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.

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.

November 2014 Update

November update here.

It was good to see the bounce back this month as all that red was looking a little depressing.

I have been practising a little market timing, hanging on and waiting to sell another £10,000 of my CIS UK Growth fund until it came back up to the price that it has been hovering around for most of the year. This fund has beaten the UK All Share index over the last 3 years so it does feel a little strange to be cutting down on it, but my portfolio is so unbalanced and having so much in one UK based fund is not such a good idea so I went ahead with my plan and sold when the price was right.

I must admit that I struggled with what to spend the money on. I read up on where those in the know (is there such a thing?) think the value is and the consensus seems to be that Europe, Japan, emerging markets (and to some extent the UK) are not over expensive so I split the money between my trackers and Investment Trusts in those areas. (ermine has just put up a great post on this subject which confirmed what I had gone with which cheered me up). I also put another £1000 into my Global Clean Energy tracker.

However, I didn't manage to re-distribute all the money and still have £3,000 sitting there in cash which I need to do something with. I've missed the 23rd of the month which is Interactive Investor's day for regular payments when trades only cost £1.50 and I only have £12 commission credit left, so I'm loath to pay £10 per trade and spread it around. This means I either have to put it all in one place or leave it till next month when inspiration might have hit about what to buy.

I've still got very cold feet about a US tracker which is what my masterplan says I should be buying but maybe I really did ought to bite the bullet on this - see below for current asset allocation which still looks very unbalanced in favour of the UK despite the fact that I've halved my UK Growth fund and been buying elsewhere. Must try harder :-)

Asset Classes	Total(%)
UK Equities	34.3
Money Market	18.8
UK Corporate Fixed Interest	7
US Equities	4.9
Property Shares	3.6
Europe ex UK Equities	2.1
Japanese Equities	1.9
Commodity & Energy	1.9
German Equities	1
Other Holdings	24.5

What would the end (of profit) look like?

Scenario 1 - Climate Change. Ever since the IPPC climate change report last month I have been pondering on the much quoted tenet that we can trust in the markets to continue to provide growth, despite the occasional small or large setback, until the point at which we will have much more to worry about than the state of our investments. That is , until the political, economic and social fabric of the world breaks down and all hell is let loose. This "fact" is generally meant to be reassuring, in a "don't worry, it won't happen yet" kind of way. I tend to think this is an over optimist view of the situation. Things are getting pretty bad and nothing much is being done.

Scenario 2 - The Blight of Inequality. My thoughts on How Rich Are You on C4 this week were "thank goodness these facts and ideas have made it out into the public domain, shame it had to be done in such a simplistic way, but at least it's a start". The trouble is that solutions seem few and far between. On the surface the problem is not one that should worry those of us who are lucky enough to be able to take advantage of the shift from labour to capital, that is those of us with money in the system, but the real issue affects us all. That issue is social unrest and fragmentation, the failure of the state and the further breakdown of social justice. How would wealth feel in an increasingly "nasty" and unbalanced society. Not my idea of the good (profitable) life.

Scenario 3 - The "Interstellar" effect. I saw this much hyped film at the weekend and then read this review of it this morning which crystallised my unease about its slant as regards climate change but also its more general message. We are suffering from a similar type of political defeatism in the UK at the moment. There is very little strength of purpose, imagination or moral fibre in the messages being given by main stream politicians who seem to live in fear of saying the wrong thing rather than be shouting out the right things (I exclude the Greens from this). The fear of making choices because they may be unpopular is not what we need from politicians and, in the case of some issues, things are fast reaching (and may have passed) the tipping point.



Depressing mid-week thoughts I'm afraid, but we live in dangerous times.

Talking to the Taxman about Rental Income

Getting the tax sorted on our studio flat rental has always been a real pain. Don't get me wrong, I have no problem with paying what I owe, especially on rental income as it's not even earned, but I do object to the waste of time trying to find out what we need to do and when we need to do it. Especially as this seems to depend on the personal viewpoint of the officer on the other end of the phone, rather than a properly defined process.

Because our income from the flat is a fairly small amount and we split it between the two of us, we are below the threshold for needing to fill in a self assessment form (£10,000 net pre deductions and/or £2,500 net after allowable deductions). This is good news on one hand as we don't have to worry about the forms, but bad from another as sometimes (depending on the tax officer we happen to speak to that year) we end up having to do the work of supplying all the documentation anyway, along with an accompanying letter. This takes more time than filling in the form would have done and has been known to generate months of letters back and forth as they ask supplementary questions, eventually deciding we don't owe them anything anyway.

Up until this year that is. We paid the mortgage off last December and so no longer have the mortgage interest as an expense to offset against the tax. In tax year 2014/15 we are actually making a profit! Along with the fact that our letting agent expenses have shrunk enormously this year and we have gained control of the whole process, this means that I finally feel that the flat is a reliable asset in our income strategy. It is a very good feeling.

We phoned up the tax office this week and gave our estimates for how much profit we think we will make this year having offset the allowable expenses (letting fees, service charge, 10% wear and tear and the costs for the maintenance we've carried out). We were both lucky and got through to officers who were prepared to take the figures over the phone and simply adjust our PAYE codes so the job was done there and then.
Fingers crossed for next year.

October 2014 Update.

Portfolio update here.

 It's been a rollercoaster of a month that finished on a high - apparently due to action taken by the Bank of Japan to stimulate the economy. My portfolio certainly looks a lot better for it.

In other news I am feeling very pleased with myself for two reasons:

 1) Making such a success of ditching our letting agent and finding a new tenant with only 6 days lost revenue between rentals. I have OpenRent to thank for this and am driving everyone bonkers singing the praises of their service which I really can't believe only cost us £49. I'm still pinching myself.

 2) Fixing my broken Chromebook myself rather than taking the easy route and buying another. I took out the screen from the one with the scrambled OS which died last week and couldn't be revived and put it into the one with the cracked screen I dropped last year. The whole thing was as easy as pie (aided by an instructional video on YouTube) but, I'm ashamed to say, not the kind of thing I would usually attempt. A good lesson to learn. Along with "Be more careful with your ChromeBook" .

Letting Alone (with the help of OpenRent)

Our first DIY tenant moves in today and I'm amazed at how quickly we found someone and how easy it all was.

A little while ago I wrote about how much of our very modest rental income was seeping away into the coffers of the high street letting agent we were paying to do a (not very good job) of managing our rental. When our tenant recently gave notice to quit I took the opportunity to research online letting agents and learn about what was involved in using one. I was amazed at the difference in prices. (My previous post gives the figures.) As my husband is now semi-retired and I only work 4 days a week we have more time to spare so we decided to give it a go, do the work ourselves and terminated the contract with our existing agents.

It did feel a little scary at first as the letting arena is full of legal requirements and the whole process of finding a tenant, taking references and lodging a deposit was something we had previously left up to the agent but I can honestly say that OpenRent made it very easy.

Following registration the website guides you through every stage. The interface is very clean and uncluttered, and the language used is basic English without any unnecessary legal jargon. You can contact them via phone, chat and mail and the couple of times that we got in touch the responses were prompt and helpful. But for the most part we didn't need any individual help from them as the portal did all the hard work of telling us what was happening next and sending us automated mails and texts reporting on progress. Whoever designed the site did an excellent job, the workflow behind it is very efficient, seems to work effortlessly and is focused on keeping the customer informed at every stage. Very impressive.

Our advert (including pictures) was up on Zoopla and Gumtree within several hours and we started getting automated requests for viewings the next morning. This part of the process was a little tricky as we had so many requests so quickly that if it hadn't been for the portal we could have easily got things mixed up. OpenRent do not give out your contact details, so potential tenants make all their enquiries via the site, the enquiries are then recorded on the  "Your Lettings" bit of the site and also passed onto you via text and email. This means that you always have a clear record of who got in touch, the time and date they did so and their e-mail and phone number so that you can get back to them.

We had 10 viewing requests in 3 days but actually ended up accepting an offer from the first (and only) person who we showed round the flat. Once a tenant makes an offer and you accept it OpenRent suspend your advert and the process of referencing begins. You have the choice of "Quick" (24 hour, credit check plus CC ) or "Full" referencing (3 - 5 working days, includes employer and last landlord reference). We went for the full and sat back and waited whilst Openrent did all the work. Admittedly this did actually take 6 working days because the previous landlord needed chasing but once the references were in we were mailed a full report which included the advice to accept and a button to do so. (There is, of course, also the option to reject).

Three hours later the contract had been drawn up according to our instructions and agreed with the tenant, signed by both parties, the deposit lodged and our bank account details taken so that the first month's rent could be paid. The whole process knocked our previous experiences of waiting for phone calls from the letting agents and posting contracts back and forth into a cocked hat.

I know that a lot of the hard work of being a landlord comes after the tenant has been found and that managing our own property will not all be as simple and straightforward as finding our first tenant has been, but at least we now know that this part of it can be made a lot simpler (and cheaper) than it has been in the past. If anyone is thinking of giving it a go I would recommend OpenRent's RentNow service without hesitation.