes that I need to and won’t be working until I am 56. Under my current plan, that would be the case. Or at least I will be working enough to make the contributions. It also means that I am relying on my state pension, which I don’t intend to. Whatever I get at age 67 (or more likely, 70+) is going to be a bonus, not my main income.

I have a few years to decide admittedly, but at the moment I’m NOT going to make the contributions and assume that I will be able to make 26 payments in the next 36 years or hopefully 26 in 26!

Edit: Jason actually goes into more details here on opportunity cost and control over at his blog. He arrives at a conclusion based on a different view of the need for his state pension and his current situation of financial independence. A very good read.

Has anyone else made extra contributions? Do you think it’s worth it? 

My SIPP is open for business!

I’ve officially opened my SIPP! After weeks of deciding what should go into it, poring over performance data, charges and geographical mixes, I took the plunge this week and simply sold a fund that was in my ISA and bought the same amount in the SIPP.

The fund is CF Woodford Equity Income (acc). I get the impression this isn’t a popular fund with many. Or at least, he is popular with many who follow the crowd because of his stellar performance with Invesco Perpetual and the bombardment of publicity from Hargreaves Lansdown. Nevertheless, I bought £100 last autumn and it has now grown to over £108. Neil Woodford takes a slightly different view to some, which I like – especially his recent ditching of GSK and buying of Lloyds.

It forms part of the Global – value (developed) section of my portfolio and offers exposure to the UK dividend market through it’s 73% UK focus.

Anywho…here it is.

 

Well…I’m excited at least.

My plan over the next week or so is to sell a very long-standing investment in Aberdeen Emerging Markets (made in 2010/11 at the height of it’s success and has been struggling until recently). This will then form the bedrock of my portfolio that I will then add to monthly.

Tim Hale ‘Smarter Investing’ – A review

After reading about Tim Hale’s book on a few other blogs (DIY Investor, Quietly Saving, Monevator) I decided to purchase Tim Hale’s book ‘Smarter Investing: Simpler decisions for better results’. It was £16.24 on Amazon which I think is reasonable; an investment if you will! I also used some Amazon vouchers I had.

I bought it because I’m looking to put together a portfolio for my SIPP and wanted some input on how to do that. The book is number 1 in the ‘Pensions’ category and is published by Financial Times Publishing. This edition is the third and published in 2013 so there have been some updates but it does lag behind in some aspects. This doesn’t detract from the overall argument or takeaways.

 

Tim worked for a lot of investment banks and in 2001 set up his own consultancy that helps other financial planning firms set up portfolios. So in my view, he knows what he’s talking about. More than me at least.

The central argument offered here is for passive investing; tracker funds, ETFs and a long term asset mix. The aim is to reduce the complexity and block out as much of the behavioural factors that might lead you astray and are why most investors are terrible at investing. Professionals included.

Tim’s approach is essentially that we shouldn’t try to beat the market but capture as much value from it. This requires us to have faith in capitalism as a system and faith that the market will, in the long-run, rise. By investing through portfolios and asset-mixes, we can capture this value thus the proceeds of capitalism will eventually flow to you. Trying to beat the market is the road to ruin. Citing Chris Ellis:

‘The ultimate outcome is determined by those who can lose the fewest points not win them’. 

(This is also an approahc taken by Robbie Burns the Naked Trader; those who make the most are those who don’t sell winners and who do sell losers rather than hang on to them).

I seem to remember Tim saying that only 10% of funds actually beat the market. To be able to do that over a long investment period and to do so whilst beating costs is unlikely…so investing in trackers will ensure that you skip the costs whilst capturing value. Again; don’t try to beat the market, join it on it’s bumpy but eventual rise upwards.

These points above are essentially me boiling an awful lot of information and data down into a paragraph. The book goes to great lengths and uses a lot of evidence to show that active investing simply doesn’t work; a lot of it is marketing gumpf and the high fees buy yachts for the managers…not the customers!

A big takeaway here, aside from not trying to beat the market, is that there is no perfect answer. There are many ways to skin a cat but this is all about taking the hassle out of things and creating something that will, on balance, grow and provide for you in the future.

The first half of the book is concerned with the above points; convincing you to not waste time and money with big active management frauds, don’t chase the market but encouraging you to have faith in it whilst cutting out the costly fees.

The second half is concerned with constructing a portfolio that is tailored to you and takes into account these lessons. The aim is to have a diversified portfolio that you can leave to grow and perhaps only check once a year (thus negating costly meddling and the common behaviour of selling low and buying high). Importantly, you should try to construct this at the start and re-balance as you go along.

Based on modern portfolio theory and using the metaphor of a drink, the aim is to combine whiskey and water to have a drink that you can enjoy suited to your taste. The ‘Return Engine’ are equities (the whiskey) and bonds make up the defensive aspects (the water). Much like some of the Vanguard Lifestrategy funds (and Tim recommends Vanguard a lot here), there are 6 ‘Smarter Portfolios’ based on the equity/bond mix; 0, 20, 40, 60, 80 and 100. A lot of data is provided to show the risk profiles and chances of success/failure for each of these and also an expected rate of return based on long time periods of data.

What I like about the book is that there is still a lot of freedom to do what you want once the initial guidelines are laid down. Firstly you have to decide which portfolio you will choose. Then there you have to construct the funds and assets you will put into the portfolio based on you overall profile but also which areas of the world and markets you want to be in. As to what exactly goes into your portfolio, this is for you to decide. There are some suggestions and a ‘menu’ but this is largely down to you. My own portfolio will probably look something like this:

• Global – Market (developed) – 45%.
• Global – Value (developed) – 15%.
• Global – Smaller companies (developed) – 15%.
• Emerging markets – Market – 10%.
• Emerging markets – Value and small – 5%.
• Global commercial real estate (REIT) – 10%.

As you can see, there is no ‘water’ here. Because of my age and my overall risk profile, I am looking to build a 100% equity portfolio that will see some good growth over the long-run. There may be some re-balancing and possible adding of water but this won’t be for at least 15 years. I hope.

I enjoyed the book and would recommend it for what it ultimately delivers; sound advice for building a portfolio that cuts through the noise of the investment industry. There are references at the end of each chapter if you want to look at more. This also means that this isn’t just opinion but grounded in evidence.

However, there are a couple of points I should mention:

• I found the overall writing of the book a little clumsy; at times a point is made, but with no conclusion or sentence at the end to sum up the point he is making. This may seem a minor point for me to make but I found it made the book a little less enjoyable.
• The amount of data is heavy. I don’t think that is necessarily a bad point, but this isn’t necessarily for a complete beginner because some prior knowledge is required. I’m not a numbers person at all and I could understand most of this so don’t be put off.
• Linked to this is an issue over the tables and figures; some of the graphs and charts simply don’t work because they are printed in grey scale. It’s hard to see which line is which when they are just a very slightly different shade of grey! More importantly, some of the graphs aren’t really explained or make sense as to what exactly they are saying. This is a relatively small proportion and most of the data is very well presented. But it was just something I noted.

Nevertheless, I am implementing the plans outlined in the book (although not quite 100% what the book says!) and would certainly recommend it.

 

Have you read Tim Hale? Did you like his approach? Are you implementing it?

 

 

Selling my car at auction – against WeBuyAnyCar

This post isn’t so much about investing or saving money but about how to get more money out of your assets when it comes to selling them – in this case a reliable but old estate car.

[Not our actual car…]

We’ve recently bought a new (2011 plate) car. We now have another Passat Estate – my 5th VW and I’ve only ever had VWs. I’ve gone from Polo to Golf to Estate. Maybe that says something about me…

It was an old car with 166,000 miles on the clock. It had 2 months on the MOT and had some advisories from last year – nothing dangerous or urgent so we didn’t do anything about them. It’s been a great runner for us and recently had it’s battery changed (which was still the original battery 14 years after being put in). We’ve redecorated our house and it’s withstood many trips to the tip carrying rubble and rubbish.
Recently my wife said that actually we are going to spend more at the garage to put it through the MOT to then try and sell it and there was a danger that we’d spend more than we’d be able to get back.

So I went and ‘enteredmyregnumbernowatwebuyanycar.com’ as their advertising says. With all of the information taken into account on their website they offered £188. This doesn’t include the £40 odd ‘admin fee’ plus the inevitable kicking of tyres, sucking of teeth and knocking down of the price when you go to meet them in person.

I started to think about other ways of trying to sell. Autotrader was out of the question because of the low price and Ebay would have taken too long with a lot of time-wasters I think. I also, to be honest, didn’t fancy having to justify why there were advisories I hadn’t sorted, the lack of recent service history and some scratches and marks.

I then looked into local auctions. I figured that is all webuyanycar will do – enter it into an auction where a dealer or someone who knows what they are doing will snap it up and fix the coolant leak and put a new tyre on. I got the car valeted and went to the auction house armed with the V5, service history, keys and MOT. And it was so simple!

I just dropped it all off with the details on the form – air con, electric windows etc and paid my deposit. They didn’t even look at the car. They normally have 150+ per auction so it’s understandable. I sold it ‘as seen’ so the eventual buyer can’t come back. They see a running car and the MOT (quite a few didn’t have MOTs so actually a 2 month MOT was ok) and all of the details on the form and that’s it.

It was £24 to enter and for that they enter it in 3 auctions. You can set a reserve and if it doesn’t reach that you can either enter it again if you have any chances or they will call you to negotiate if someone did bid but it didn’t reach the reserve price. Their commission is around 5%.

Anyhow, I recently called to see if it had sold and if I could expect a cheque (it wasn’t in the catalogue for the next one so I assumed it had) and the lady confirmed the price!

Overall, taking away fees, I have a cheque for £550! Someone got a good deal and I got nearly triple what WeBuyAnyCar were offering!

 

The upshot of this is NOT to go to WeBuyAnyCar unless you are absolutely desperate. I think their James Corden advert voice over says that you can get cash and use it for your next car. Being a cash buyer is better rather than finance (I’m not sure that’s true).  That’s great, but expect a lot less cash than going to an auction privately. If you can wait a few more days then I would really recommend the auction if you don’t want to sell you car privately and also don’t expect much in part-exchange (that’s all they do when your part-x – take it to an auction).

My advice – don’t enter your reg number now but enter an auction!

 

 

 

What – No Junior Isa!?

In this post I’m going to explain a) why I’m investing in stocks and shares rather than a cash ISA and b) why I’m not doing this through a Junior ISA. This is the money that we receive as Child Benefit for The Boy.

Junior Individual Savings Accounts (JISAs) are long-term, tax-free savings accounts for children.

As of 2017/18 the individual annual limit as to how much you can put in is £4,128. They come in two flavours; Cash, and Stocks and Shares.

Cash vs Stocks and Shares ISA. 

Cash ISA – Currently the best rates are around 3% for a JISA with some building societies. With inflation as it is, this is barely making any money at all. The advantage is that the case will grow slightly and be accessible. Importantly, as long as rates stay as they are, then you won’t lose money. You just won’t make much either.

Stocks and Shares – I have always invested in these using my personal ISA allowance and I invest in funds – so collectives of shares rather than individual shares. Over the long-run, there are opportunities to significantly increase your savings. At the same time, there are also risks of losing your money. However, as they say, stocks and shares and funds in particular should be a 5 year investment as a minimum. This suits investing for children very well, especially where the time horizon is 17/18 years! Funds are not that much less accessible than a normal ISA – with Hargreaves Lansdown, you can sell the fund and have the cash by the next day depending on the time you instruct them to sell.

JISA

You can open a JISA in the name of your child and contribute up to the annual allowance.

The important thing here is that you cannot access this money. It sits tight in the ISA until the child is 18. There is no way to access this money except in extreme cases (such as death). Moreover, at age 18, the cash transfers to the child (now an adult) and you have no say at all in terms of how much they get – the get all of it!

So if the child grows into a drug addict or gambling addict, you will have no option but to give them a large chunk of money that they then m,ay spend on these things rather than you have control over it.

For me, then, I have decided to invest in funds on behalf of The Boy in my own ISA. Whilst it is true that this uses up my own ISA allowance, this is currently around £20,000pa. If I ever get that much money to save then a) saving a little into an ISA is the least of my worries, b) I won’t be receiving child benefit and c) I’ll think about a JISA maybe…

Summary

So the long and short of it is I’m not using a JISA because they are too restrictive and I am investing in stocks and shares rather than Cash ISAs.

 

Investing for children and babies

As well as my pension journey, I also want to share my thoughts on investing long-term for a child or children. I say this as a father of a newborn with a plan to invest for his future. I looked around online and couldn’t find too much information on this

My aim is to build a decent pot so that when he is 17/18 we can afford to buy a car/help with travel or university costs/anything else that might come up. I don’t think we’ll just hand it over for a splurge…

I’m planning to do this by lowering costs so that we can use the child benefit that we receive form the government every month. This will be invested in funds and is currently is just over £82.80 a month in 2017.

Hargreaves Lansdown let you invest in funds at a minimum of £25 per month with a regular saving. So I’ll invest in 3 funds at a total of £75 every month. The remainder will go into a pocket money junior savings account. Doing this through an ISA (not a Junior ISA – more on this later) means any money made is tax free.

With the magic of compound interest, and investing £75 a month over 18 years, you would have a lump sum of £22,943. This is with a total contribution of 16,200 and assumes 5% growth per year and 1.25% charges but doesn’t take into account inflation.

With a more adventurous approach and 8% annual growth which you can be with a long time horizon, it goes up to £30,787. Not to be sniffed at.

This also doesn’t take into any rise in the benefit and also doesn’t take into account us adding any more money as time goes on. If you can up it to £90 per month then the totals go up to £27,532 (£19,440) and £36,945 (£19,440) respectively.

I’m going to talk more about how I intend to do this by looking at the following:

1. Ideas for saving money – A child is expensive and child benefit ensures that everyone has access to the basics – nappies, milk etc.
2. Thoughts on Junior ISAs and when they are or are not suitable.
3. Cash ISAs and why they are a no-no.
4. Funds and sectors and overall approach to risk.
5. The funds I have chosen and their performance as time goes on.

As with anything in financial matters, please do your own research. I am not qualified and this is not advice – just what I happen to be doing. Stocks and shares can go down as well as up.

 

 

Where I’m starting from.

My current pension affairs come from 3 separate plans.

Military Pension

My pension from service in the Military. This service was cut short and I was obviously expecting it to be much larger than it got to. It was a generous final salary pension and since I left they have tightened up the rules further (the 2015 version). I am on the 2005 version. I’ve recently sent off for a calculation for this but my rough work shows that I can expect £3800pa in pension with an £11400 lump sum. I’m not sure if this is at aged 55 or 65 but I’ll hopefully find out firm numbers and dates in the next few weeks.

(This is CPI linked so that is in today’s terms).

Stakeholder Pension

I started this before I knew I was leaving the Forces but had to cease the contributions when I knew I was leaving and needed to lower my outgoings. I think I ended up paying around £1000 in total (small I know). I stopped paying that in 2011 but it now stands at just over £2000. Looking at their pension forecast online tells me that if I retire at 55 I get the grand total of £47pa pension. At 65 it goes up to £75. This is with a small lump sum and assumes a ‘Middle’ (5%) rate of growth with 2.5% inflation factored in.

Local Public Sector Pension

I worked for about a year (6 months agency, 6 months employed) in the local public sector so I was enrolled in the pension there. It’s all managed online with a company and I can see that they are expecting to pay me £215pa in pension. That’s from age 65.

Total:

From this I can see that if nothing else were to happen, if I retired at 65, I would have an annual salary of £4090. Not great, but better than a kick up the a*se. However, some way off of the £20,000 which is a conservative estimate of how much I’ll need (Hargreaves Lansdown says I’ll want £26,000. The Money Advice Services says £23,000).

This of course, all assumes that I won’t have a state pension available until at least age 68 and I add nothing more, which isn’t my plan at all…