Investing Made Easy

Ever since launching this blog quite a few old friends have got in touch to ask for advice. You’d think they’d want to know about table tennis, coffee, gambling, or anything really that I claim to be a bit of an expert at. But nope, the most common thing I get asked is for my opinion on how someone should invest their savings. I’m not sure why they think I’m the best person to ask, but hay-ho. I can’t tell you what to do (I don’t think I’m legally allowed), but I can tell you what I do.

The stock market, and investing in general is really complicated. Noone really knows exactly what is going on and the banks seem to thrive off making it as difficult to understand as possible. After all, if it was easy we wouldn’t need to hire them to do our investing for us… All this confusion added to a big dollop of scepticism about the financial system in general means that the average person isn’t going anywhere near the stock market. They seem to think it’s safer to keep their money in cash or to invest in bricks and mortar.

When I started investing I didn’t have a clue what was going on. What is a pension? What are stocks and shares? What is so special about the age 65? What happens if you don’t have a pension?

After getting bogged down and I realised I didn’t really care about the answers to these questions, I just wanted easy steps I could follow which would get me the best possible return and mean I’d be financially safe for life. Unfortunately I couldn’t find anything, so I created my own.

Here is my entire investment process in just one sentence:

I opened a Stocks & Shares ISA account at Halifax Sharedealing and set up regular automatic investment into the Vanguard LifeStrategy 80% Equity Acc fund, investing the same amount each month calculated to max out my yearly ISA allowance.

And that’s it. One fund, one website, no hassle. I know that from when I started investing it will take a maximum of 26 years before my little ISA is earning more money than I spend. Much sooner if I ever decide to move out of this stupidly expensive city.

Why Halifax Sharedealing? It is currently the cheapest broker around. Regardless of the size of your ISA it costs £12.5 a year plus £2 per regular trade.

Why regular monthly investment? Known as dollar cost averaging, it means I have little risk from the monthly movements of the stock market. If the stock market is cheap I buy. If it is expensive I still buy. Plus if I know money is coming out of my bank account each month, I can’t spend it.

Why an ISA? Any money made tax free! And, unlike a pension, if I decide to retire at 45 I am allowed to take money out without getting taxed.

Why Vanguard Life Strategy Fund? It is a low cost wrapper of the low cost index trackers I want to own. It allows me to own a bit of almost every major company in the world. Whenever you hear about a company making lots of money, a portion of that is coming to me. Ka-ching.

Why 80% Equity? Basically the higher proportion of equities, the more I should make in the long term, but the more short term volatility there will be. Because I am planning on investing for at least 26 years I don’t mind volatility.

Why an accumulator fund? Because compound interest is where most of the gain is from.

Why does it take 26 years to hit retirement? Because £30k a year is more than enough for me to live on. So £15k a year invested is a savings rate of about 33%. Meaning 26 years to financial independence.

DISCLAIMER: Stocks & Shares aren’t the only way I invest, but they are the most catatonically simple and I suspect will prove to be the most profitable in the long term. I also invest in property, peer-to-peer lending and in the companies I start.

  • GL

    Hi great blog, really enjoy your perspective on things. If you have more than 15k a year to invest but you’ve maxed out your isa, what other investment vehicles do you use? Do you then buy individual stocks or put it in property? I note the isa allowance is increasing to 20k next year so that’s useful. Thanks, G.

    • Hi G. Currently I put the extra into P2P lending – across Funding Circle, Zopa and Ratesetter. The returns are pretty good and the money is easy to access incase it is ever needed. I also have a fiancé so we fill her ISA also. Currently, that has been enough for me, but I think if I needed even more I would look into starting a SIPP.

  • Gio

    Hi Sam, great post cheers for sharing. How much interest are you averaging on this fund? I’ve looked at a number of brokers, and I’m concerned that the fees they charge will eat up my returns up before I get chance to see them.

    • Hi Gio. I use Halifax sharedealing as my broker. They cost £12.5 a year and then £2 a trade for automatic investment. So over the year my fees amount to just £36.5. Which as a percentage of the funds invested is very small. My returns have been awesome recently, but I think that is partly because the £ has done very badly so the non-UK assets have gone up loads in £ terms. I think i’m on something like 20% for the last 12 months. It’s hard to say exactly though, because the halifax interface is very basic and only tells you total returns not annual. And my record keeping is pretty bad. I’m expecting to average closer to 5% after fees and inflation.

  • Robin J

    Have you ever considered using one of “alternative investment management companies” like Nutmeg (https://www.nutmeg.com) and do you have any opinions?

    • I have never used one, because I like to do my own research and be in control. But I do think they’re great and perfect some someone who can’t be bothered to do the research. I’m a big fan.

  • goldstone

    Halifax makes sense if you have a fair amount of money invested, but for someone with a lot less invested Charles Stanley, Cavendish, etc, is a lot cheaper. Your annual charge is £36.50 – to reach that level of charges with Charles Stanley you’d need to have more than £15k invested (they have a 0.25% charge). Wouldn’t it better to recommend these options to new investors, with an advisory to change later?

    The other point I felt was missing from your post is what the rest of the 100% is spent on (‘Why 80% Equity?’) – there’s no ‘Why 20% bonds?’.

    For you personally, your risk profile is not just 80% equities, 20% bonds, you have to consider where the rest of your money is invested – if you’ve got a lot invested in your own businesses maybe you’re actually over exposed in terms of equities?

    (I’m a newb at this, my points above are questioning rather than authorative)

    • Hi there. Please don’t take my post as the be all and end all! It’s just what I do and is probably not completely optimal. I’m not a financial advisor and just a hobbiest.

      But generally:
      1 – Yes there are cheaper options for small investments. But it is a massive pain to change broker and some of them have exit fees (like charles stanley). As most people will shoot past 15k in a year or two I’d recommend going straight for Halifax.

      2 – Umm. To be honest if I started again I probably would have gone 100% equities. Yes I have exposure to my own businesses, but I also invest heavily in p2p lending (which are basically bonds) (here’s my post on it: https://www.arbing.co.uk/peer-to-peer-lending-ratesetter/). But I don’t think it really matters, if you’re planning on investing for a long time there isn’t really a perfect answer. Investing in something is better than nothing, and 60/80/100% equities all make sense.

  • Very nice