Wednesday, 31 December 2014

December 2014 Update

December's update is here.

The running total for my savings and investments for the year  is over £19,000 which feels like something of an achievement. :-) (Although some of this is down to the fact that I now know exactly what we've got whereas previously the figures were quite hazy). Let's hope 2015 goes just as well.

Next year I intend to try to spilt out my pensions from my ISA and record them separately. They have very different purposes and time scales, so I'm coming to realise that it isn't helpful to combine them for asset allocation purposes.

All in all I'm very pleased with how things have gone since March when I first started to actively manage my savings and investments with the goal of joining my husband as soon as possible after he retires in 2015. I have no intention of struggling out to work for another 11 years until my pension becomes payable at 66. Those years are precious and my job is not as satisfying as it once was.

It has been a steep (but enjoyable) learning curve. Our ISAs are finally sitting with a low cost broker where they can be managed easily online, I am now paying into a SIPP to help fund the years before I can access my LGPS pension, we have started to manage our rental property ourselves for a fraction of the cost and well defined targets have been set and a clear asset allocation devised. It has been a very productive year.

I started this blog to record my progress towards early retirement and entertain myself along the way. What I didn't expect was the extra bonus of the support, sympathy and good advice from fellow bloggers and readers along the way. Much appreciated. :-)

I would just like to take this opportunity to say thank you to everyone out there and wish you a very, very Happy New Year.

Monday, 22 December 2014

Christmas Rights, Wrongs and Wishes

What I got right this Christmas:
  • Took care not to spend more than would be appreciated on things that would not be appreciated - for example I still bought the traditional selection boxes for my (grown-up) sons but went with Cadbury's instead of my usual Hotel Chocolat. I know (and appreciate) the difference but they don't seem to, or if they do, they don't seem to care.
  • Enjoyed the maturing of my 6% M&S Regular Saver just in time for present buying. I need to use a fair chunk of it to pay off the balance on my interest free credit card but there is almost £700 left over. I don't suppose M&S knew they were running my Christmas Club for me. I won't be setting up another for next year as the credit card is almost through its interest free period so I'll be paying it off in full each month rather than saving the money and taking the interest, but it turned out very handy this year both for the interest (around £94 ) and the extra savings I gathered painlessly along the way.
  • Made a present pledge with my husband to spend no more than £50 and kept it. Time will tell if he did too, but there are only two small parcels under the tree so I'm hopeful. Last year we spent far too much on things that have only been used a few times (an expensive food mixer and electronic cheese grater I bought spring to mind).
What I got wrong this Christmas:
  • Messed up my Secret Santa gift buying for work as I had a crisis of conscience and decided I really couldn't give the first item I bought and so ended up buying another. I'm very annoyed with myself about this. I can't even re-use the first one as there is absolutely no-one I can give it to.
  • Got clobbered (again) by Christmas clobber. This happens every year, the "seduced by the sparkly Christmas party dress" syndrome. I always intend to wear something I already have and add some new accessories etc but I get into the shops and all my good intentions go to pot. I bought an expensive, sparkly outfit that I will probably get to wear once more and which will then find its way to the back of the wardrobe with all the rest of the glitter. But next year will be different ...
  • Paid through the nose for my Ocado delivery. My delivery this week will cost £9.99!! And to add insult to injury it is all stuff that I could have ordered last week and made use of the free delivery that comes with my SmartPass. The list includes essentials so it can't be left till after the festivities - notably 6 bottles of Cava for the family Boxing Day get together (on offer so I clawed a bit back there).
Next year I hope to do better. The key, as usual, is planning. 

But for now I'm just going to enjoy the festivities, food, family and friends. I hope you do the same. 

A Very Happy Christmas to Everyone 

"Peace on Earth, Goodwill to Men" 

Tuesday, 16 December 2014

Should I Buy Commodities?

I currently have around £4,200 sitting as cash in my S&S ISA which I'm looking to re-allocate and now seems a pretty good time to do it. My portfolio doesn't hold any commodity shares directly, only via the exposure I have via my general equity funds, so this is an area I could potentially use for a little further diversification.

In addition some of the bloggers I read are currently buying commodities - or waiting for the funds so that they can do so, so this does seem to be where the sensible (and knowledgeable) money is going at this point in time. However I'm anything but knowledgeable regarding this kind of asset and I know I shouldn't be buying anything I don't understand. The main question I have being why are the stocks currently so cheap and what is likely to have an influence on their price in the future.

So I did a little research and  reading which was more than a little depressing about the current state of the global economy and the part played by the price of the raw materials needed to build growth, but which did suggest that buying now would quite likely be a good move. That's so long as growth does pick up next year and doesn't halt completely, in which case no-one would be needing the raw materials needed to build, or make anything. However the WTO is cautiously forecasting a rebound next year which gave me the confidence I needed to think about this further.

So what to buy? I was tempted by Billlton as the research done by other bloggers is very convincing (thanks especially to FI UK on Financial Independance UK and Huw on Financially Free by 40)  but I haven't yet taken the plunge and bought any shares in individual companies and I'm not sure that doing so is the way I want to go at the moment, so I decided to look for a more general access point. Following up a comment made by diy Investor UK on Huw's post (thanks again) I took a look at a couple of investment funds - Blackrock Commodities Income with a yield of  7.25%, trading at premium to NAV of 4.9, charges 1.08% and BlackRock World Mining which is trading at a discount to nav of -7.55% with a yield of 7.20% and charges of 1.42% (and which incidentally has almost 10% invested in Billiton).

What about the passive choice of a tracker/ETF? I did find a Global DB-X tracker  available at 0.45% charges inside my ISA on Interactive Investor which might do the job - far less volatility than the Investment Trusts and with lower charges but 0% dividend yield and it hasn't done at all well when compared to the sector over the last 3 years. I'm afraid I wasn't tempted.

My decision - I'm going to take a risk and go with the Blackrock Mining Investment Trust. My reasoning being that it is trading at a good discount, the fund managers have been around for a long time and so have a lot of experience in the area and, although it has had a bad year, according to MoneyObserver and  some other sources, this blip is due to a particular set of circumstances and is not likely to be terminal. The high charges are a bit of a downer, but I have also read that they may be reduced in an attempt to lure investors back in and the yield at 7.20% does a fair bit to offset them.

Decision made. I've just bought £1,500. Let's see how things go.

Saturday, 13 December 2014

Knowing When to Sell

This week I flexed my developing investing muscles in a new direction. I forced myself to sell something that was doing very well and it was much harder than I expected.

My reasoning process was sound (I think), the fund (Axa Framlington Biotech) has risen over 20% in the 8 weeks I have held it and I can't see it continuing to rise steeply for much longer (it actually dropped 1.66% the day after I sold). Even if it does continue to gain I had definitely started to feel that it was time to take some profit so I sold £500 worth, which was about the amount my investment had gained since I bought it. However, my emotions played havoc with my common sense in a "But what if you sell and it goes up more - you'll be sorry then won't you?" kind of way which was unforeseen and I didn't like. It smacked too much of unreasoning greed. I steadfastly refused to listen to my inner "kid in a sweetie shop" and pressed "Sell". For this reason I will consider this a successful sale even if the finances don't turn out to maximum advantage, because I've now proved to myself that I am very aware of the part emotions play in investing and I am capable of overriding them. I felt the greed and did it anyway.

The downturn in October actually caused me far less angst, maybe because hanging on when things are dropping is far easier than deciding when to sell when things are going up. Inactivity is always easier than action (or so I find anyway). Selling something that has been more or less standing still (as my CIS UK Growth fund has been doing for the last year or so) was also easy to do. But giving up something that is rising steeply (surely the time to do just that?) was a different matter altogether. I almost (but not quite :-)) hope I don't have to do it too often.

In all the reading I have done as a novice investor, the subject of when to sell is one on which I haven't actually found a great deal of help. But we all have to do it don't we? No matter how good we are at the long-term "buy and hold" strategy at some point we are all going to need to take the money out. Steep growth (i.e .growth at a high rate over a short period of time) will surely be mirrored by steep falls. If this averages out to excellent long term growth does this mean that the best strategy is still always buy and hold, even though it must also depend on when you want to realise the profit? What is the best way to manage very volatile funds/markets?

This is something of a testing time for me as I am pretty new to investing and I had been congratulating myself that I had weathered the (admittedly somewhat modest) downturns in my riskier funds without feeling too much pain. However I wasn't prepared for this side of the volatility coin. I've only been watching and actively managing my investments since March and haven't seen anything much in the way of gains so the way this particular fund has behaved has taken me by surprise.  I've realised that I didn't (and still don't) have a strategy for dealing with this situation.

My sale this week was actually more a test of resolve over emotion than a move dictated by financial planning and although I still believe I did the right thing, I would like to be more sure and have the reasoning to back it up. As ever I'm probably searching for a non-existent perfect recipe, but any tips, or links to reading on this, would be very welcome.

Wednesday, 3 December 2014

Setting Targets for the Final Push

November 2015 will see my husband draw his last ever wage before retirement. So the next 12 months are the last opportunity for me to save and invest substantial amounts of money.

From next Dec until the day I retire we will only have about £350 to invest per month - that is around 25% of what we are currently putting away. I intend to continue to pay £50 in to my LGPS AVC (this can't be taken until I take my my pension which I intend to do at 63 but it can all be taken as part of the tax free lump sum so I think it's worth it) and also continue paying £45 into my CIS FSAVC until such time as I transfer it into my SIPP (not sure when this will be yet). The rest will go into my SIPP.

By the time we both have our defined benefit and state pensions in payment, along with our rental income, we will be up to around £37,000 which is more than enough to maintain our current standard of living. So it is only the years between when I retire and when I get my LGPS pension at 63 that I need to worry about. I have estimated that the minimum income I require each year to take the household total up to the £28,500 we need (with £32,000 being a more comfortable target) is £12,500 until 2018 when my husband draws state pension and £6,800 from then till I draw my LGPS. The sooner I have enough to cover this, the sooner I can retire. But, of course, the sooner I retire, the more I need to cover.

The equation's quite tricky but after some deliberation I've come up with the following conclusions/key facts:
  • The earliest date I can hope to stop working is March 2016. This may happen if the offer of voluntary redundancy/early retirement materialises next year.
  • I could only really take this up if my redundancy pay would be around £20,000 (as expected) and/or my pension would become payable immediately as part of the deal.
  • Without the help of redundancy payments I would need around £80,000 saved in my personal pensions to leave at this date. The bottom line is that we do already have this in our combined funds, but our overall plan includes leaving our S&S ISA capital alone in case we need it for care fees etc so I'm avoiding bringing that and our £20,000 cash emergency fund into the equation. (Although I am allowing myself to figure 3% dividends from the ISA as being available to top up our income).
  • Currently my personal pension stands at £24,600 and I am paying a total of £845 per month into it (made up to £1,057 by HMRC). By March 2016 this can only be expected to have grown to about £40,000 which won't be enough no matter how I cook the books.
  • By March 2017 (the date at which I would realistically like to retire) my personal pension should have increased to around £45,000 (given the reduction in contributions in a year's time). At this point I will need £67,500. So I am short by £22,500 before I figure in ISA dividends. Taking those into account at around £2,000 per year, I am still £10,500 short. (I need £55,500 in total).
  • If I reduce my ISA payment from £300 to £100 per month I could increase my monthly payment into my personal pension for the next 12 months to £1,045 (£1,300 after tax credit). In addition to the reduced contributions (£250/£300 per month) for the remaining 16 months to March 2017 I should have £48,000 which still leaves me £7,500 short.
  • I need to reduce spending enough to be able to up my pension payments to around £1400 per month for the next 12 months or I need to be prepared to reduce our emergency fund to £10,000, or a combination of both to cover the shortfall.
These facts give me the following targets for the next 12 months
  1. Save at least £1045 per month in my SIPP/FSAVC 
  2. Save £100 per month in my ISA
  3. Look at spending very carefully - try to cut back by at least £100 per month to allocate for boosting pension even further.
  4. Cross fingers and hope the markets don't dive :-) 
The final push is on.