UK - please help with my portfolio

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Topic Author
minimalistmarc
Posts: 1058
Joined: Fri Jul 24, 2015 4:38 pm

UK - please help with my portfolio

Post by minimalistmarc »

UK Bogleheads, please take a look at my financial plan and let me know if I am missing anything.
I'm 40 y/o Doctor, Spouse is SAHM
2 kids 4 and 1

Would like to be able to retire at 50, although could be any time up to 60.
Expenses - approx £35k per year but would like £60k in retirement for fun.

Emergency fund: sometimes, I'm not disciplined enough to keep it uninvested

Current income - 100k (have earned a lot more in the past but now keep to this limit due to current tax cliffs/gotchas and desire for family time)

I am in 2 NHS pension schemes:
- 1995 scheme value as of April 2018 - £13400 per year from age 60, can be reduced by 5% per year for earlier retirement. Lump sum £40,200
- 2015 scheme value as of Apri 2018 - £5,000 per year from state pension age currently 68 (can take 5% reduction as above)

Her Pension: 2800k from age 68 from old DB pension scheme

Desired allocation: 100% equities global market cap
His SIPP - £74k VWRL
His ISA - £238k l
His General - £94k VWRL
£ 406K

Her SIPP - £37k VWRL
Her ISA - £70k VWRL
Her General - £131k VWRL
£238K

Now the messy bit. I have around £290k in high risk high interest asset backed P2P, of which around 140k is currently locked in 2 companies that have gone into administration - the p2p companies, not the loans). It's not the worst position to be in. 150k is still paying out around 18k per year tax free to my spouse. Would like to get out completely and into equities.

Second mess, had 100k in property partner a property crowdfunding site. They recently changed their fee structure and to get out immediately I liquidated at 20% discount. That money will be in cash in my bank account this week, and will probably go into VWRL, which is annoying as it's at an all time high, gotta ride the rollercoaster though!

Third mess - 15k in EIS illiquid and 20k smattering in other rubbish.

The mess will gradually be sorted. But apart from that is there anything else I should be doing?

I've thought about JISAs and JSIPPs but want to make sure we have enough before starting that
Valuethinker
Posts: 41174
Joined: Fri May 11, 2007 11:07 am

Re: UK - please help with my portfolio

Post by Valuethinker »

minimalistmarc wrote: Mon Jul 22, 2019 3:31 pm UK Bogleheads, please take a look at my financial plan and let me know if I am missing anything.
I'm 40 y/o Doctor, Spouse is SAHM
2 kids 4 and 1

Would like to be able to retire at 50, although could be any time up to 60.
Expenses - approx £35k per year but would like £60k in retirement for fun.

Emergency fund: sometimes, I'm not disciplined enough to keep it uninvested

Current income - 100k (have earned a lot more in the past but now keep to this limit due to current tax cliffs/gotchas and desire for family time)

I am in 2 NHS pension schemes:
- 1995 scheme value as of April 2018 - £13400 per year from age 60, can be reduced by 5% per year for earlier retirement. Lump sum £40,200
- 2015 scheme value as of Apri 2018 - £5,000 per year from state pension age currently 68 (can take 5% reduction as above)

Her Pension: 2800k from age 68 from old DB pension scheme

Desired allocation: 100% equities global market cap
His SIPP - £74k VWRL
His ISA - £238k l
His General - £94k VWRL
£ 406K

Her SIPP - £37k VWRL
Her ISA - £70k VWRL
Her General - £131k VWRL
£238K

Now the messy bit. I have around £290k in high risk high interest asset backed P2P, of which around 140k is currently locked in 2 companies that have gone into administration - the p2p companies, not the loans). It's not the worst position to be in. 150k is still paying out around 18k per year tax free to my spouse. Would like to get out completely and into equities.

Second mess, had 100k in property partner a property crowdfunding site. They recently changed their fee structure and to get out immediately I liquidated at 20% discount. That money will be in cash in my bank account this week, and will probably go into VWRL, which is annoying as it's at an all time high, gotta ride the rollercoaster though!

Third mess - 15k in EIS illiquid and 20k smattering in other rubbish.

The mess will gradually be sorted. But apart from that is there anything else I should be doing?

I've thought about JISAs and JSIPPs but want to make sure we have enough before starting that
The main thing is to keep an eye on the £1m (+inflation) lifetime limit - I don't know how NHS pension is figured into that, but it is (just from the press) a real risk.

As you move out the high risk investments, I think it would be worth either paying down the mortgage (you don't mention having one, but assuming you do) and then investing in bonds.

I am a bit Ben Grahamish (never more than 75% in stocks, never less than 25%) although I would set the band at 20%. Bear markets can be long and slow (2000-03) or fast and brutal (2008-09). In one case a 35% drop in stocks, in another a 50% drop. Being 100% equities and watching your savings melt away, thus forcing significant changes in career plan, is no fun. 20% bonds gives firepower to rebalance as stocks fall.

You are going to have to come to terms re emergency funds. Either you invest that in bonds (mostly safe) or you have access to lines of credit (flexible mortgage, etc.). The NHS is pretty good re disability etc, but one does need to have the ability to access up to 6 months of normal monthly expenses.

If you can keep to a 25-30% savings rate then you can fulfill your retirement goals.

The pensions are absolutely critical because they are inflation indexed up to 5% (was RPI, probably now CPI). That kind of protection is very hard to achieve by an individual investor and it is the bedrock of a long run retirement plan (remember a female spouse, middle class, can easily live to mid-late 90s). Thus, you want to maximize that pension income if you can (i.e. stop working but then don't draw pension until 6 and/or 68).
danielbird193
Posts: 36
Joined: Thu Mar 21, 2019 2:15 pm

Re: UK - please help with my portfolio

Post by danielbird193 »

It sounds like you're doing well and the NHS pensions certainly give you some long-term security which gives you a bit more ability to take risk now. You've certainly had your fingers burned with peer-to-peer, property crowdfunding and EIS start-up schemes, and I hope you manage to get at least some of that £140k back. Either way, it sounds like you have learned from those experiences and can move on sensibly.

At the moment your plan to retire at 50 relies on you being able to continue your high earnings for the next ten years. Are you protected should you be unable to work (or unable to work at your current grade) for a significant period of time? Critical illness cover can be expensive, but I imagine it would also bring some real peace of mind, particularly with your wife being out of the labour market caring for the kids.

With children aged 4 and 1, you might also face some hefty tuition fees in 15-20 years (particularly if they follow their father's footsteps into medical school :D ) which would fall right in the middle of the period between you stopping work and your NHS pensions kicking in. You might want to spend some time thinking about the best way to plan for those costs. You don't necessarily need to segregate the funds, but setting up separate accounts for each child and topping them up with a fixed sum at birthdays and Christmas could be a nice way of teaching them some helpful lessons about saving and investing.

The 100% equity allocation is definitely punchy. While your NHS pension could be considered 'bond-like' in the sense that it will provide a steady and predictable source of income in retirement, those funds are completely illiquid and won't stabilise the paper value of your portfolio in a downturn. If you can stomach the risk that's fine, but it's difficult to imagine what your reaction would be if your whole portfolio dropped 30% to 50% in the space of a few months. A bond allocation of, say, 20% would cushion the downside and allow you to rebalance at the bottom of the market when valuations are more attractive.

Overall though you're in great shape, so well done.
Valuethinker
Posts: 41174
Joined: Fri May 11, 2007 11:07 am

Re: UK - please help with my portfolio

Post by Valuethinker »

danielbird193 wrote: Tue Jul 23, 2019 3:47 am It sounds like you're doing well and the NHS pensions certainly give you some long-term security which gives you a bit more ability to take risk now. You've certainly had your fingers burned with peer-to-peer, property crowdfunding and EIS start-up schemes, and I hope you manage to get at least some of that £140k back. Either way, it sounds like you have learned from those experiences and can move on sensibly.

At the moment your plan to retire at 50 relies on you being able to continue your high earnings for the next ten years. Are you protected should you be unable to work (or unable to work at your current grade) for a significant period of time? Critical illness cover can be expensive, but I imagine it would also bring some real peace of mind, particularly with your wife being out of the labour market caring for the kids.
The NHS has disability insurance I believe for its staff. Critical Illness I am not a big fan of, because it only covers certain conditions. Long Term Disability is what is needed, and since you can only insure 60-65% of pre disability income, the NHS policy probably covers the OP. L

It's certainly worth it to make sure that total life insurance cover is c. 10x income. There''s usually a 2x death in service benefit, so the other 8x has to be bought personally. Fortunately term life, with 20 year term to cover period of exposure, is dirt cheap for anyone in reasonable health.

Critical Illness can be added to one or all of the term life policies.

With children aged 4 and 1, you might also face some hefty tuition fees in 15-20 years (particularly if they follow their father's footsteps into medical school :D ) which would fall right in the middle of the period between you stopping work and your NHS pensions kicking in. You might want to spend some time thinking about the best way to plan for those costs. You don't necessarily need to segregate the funds, but setting up separate accounts for each child and topping them up with a fixed sum at birthdays and Christmas could be a nice way of teaching them some helpful lessons about saving and investing.

The 100% equity allocation is definitely punchy. While your NHS pension could be considered 'bond-like' in the sense that it will provide a steady and predictable source of income in retirement, those funds are completely illiquid and won't stabilise the paper value of your portfolio in a downturn. If you can stomach the risk that's fine, but it's difficult to imagine what your reaction would be if your whole portfolio dropped 30% to 50% in the space of a few months. A bond allocation of, say, 20% would cushion the downside and allow you to rebalance at the bottom of the market when valuations are more attractive.

Overall though you're in great shape, so well done.
That's the key on the 100% equity portfolio:

- justification for the NHS pensions are "bond like" so it's worth it to take risks on the equities - overall risk to retirement is not as severe

- justification against is that when bear markets come, and Winter is Coming (always), they tend to be savage - either slow drip pain (2000-03) or fast and brutal pain (2008-09) or just pain (1973-75 saw a roughly 90% fall in the UK index in real terms, total return looked a bit better)
Valuethinker
Posts: 41174
Joined: Fri May 11, 2007 11:07 am

Re: UK - please help with my portfolio

Post by Valuethinker »

minimalistmarc wrote: Mon Jul 22, 2019 3:31 pm UK Bogleheads, please take a look at my financial plan and let me know if I am missing anything.
I'm 40 y/o Doctor, Spouse is SAHM
2 kids 4 and 1

Would like to be able to retire at 50, although could be any time up to 60.
Expenses - approx £35k per year but would like £60k in retirement for fun.

Emergency fund: sometimes, I'm not disciplined enough to keep it uninvested

Current income - 100k (have earned a lot more in the past but now keep to this limit due to current tax cliffs/gotchas and desire for family time)

I am in 2 NHS pension schemes:
- 1995 scheme value as of April 2018 - £13400 per year from age 60, can be reduced by 5% per year for earlier retirement. Lump sum £40,200
- 2015 scheme value as of Apri 2018 - £5,000 per year from state pension age currently 68 (can take 5% reduction as above)

Her Pension: 2800k from age 68 from old DB pension scheme

Desired allocation: 100% equities global market cap
His SIPP - £74k VWRL
His ISA - £238k l
His General - £94k VWRL
£ 406K

Her SIPP - £37k VWRL
Her ISA - £70k VWRL
Her General - £131k VWRL
£238K

Now the messy bit. I have around £290k in high risk high interest asset backed P2P, of which around 140k is currently locked in 2 companies that have gone into administration - the p2p companies, not the loans). It's not the worst position to be in. 150k is still paying out around 18k per year tax free to my spouse. Would like to get out completely and into equities.

Second mess, had 100k in property partner a property crowdfunding site. They recently changed their fee structure and to get out immediately I liquidated at 20% discount. That money will be in cash in my bank account this week, and will probably go into VWRL, which is annoying as it's at an all time high, gotta ride the rollercoaster though!

Third mess - 15k in EIS illiquid and 20k smattering in other rubbish.

The mess will gradually be sorted. But apart from that is there anything else I should be doing?

I've thought about JISAs and JSIPPs but want to make sure we have enough before starting that
Not to be taken as a personal criticism.

Your past investing experience and your proposed 100% equity allocation suggest that you are a risk taker.

The thing to focus on is that equities are really, really risky. The UK market saw 80-90% fall in the mid 1970s. Black Monday saw, from memory, a 22% fall in the S&P 500 in one day. Japan has fallen by c 2/3rds over 30 years.

Equities are an incredibly risky asset class. If you go back to the Dimson Marsh data, lots of countries had -100% drops in the 20th century, or -90%+. War, revolution, hyperinflation. It's all there in the record. Can anyone looking at UK politics, now, doubt that the "impossible" is at least possible?

Just having a lot of equities is to take risk. Even if globally diversified, etc.

One does not need more risk than that. And one cannot "beat" the system via private investments or risky investments generally. All the evidence is that the market is efficiently prices *and* there's the dealer margin in there (transaction fees - very high for non stock market investments; management fees can also be extreme, as there's no limit to what is allowed).

Stress signs are building up out there. We are due a bear market, although it might be 3-4 years before we have one.
danielbird193
Posts: 36
Joined: Thu Mar 21, 2019 2:15 pm

Re: UK - please help with my portfolio

Post by danielbird193 »

Valuethinker wrote: Tue Jul 23, 2019 4:09 am The thing to focus on is that equities are really, really risky. The UK market saw 80-90% fall in the mid 1970s. Black Monday saw, from memory, a 22% fall in the S&P 500 in one day. Japan has fallen by c 2/3rds over 30 years.

Equities are an incredibly risky asset class. If you go back to the Dimson Marsh data, lots of countries had -100% drops in the 20th century, or -90%+. War, revolution, hyperinflation. It's all there in the record. Can anyone looking at UK politics, now, doubt that the "impossible" is at least possible?

Just having a lot of equities is to take risk. Even if globally diversified, etc.
I think this is a really wise point. We are a decade into a bull market which means that many investors have never experienced a true equity meltdown. I started working and investing in 2008 so I never have, but I have tried to build a portfolio that protects me somewhat from the psychological effect of seeing it happen and what my reactions might be.

Just one question for you Valuethinker (again, not intended as personal criticism, but asked in the spirit of learning from each other) - what do you see as the best 'safer' asset (or combination of safer assets) to balance out the risk of equities, given where we are with rates? Bonds don't look great value either at the moment, but are they best we can do at a difficult time?
Topic Author
minimalistmarc
Posts: 1058
Joined: Fri Jul 24, 2015 4:38 pm

Re: UK - please help with my portfolio

Post by minimalistmarc »

Valuethinker wrote: Tue Jul 23, 2019 4:09 am Not to be taken as a personal criticism.

Your past investing experience and your proposed 100% equity allocation suggest that you are a risk taker.

The thing to focus on is that equities are really, really risky. The UK market saw 80-90% fall in the mid 1970s. Black Monday saw, from memory, a 22% fall in the S&P 500 in one day. Japan has fallen by c 2/3rds over 30 years.

Equities are an incredibly risky asset class. If you go back to the Dimson Marsh data, lots of countries had -100% drops in the 20th century, or -90%+. War, revolution, hyperinflation. It's all there in the record. Can anyone looking at UK politics, now, doubt that the "impossible" is at least possible?

Just having a lot of equities is to take risk. Even if globally diversified, etc.

One does not need more risk than that. And one cannot "beat" the system via private investments or risky investments generally. All the evidence is that the market is efficiently prices *and* there's the dealer margin in there (transaction fees - very high for non stock market investments; managmement fees can also be extreme, as there's no limit to what is allowed).

Stress signs are building up out there. We are due a bear market, although it might be 3-4 years before we have one.
I am definitely a risk taker, made easier by having a recession proof job. I am trying to even myself a bit for my family though. But t yeah I think I will maybe reconsider having 5 - 10% of assets in bonds or cash.


I'm thinking of 50k in premium bonds because then there are no tax issues, 20k in Santander 1,2,3 and that should be enough, then everything else can go into 100% equities.

We don't have a mortgage, but we put £400 a month into a house contingency fund so I guess that is an emergency fund of sorts and has around 10 - 15k.

One of the reasons I got lured into P2P was the tax benefits. Because my spouse is a non earner we can get 18.5k (12.5k personal allowance, 5k starting rate for savings and 1k personal savings allowance) per year tax free savings interest when invested in her name. So for 150k we can earn the same amount a year that I would need to earn 36 k gross. Don't let the tax tail wag the dog though. I'm getting out of high risk P2P but a lot of my loans have amortised down to a pretty low risk so I'm loathe to sell them off at the moment. Not reinvesting though or putting new money in.

I don't have any personal insurance. I feel that with my death in service pension benefits and our current level of assets, my family will be secure if I meet an untimely demise. My wife has a policy but she only pays £200 pounds a year and doesn't know much about it.
Valuethinker
Posts: 41174
Joined: Fri May 11, 2007 11:07 am

Re: UK - please help with my portfolio

Post by Valuethinker »

minimalistmarc wrote: Wed Jul 24, 2019 2:51 pm
Valuethinker wrote: Tue Jul 23, 2019 4:09 am Not to be taken as a personal criticism.

Your past investing experience and your proposed 100% equity allocation suggest that you are a risk taker.

The thing to focus on is that equities are really, really risky. The UK market saw 80-90% fall in the mid 1970s. Black Monday saw, from memory, a 22% fall in the S&P 500 in one day. Japan has fallen by c 2/3rds over 30 years.

Equities are an incredibly risky asset class. If you go back to the Dimson Marsh data, lots of countries had -100% drops in the 20th century, or -90%+. War, revolution, hyperinflation. It's all there in the record. Can anyone looking at UK politics, now, doubt that the "impossible" is at least possible?

Just having a lot of equities is to take risk. Even if globally diversified, etc.

One does not need more risk than that. And one cannot "beat" the system via private investments or risky investments generally. All the evidence is that the market is efficiently prices *and* there's the dealer margin in there (transaction fees - very high for non stock market investments; managmement fees can also be extreme, as there's no limit to what is allowed).

Stress signs are building up out there. We are due a bear market, although it might be 3-4 years before we have one.
I am definitely a risk taker, made easier by having a recession proof job. I am trying to even myself a bit for my family though. But t yeah I think I will maybe reconsider having 5 - 10% of assets in bonds or cash.


I'm thinking of 50k in premium bonds because then there are no tax issues, 20k in Santander 1,2,3 and that should be enough, then everything else can go into 100% equities.

We don't have a mortgage, but we put £400 a month into a house contingency fund so I guess that is an emergency fund of sorts and has around 10 - 15k.

One of the reasons I got lured into P2P was the tax benefits. Because my spouse is a non earner we can get 18.5k (12.5k personal allowance, 5k starting rate for savings and 1k personal savings allowance) per year tax free savings interest when invested in her name. So for 150k we can earn the same amount a year that I would need to earn 36 k gross. Don't let the tax tail wag the dog though. I'm getting out of high risk P2P but a lot of my loans have amortised down to a pretty low risk so I'm loathe to sell them off at the moment. Not reinvesting though or putting new money in.

I don't have any personal insurance. I feel that with my death in service pension benefits and our current level of assets, my family will be secure if I meet an untimely demise. My wife has a policy but she only pays £200 pounds a year and doesn't know much about it.
I don't know what the nhs death in service benefit is.

But including that I would look to have cover of 10x to gross income at least until children are 18. With a non working spouse.

Term life is cheap. Dirt cheap. With policy expiry by age 60. It really is crazy for a non medically impaired sole breadwinner with 2 young children not to load up.

I think the idea of buying "insurance" for a risk taker rubs them the wrong way?

The good thing about life insurance is that if the policy expires and you never made a claim that was a bet you should be happy to lose ;-)
jw50
Posts: 27
Joined: Thu Jul 27, 2017 2:00 pm

Re: UK - please help with my portfolio

Post by jw50 »

Just had a quick look at your finances.

Taking it at face value. You need both income protection and term life insurance. You do not quite have enough if bad thing happen unless your wife is prepared to go back to work! You can always review your finance again in 5 years.

Do the basics well first before the fancy stuff (P2P, VCT)
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