How do you invest the money you make?

[marksmeets302]

Haven't been on this forum in a while, but this thread caught my eye. I think I'm qualified to give some advice (and it is free!). If you don't like meddling a lot with your investments do this: take a bag of money and divide it in 4 parts. Allocate a quarter to each of the following asset classes: stocks, long term treasury bonds, precious metals, cash. This can easily be achieved with ETFs. If your portfolio gets a little bit bigger use futures if you don't mind the 5 minutes it takes for rolling them every few months. Rebalance every year, or when the allocations get out of whack by more than 20%. This is what I do for my children and it is really safe. At first glance it won't make you rich, but the compounding effect will take care of that. In fact it is so boring that most people can't stick with it, even if they know they should.
This approach is known as the permanent portfolio. If you google it you will get several articles.

[weemac]

Something important to bear in mind is that with overseas low cost brokers your money probably won't be protected by the FSCS as they're usually not covered by the UK's FCA regulations, so if there's a financial catastrophe you could potentially lose (almost) everything.

https://www.moneysavingexpert.com/savings/safe-savings/

[PDC]

I've invested most of the money I've made into financial markets, generally on a long term basis.
....
Dividends provide income to diversify into new opportunities while lowering my original purchase price over time. As long as I pick a company with reasonable prospects I generally see decent returns.

Do you benchmark your performance (net of costs and taxes and exchange rate etc) against anything? If so what out of interest? And if willing to share how do you compare in percentage terms and does the returns justify your time on it v a passive approach?

Be prepared to sell when it looks bearish and buy back when it looks bullish and get diversification by looking for general funds in specialised markets. Follow Peter's line and use charts with one week or even one month candles.

Trying to market time is one of the most destructive things to an individual's returns in the long term. Trying to judge when to buy and sell is neigh on impossible over the long run unless doing it in hindsight.

How many times has it been said in the last decade or so that the market can't keep on going higher and yet it has, it has pushed and continues to push to new all time highs. Is it over valued now and is now the time to exit the market? I will tell you in 6 months.

Missing just a few key days can have a huge impact on your long term performance.

Just keep on ploughing your money into the market as often as you can and if you come into a windfall just put it to work as soon as possible.

If you don't like meddling a lot with your investments do this: take a bag of money and divide it in 4 parts. Allocate a quarter to each of the following asset classes: stocks, long term treasury bonds, precious metals, cash.
...
Rebalance every year, or when the allocations get out of whack by more than 20%. This is what I do for my children and it is really safe.

People should avoid meddling with their investments, they feel the need to but you want to make it as boring and as simple as possible and as automated as possible. Set and forget!

What is the time horizon of you kids? IMO you are giving up huge potential returns if you are looking at decades for the time horizon. The younger you are the higher your risk appetite should be, having just 25% in equities seems madness. The allocation you have seems extremely defensive, I would say too defensive even for someone in retirement even late retirment.

What is the logic of holding each of cash, bonds and metals?

[firlandsfarm]

Trying to market time is one of the most destructive things to an individual's returns in the long term. Trying to judge when to buy and sell is neigh on impossible over the long run unless doing it in hindsight.

Well as you know PDC it can't be done with hindsight! I know what you mean but the FTSE100 hit 7,000 in May 2015 so that's 5 years with little growth … yes people have been saying it can't carry on and it hasn't! To grow by 5% in 5 years is hardly a bull market. I did refer to weekly and monthly candles so you would know I'm not referring to short term management. Would you have sat in the FT30 when it LOST 73% of it's value to it's low at the end of 1974?!

[PDC]

I know what you mean but the FTSE100 hit 7,000 in May 2015 so that's 5 years with little growth … yes people have been saying it can't carry on and it hasn't! To grow by 5% in 5 years is hardly a bull market.

You are making a fundamental mistake in your figures that people often make.

You are just looking at the headline FTSE 100 figure and disregarding the fact that if you hold it as a fund you would also receive dividends which are then reinvested.

In your quoted period it has actually returned over 26%, not your quoted 5%.

I personally would not suggest holding just the FTSE 100, it is a pretty poor indices to hold. I prefer the Vanguard Lifestrategy funds in particular a mixture of the 100% and 80% funds held in a ratio of 1:1 to achieve 90%. But I prefer to go to 2:1.

I did refer to weekly and monthly candles so you would know I'm not referring to short term management.

Weekly and monthly aren't short term Really?

Would you have sat in the FT30 when it LOST 73% of it's value to it's low at the end of 1974?!

Yes, as I said before, just keeping dollar cost averaging no matter what the market does. Don't even look at your returns (if you can manage that).

Fidelity did a study, guess which class of people did the best? Dead people, because they just held on whatever the market was doing.

Something else that hasn't been mentioned so far is home bias. Think about how exposed you already are to your countries performance. Most people are hugely over weight with regards to their home country, they own a home, they earn a living and then often invest in their own country ahead of other countries. Less of an issue if you are American due to the nature of there economy, more of an issue if you are in the UK.

[invisiblelayer]

Some excellent posts on here, been looking over the last few weeks at a stocks and shares junior isa for my baby daughter to dump some cash in regualary. Still undecided on the Vanguard S&P 500 or lifestrategy 100, more than happy to go with either.

[rik]

Anyone tried apps like wealthify, moneybox?
Seems easy and low fees, if you dont want to put too much effort into it, you can select your risk level, seems to be popular and good reviews, maybe a good solution.
Overall im down 30% on stocks, so been a waste of time for me

[PDC]

...been looking over the last few weeks at a stocks and shares junior isa for my baby daughter to dump some cash in regualary. Still undecided on the Vanguard S&P 500 or lifestrategy 100, more than happy to go with either.

What is the purpose of the money being saved? If it is for pension savings consider a SIPP for the below reasons of free money:

No one has yet mentioned SIPP's?

Vanguard launched their one this week. SIPP's make for a great investment vehicle given the tax rebates, especially if putting savings aside for family members, in particular children.

Many people don't know about the fact that non earners can get a "free" £720 each tax year as a top up from the Government if they pay in £2,880 into a SIPP. This can be done from the day someone (or your (grand)child) is born until the age of 75.

(I should have added a note to this in the original post, that this applies to all full time traders as well who have no recognised earned income)

Don't forget that the ISA is legally their money come 16. They can spend it on whatever they want, you have no control. Though hopefully they will have learned about money by then and appreciate it.

I think investing for children is more about what they learn and setting the mindset than the returns (obviously the returns are nice on top).

Being able to talk them through it, show them the impact of compounding and leaving the money untouched.

I personally would go for the VGLS100% over the S&P500. I prefer the diversification.

Overall im down 30% on stocks, so been a waste of time for me

Not to rub salt into the wounds but you are down a whole lot more IMO (in the way I calculate such things). You should compare your performance against a benchmark. Something like the S&P500, or say the VGLS100% fund would be a decent comparison to make.

Opportunity cost is more often than not overlooked.

I had a "discussion" recently about an investment I had. They were arguing my yield over the next year should be compared against the initial investment cost. Lets say the initial investment cost £100,000 and the yield in the next year was going to be £10,000. So they argued I was getting a 10% return.

The fact the investment is now worth lets say £200,000 if I were to sell it imo means my £10,000 yield represents a return in the next year of 5%.

They were adamant that they were right with the 10%.

100% wrong imo, the opportunity cost is what you could do with the money right now.

[marksmeets302]

What is the time horizon of you kids? IMO you are giving up huge potential returns if you are looking at decades for the time horizon. The younger you are the higher your risk appetite should be, having just 25% in equities seems madness. The allocation you have seems extremely defensive, I would say too defensive even for someone in retirement even late retirment.

The approach yields about 4% over the inflation rate and has very short drawdowns. Historically, you will be in the black after at most 3 years, no matter which time you start. As a father I don't want to gamble with my kids money.
About retirement: I am retired. Since I was 43 My main portfolios are a souped up version of this, but still not one of them has more than 35% equities in them. I sailed through 2008.

What is the logic of holding each of cash, bonds and metals?

Since you can't predict the future, it makes sense to prepare for any kind of economic environment. I consider the main characteristics to be whether we're in a situation where inflation rises or decreases, and if there is economic growth or contraction. In the four combinations you can make each typically has one or two asset classes that do really well (and one that kind of sucks). By making equal weighted bets you will make money from dividends and interest payments and and at the same time you are hedged such that really bad things don't happen to your portfolio.

That is not to say you can't improve on this. By adding other asset classes such as vola-long and vola-short, tricks like exploiting the momentum anomaly you can get beautiful portfolios with returns that even exceed all-stock portfolios but with a much, much better risk profile. Unfortunately this requires a bit more activity and a decent size portfolio.

[invisiblelayer]

...been looking over the last few weeks at a stocks and shares junior isa for my baby daughter to dump some cash in regualary. Still undecided on the Vanguard S&P 500 or lifestrategy 100, more than happy to go with either.

What is the purpose of the money being saved? If it is for pension savings consider a SIPP for the below reasons of free money:

No one has yet mentioned SIPP's?

Vanguard launched their one this week. SIPP's make for a great investment vehicle given the tax rebates, especially if putting savings aside for family members, in particular children.

Many people don't know about the fact that non earners can get a "free" £720 each tax year as a top up from the Government if they pay in £2,880 into a SIPP. This can be done from the day someone (or your (grand)child) is born until the age of 75.

(I should have added a note to this in the original post, that this applies to all full time traders as well who have no recognised earned income)

Don't forget that the ISA is legally their money come 16. They can spend it on whatever they want, you have no control. Though hopefully they will have learned about money by then and appreciate it.

I think investing for children is more about what they learn and setting the mindset than the returns (obviously the returns are nice on top).

Being able to talk them through it, show them the impact of compounding and leaving the money untouched.

I personally would go for the VGLS100% over the S&P500. I prefer the diversification.

Overall im down 30% on stocks, so been a waste of time for me

Not to rub salt into the wounds but you are down a whole lot more IMO (in the way I calculate such things). You should compare your performance against a benchmark. Something like the S&P500, or say the VGLS100% fund would be a decent comparison to make.

Opportunity cost is more often than not overlooked.

I had a "discussion" recently about an investment I had. They were arguing my yield over the next year should be compared against the initial investment cost. Lets say the initial investment cost £100,000 and the yield in the next year was going to be £10,000. So they argued I was getting a 10% return.

The fact the investment is now worth lets say £200,000 if I were to sell it imo means my £10,000 yield represents a return in the next year of 5%.

They were adamant that they were right with the 10%.

100% wrong imo, the opportunity cost is what you could do with the money right now.

Thanks, and agree with setting a good mindest hopefully learning from young. It's for when she's 18 but Ideally she'll spend/invest wisely unlike her dad at that age where everything was beer money

[Trader Pat]

Wine, Women and Song

... and you squander the rest.

To be fair I squandered it on wine too. I've drank many bottles but still cant tell the difference between them if I don't see the label!

[firlandsfarm]

You are making a fundamental mistake in your figures that people often make.

You are just looking at the headline FTSE 100 figure and disregarding the fact that if you hold it as a fund you would also receive dividends which are then reinvested.

I'm sorry but I am not making any mistake, bull and bear conditions refer to capital growth, dividends refer to income ... now that is a fundamental mistake to confuse that. So you would say I don't care my investments have dropped by 73% in value I've had the income!! Really!!

I personally would not suggest holding just the FTSE 100

I can't recall ever suggesting just holding the FTSE100. What I did was to use it as an example ... it's a popular way to explain a point!

Weekly and monthly aren't short term Really?

When used as candles no, they are not short term. Do you know what I mean by "candles"? It is probably the most popular chart form used in investment. A month candle compresses a whole month's price action into a single bar that resembles a candle, hence the name. So you would use a graph of monthly candles to view say 5 years or more of price movement and the weekly candle for say 1 - 5 years. So you see 5 years plus as short term Really?

Yes, as I said before, just keeping dollar cost averaging no matter what the market does. Don't even look at your returns (if you can manage that).

Fidelity did a study, guess which class of people did the best? Dead people, because they just held on whatever the market was doing.

Yes I agree with averaging but why not move it in your favour ... Warren Buffet tells you to do the reverse so when the market is high and the lemmings are investing because it's buoyant you sit on your cash and when the market is low because the lemmings are selling you buy. I doubt that Mr Buffet will make more money dead than alive!

Something else that hasn't been mentioned so far is home bias. Think about how exposed you already are to your countries performance. Most people are hugely over weight with regards to their home country, they own a home, they earn a living and then often invest in their own country ahead of other countries. Less of an issue if you are American due to the nature of there economy, more of an issue if you are in the UK.

USA, UK, Europe, Australia, Asia ... there is only one strategy ... keep your assets in the same proportion to your liabilities. If you spend £'s then keep £'s why bring another variable into it by introducing an element of forex. It's not unusual for the assets to grow in the local currency but fall in value when converted to the home currency.

[firlandsfarm]

To be fair I squandered it on wine too. I've drank many bottles but still cant tell the difference between them if I don't see the label!

Too true my man, too true I don't give a flyingF what the label says nor how cheap, my only concern is did I like it.

[PDC]

I'm sorry but I am not making any mistake, bull and bear conditions refer to capital growth, dividends refer to income ... now that is a fundamental mistake to confuse that. So you would say I don't care my investments have dropped by 73% in value I've had the income!! Really!!

Each to their own, I look at total return as that is what my investment returns me.

Roughly over the last 20 years:

Jan 2000 the FTSE 100 was at 6,930
Today the FTSE 100 is at 7,404
Return = 7%

Total return in that period has been 86%.

I always go for accumulation rather than income when selecting my funds as I am in the accumulation stage of life still and I am not sure I will ever switch to the income version of the funds for various reasons.

Kind of on this subject I listened to a 2 part debate about Dividend investing recently which might be of interest to others:

https://www.choosefi.com/dividend-investing/

https://www.choosefi.com/learn-more-abo ... investing/

I personally would not suggest holding just the FTSE 100

I can't recall ever suggesting just holding the FTSE100.

You recall correctly, the clue was in the use of the words "personally" and "I". I was talking about what "I" would not do "personally"

When used as candles no, they are not short term. Do you know what I mean by "candles"? It is probably the most popular chart form used in investment.

Unfortunately I do know all to well about candles, I wasted a lot of time and money on technical analysis buying and studying books such as Japanese Candlestick Charting Techniques: A Contemporary Guide to the Ancient Investment Techniques of the Far East and Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications and then I learned more and no longer bother with such stuff.

why not move it in your favour ... Warren Buffet tells you to do the reverse so when the market is high and the lemmings are investing because it's buoyant you sit on your cash and when the market is low because the lemmings are selling you buy.

Thats what he does and continues to do so. It could be argued he has given up a lot of returns by sitting on his huge cash pile. Yes he is ready to buy when things go on sale but in the meantime there is an opportunity cost to what he does.

I ain't no Warren Buffett so I won't be adopting his approach I will instead go with his advice that most investors will not be able to achieve this and instead should just keep on dollar cost averaging. That way I don't have to worry myself about timing the market on the way in and out multiple times. I will buy at the top and I will buy at the bottom and every step in between.

At what point in the last decade did people think the market was high and started to sit on cash? Or are they fully invested still? Did they manage to call the bottom of the 2008 crash? Where are we now in the cycle? Where were we at the start of 2019, the market had just been falling was it going to continue to fall or did they see the turn around coming and yet more all time highs being hit month after month. I know I didn't, I have been saying for ages that it can't surely keep going up yet it has. But ultimately I don't care, I don't make my investing decisions based on what I think will or won't happen.

I know that I can't time the market over the long term and don't attempt to, I did use to but learned from that. I just wish I learned much sooner that market timing is pointless and will leave (in almost all cases) to under performance v the market average. Also by remaining invested you avoid the additional costs and tax events that buying and selling can lead to.

Perhaps you are one of the few that can keep calling it right time and again, if you are fair play to you, you are one of the very few who can keep doing it year in year out. It is a very very select club. Say hi to Warren for me next time you have lunch with him

This is an interesting article about dollar cost averaging v lump sum investing, personally I don't feel comfortable with going all in when I come into a lump sum. I know I should do it but it doesn't pass the sleep test for me. I would be kept awake worrying about it, I am therefore willing to give up some potential returns for a better nights sleep.

"Invest now or temporarily hold your cash? "

https://personal.vanguard.com/pdf/ISGDCA.pdf

there is only one strategy ... keep your assets in the same proportion to your liabilities. If you spend £'s then keep £'s why bring another variable into it by introducing an element of forex. It's not unusual for the assets to grow in the local currency but fall in value when converted to the home currency.

Each to their own, but the greater diversification and growth potential that investing in foreign funds brings more than out weighs the exchange rate variability, for me.

A YouTube channel that I really like and have learned a lot from is by PensionCraft, he produces a weekly video and I would highly recommend following the channel, still waiting on Peter Webb's finance YouTube channel that he keeps hinting at launching:

https://www.youtube.com/channel/UC9OIwU ... XGw/videos

Ultimately, people have to do what is right for them. What was/is right for me won't be right for you. What I think is right for me may be wrong when I look back in years to come when I have better knowledge and understanding. I wish I knew back in the past what I know now such as that trying to time the market and pick individual stocks would lead to under performance. The way I put it is I can roll a 4 every time, or I can have the chance of rolling a 5 or 6 if I put in a lot of extra time and effort but even if I do I could easily still roll a 1, 2 or 3.

I will take the 4 every time and spend my time and effort on other things that are more productive and useful to me.

[PDC]

Anyone tried apps like wealthify, moneybox?
Seems easy and low fees, if you dont want to put too much effort into it, you can select your risk level, seems to be popular and good reviews, maybe a good solution.
Overall im down 30% on stocks, so been a waste of time for me

I haven't used those apps but this video might be of interest (it is from May 2017). My preference is Vanguard though you can potentially get lower fees elsewhere but for the small savings I am happy to stick with them and I have found their customer service to be very good.

Review of Wealthify: Opening an Account

https://www.youtube.com/watch?v=9pgr0J-sv5Y

You might also find these 3 videos of interest Rik about Robo advisors as a bit of a starting point to investigating them further:

ROBO-ADVISORS: Should You Invest with Them for Financial Independence? | Our Warning
https://www.youtube.com/watch?v=fVGKrmNDQ7A

Betterment vs. M1 Finance vs. Acorns | Which Robo-Advisor is Better (Battle of the 'Bots)
https://www.youtube.com/watch?v=E6pvVpX6PE0

Vanguard vs Best Investing Apps (M1, Betterment & Acorns) | See Our Results With Real Investments
https://www.youtube.com/watch?v=mrojJV04Oa8

Only use those links as a starting point.