Uk investor planning for early retirement

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Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Uk investor planning for early retirement

Post by Joshalf1997 »

Hello im looking for advice and input on the "best" funds to choose to be financially free and to be able to retire as early as possible
Age: 23
Wage per month: £1660
Current plan paying per month after bills:
Vanguard ESG all world cap index fund : £250
S&P 500 etf: £250 also deposited £5000 into this to start
Both in vanguard ISA account
Aviva work pension: £275/£300(depending if i work shifts)
Emergency saving: £80(incase of car emergency etc)
Holiday saving: £150(will lower this if the current circumstances continue)
My wage will increase over the next few years as I'm coming out of an apprenticeship in mechanical engineering.
My plan is to increase my monthly deposit into both funds with inflation and pay increases. When my pay goes up 100% of the increase will be added to the funds and nothing else.
Are there better funds to choose for more growth in the long run?
My plan is to be able to be free at 55 and to live off my portfolio with the 3.3/4% rule if I choose to. Is this too ambitious? And would I realistically need to be depositing signicantly more?
If anyone could help me with my plan and lead me further in the right direction.
I do apologise if all this sounds silly im new to this but have been constantly reading/listening to books to plan the best future for myself and future family.
I am willing to take 100% risk and I will adjust this in approx 15 years maybe more.
Valuethinker
Posts: 41146
Joined: Fri May 11, 2007 11:07 am

Re: Uk investor planning for early retirement

Post by Valuethinker »

Joshalf1997 wrote: Fri Sep 11, 2020 12:50 pm Hello im looking for advice and input on the "best" funds to choose to be financially free and to be able to retire as early as possible
Age: 23
Wage per month: £1660
Current plan paying per month after bills:
Vanguard ESG all world cap index fund : £250
S&P 500 etf: £250 also deposited £5000 into this to start
You are double investing by doing this. US is about 60% of all developed world stocks. So you have 50%+30% = 80%.

I think it would be better to be as globally diversified as you can be, and just use the world index fund.

Another problem is the global fund is ESG, but the S&P 500 fund is not. So did you want to be ESG (Environmental Social Governance) tilted or not?
Both in vanguard ISA account
Aviva work pension: £275/£300(depending if i work shifts)
There is normally a choice of funds. Which Aviva fund are you investing in?
Emergency saving: £80(incase of car emergency etc)
Holiday saving: £150(will lower this if the current circumstances continue)
My wage will increase over the next few years as I'm coming out of an apprenticeship in mechanical engineering.
My plan is to increase my monthly deposit into both funds with inflation and pay increases. When my pay goes up 100% of the increase will be added to the funds and nothing else.
Are there better funds to choose for more growth in the long run?
You don't mention a plan to purchase a property? Savings mechanisms like the Homebuyer's ISA can be advantageous? I don't think homes in the UK are a particularly good investment (if you read a book like Neil Monnery's Safe as Houses: 8 centuries of housing prices; you will see this) however they are massively tax favoured (property taxes post purchase are very low by international standards, especially for more expensive homes, primary residence is Capital Gains Tax exempt).

TBH in your shoes I'd plan to spend more on holiday. As you get older you get work and family commitments and you can't just see the world. But if you want to focus on early retirement then you are doing the right thing.

I would suggest you should have a larger emergency fund if you can - at least a few months of basic living expenses.
My plan is to be able to be free at 55 and to live off my portfolio with the 3.3/4% rule if I choose to. Is this too ambitious? And would I realistically need to be depositing signicantly more?
If anyone could help me with my plan and lead me further in the right direction.
I do apologise if all this sounds silly im new to this but have been constantly reading/listening to books to plan the best future for myself and future family.
I am willing to take 100% risk and I will adjust this in approx 15 years maybe more.
You really can't say. Much depends on your future income track & future returns - and those are both unknown.

You are going about this the right way, which is to get savings in early, in low cost index funds. As long as you hold your nerve and keep investing through the inevitable downturns (which can last for years) you should, by the time you are ready to retire, have a decent sized portfolio.

Whether that will be at 55 is a whole another question. The government is raising the state retirement age because of an aging population. And what the "Safe Withdrawal Rate" will be by then is anyone's guess - if today's very low interest rates continue, then it's not feasible to have a 30-40 year retirement period, with what you withdraw keeping up with inflation, withdrawing 3-4% pa.

Also life has a way of hitting at you - unemployment & illness on the bad side, marriage & family on the good side.

Your strategy is good although I would simplify your ISA funds. Whether it will produce the "retire at 55" is a question that won't be answered for many years, unfortunately.
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

Hello thanks for your reply much appreciated.
I decided with an esg fund as I believed it will be the main focus in the years to come and provide a good return. I also decided to invest in the S&P 500 ETF as I didnt see the option to invest in a world index fund VTSAX. Is there one for us uk investors to invest in?

The fund I chose with aviva is the "aviva pensions International index tracking S2" this is what I changed it to last month as thats when started looking into everything. Is there a better fund?

I didnt mention buying a house as I wrote a lot already. My plan would be to open a Lisa and invest into that in the next year or 2 when I get my pay rise which would be an extra 100/200 which I'd put into there when I open that account. That is not my main focus at the moment and will adjust deposits to suit when needing to buy a house but I want to hold off for as long as I can. Thanks for mentioning about my holiday saving i thought I was putting too much in but travelling is a priority of mine.
I will also try and find a way to put more in my emergency fund, I will be having a grant from uni which I could put in there.
I do understand everything is not set in stone and anything can happen I just want to set myself up and not make any big mistakes. I understand there will be huge volatility and I am aware that there will be bad times but I am in it for the long run and will see them through.
Thanks for all your feedback really appreciate it!
Genghis
Posts: 15
Joined: Fri Jun 26, 2020 6:53 am

Re: Uk investor planning for early retirement

Post by Genghis »

VTSAX is the US based mutual fund for US total stock market. As a UK based investor, no need to overweight the US in my opinion. Just have one global fund.

I’m not convinced with ESG. Depending on the “filter” used, ESG can mean different things to different people. You want to avoid oil and gas? Well in some ESG funds they’re there as they have good corporate governance. Look under the hood to make sure you’re buying what you really want to buy, or just keep it simple and cut costs and forget ESG.
steveyg50
Posts: 51
Joined: Tue Jul 09, 2019 6:35 pm

Re: Uk investor planning for early retirement

Post by steveyg50 »

Have you punched all your figures into a retirement calculator, such as Vanguards?

https://www.vanguardinvestor.co.uk/what ... calculator

Its only a ball park figure, and there are others on various websites...they seem to vary quite considerably.
TedSwippet
Posts: 3163
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Uk investor planning for early retirement

Post by TedSwippet »

Welcome to the forum.
Joshalf1997 wrote: Fri Sep 11, 2020 2:30 pm I also decided to invest in the S&P 500 ETF as I didnt see the option to invest in a world index fund VTSAX. Is there one for us uk investors to invest in?
...
The fund I chose with aviva is the "aviva pensions International index tracking S2" this is what I changed it to last month as thats when started looking into everything. Is there a better fund?
Define 'better'?

Your approach seems a bit random. You ask about specific funds without any apparent attempt to first identify what asset classes and what geographical regions you aim to hold. For example, the S&P 500 is US-only large cap stocks, VTSAX (if you could get it, which you cannot since it's only sold to US investors) is US-only all-cap stocks and not all-world at all, and the Aviva pensions fund you mention is all-world stocks excluding UK. There is no visible structure or organisation here.

Maybe you could take a step backwards, and define the overall shape of your portfolio before deciding on specific funds and/or ETFs. Do you want all-world stocks? If yes, do you want them in market cap ratios, or do you want to overweight some region, say the US, or the UK, or Emerging Markets? If no, at the other extreme do you plan to hold stocks from perhaps just one country, say the US, with all the attendant currency and concentration risks that entails? Do you want bonds (gilts) for some stability, or could you live with the volatility of an all-stocks portfolio? If gilts, ordinary or index linked?

The first step is to decide on a plan, showing what percentages of your portfolio you will assign to these assorted asset classes and stock regions. Then, and only then, can you begin to piece together a portfolio of funds and ETFs that realises this plan.

Finally, try to bear in mind that you want your portfolio to be a metaphorical all-terrain vehicle. If you build a racing car and hit soggy ground, you will lose out. If you build a tank then you will be fine in the mud, but slow on the tarmac. The aim is very much to put together something that will operate tolerably well in all conditions. You might find some useful ideas in the UK investing section of the wiki.
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

Genghis wrote: Fri Sep 11, 2020 2:42 pm VTSAX is the US based mutual fund for US total stock market. As a UK based investor, no need to overweight the US in my opinion. Just have one global fund.

I’m not convinced with ESG. Depending on the “filter” used, ESG can mean different things to different people. You want to avoid oil and gas? Well in some ESG funds they’re there as they have good corporate governance. Look under the hood to make sure you’re buying what you really want to buy, or just keep it simple and cut costs and forget ESG.
Hello, thanks for your feedback. I will look into my portfolio again as it makes sense to have a global fund and ill keep reading on the ESG fund to make sure that it is exactly what I want to be invested in and structure my portfolio accordingly. Thank you.
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

steveyg50 wrote: Fri Sep 11, 2020 3:03 pm Have you punched all your figures into a retirement calculator, such as Vanguards?

https://www.vanguardinvestor.co.uk/what ... calculator

Its only a ball park figure, and there are others on various websites...they seem to vary quite considerably.
hello, yes I just punched them in and aviva also provide a retirement calculator and they both are very similar numbers and say im on track.
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

TedSwippet wrote: Fri Sep 11, 2020 3:09 pm Welcome to the forum.
Joshalf1997 wrote: Fri Sep 11, 2020 2:30 pm I also decided to invest in the S&P 500 ETF as I didnt see the option to invest in a world index fund VTSAX. Is there one for us uk investors to invest in?
...
The fund I chose with aviva is the "aviva pensions International index tracking S2" this is what I changed it to last month as thats when started looking into everything. Is there a better fund?
Define 'better'?

Your approach seems a bit random. You ask about specific funds without any apparent attempt to first identify what asset classes and what geographical regions you aim to hold. For example, the S&P 500 is US-only large cap stocks, VTSAX (if you could get it, which you cannot since it's only sold to US investors) is US-only all-cap stocks and not all-world at all, and the Aviva pensions fund you mention is all-world stocks excluding UK. There is no visible structure or organisation here.

Maybe you could take a step backwards, and define the overall shape of your portfolio before deciding on specific funds and/or ETFs. Do you want all-world stocks? If yes, do you want them in market cap ratios, or do you want to overweight some region, say the US, or the UK, or Emerging Markets? If no, at the other extreme do you plan to hold stocks from perhaps just one country, say the US, with all the attendant currency and concentration risks that entails? Do you want bonds (gilts) for some stability, or could you live with the volatility of an all-stocks portfolio? If gilts, ordinary or index linked?

The first step is to decide on a plan, showing what percentages of your portfolio you will assign to these assorted asset classes and stock regions. Then, and only then, can you begin to piece together a portfolio of funds and ETFs that realises this plan.

Finally, try to bear in mind that you want your portfolio to be a metaphorical all-terrain vehicle. If you build a racing car and hit soggy ground, you will lose out. If you build a tank then you will be fine in the mud, but slow on the tarmac. The aim is very much to put together something that will operate tolerably well in all conditions. You might find some useful ideas in the UK investing section of the wiki.
Hello thank you very much for saying this as you are right and I know i am all over the place this is why I asked haha. As for my choosing my funds I chose S&P 500 because I read about it bringing a return of 11.9% in a book from 1975-2015 (a simple path to wealth). I know this is not something to go off as no one knows whats going to happen in the future buts thats not the only thing that says to invest in the S&P 500 it just keeps coming up so thats my reason. I am a little aware of the currency risks but nowhere near knowledgeable on what is happening with it as I need to be with whats going on.
I'm happy to go 100% all stocks and I believe I can take the volatility.
And for my pension I just went with on of the best performing funds on aviva from % return.
From what you are saying I might be looking at it all wrong.

Can you point me in the right direction to deciding a plan as I am just reading books, listening to podcasts and ive just found this forum. Is there anything else I should/can do?

Thank you very much for your very honest feedback i needed that!
That last paragraph is what i will keep in mind when I am planning my portfolio as it is a great way to think of it.
I do apologise if i seem a little silly but I've only just started looking into this the last month/2 months and have been reading and accumulating as much information as I can.
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

I've also just read through that link you provided and answers the question of where else can I look to structure and plan my portfolio thank you!
TedSwippet
Posts: 3163
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Uk investor planning for early retirement

Post by TedSwippet »

Joshalf1997 wrote: Fri Sep 11, 2020 3:57 pm Hello thank you very much for saying this as you are right and I know i am all over the place this is why I asked haha. ... From what you are saying I might be looking at it all wrong.
Not all wrong, but perhaps approaching it backwards. But then, lots of people do this, so don't beat yourself up. Nobody is born knowing this stuff.
Joshalf1997 wrote: Fri Sep 11, 2020 3:57 pmCan you point me in the right direction to deciding a plan as I am just reading books, listening to podcasts and ive just found this forum. Is there anything else I should/can do?
Aside from our wiki, some of which is US specific (so do be a bit careful on that part of it), there are several UK resources you can use. For example, Vanguard has a complete series on building a portfolio, starting here:

How to invest, part 1: understanding risk and reward | Vanguard UK Investor

Or, if you want to shortcut this process, you could easily do a lot worse than using one of the example portfolios in these or other similar articles:

Moneywise's ready-made and cheap portfolios for beginner investors - interactive investor
Building a really simple investment portfolio | EQi

The one wrinkle here is that you may have a limited choice of funds in your pension, and perhaps Vanguard funds or ETFs, or iShares, are not available in it (or if they are, have added charges that you would rather avoid). In this case, where you can't directly hold the funds in the portfolio you're copying, you can usually synthesize something that replicates it out of the things available. For example, to manufacture an all-world stocks holding, your current Aviva all-world ex-UK fund paired with a modest Aviva UK-only fund would be fine, perhaps an around 90:10 ratio for simplicity.
Joshalf1997 wrote: Fri Sep 11, 2020 3:57 pmI do apologise if i seem a little silly but I've only just started looking into this the last month/2 months and have been reading and accumulating as much information as I can.
No problem. Many people never get round to tackling this, so by starting now you are already well ahead of the pack.
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

TedSwippet wrote: Fri Sep 11, 2020 5:10 pm
Joshalf1997 wrote: Fri Sep 11, 2020 3:57 pm Hello thank you very much for saying this as you are right and I know i am all over the place this is why I asked haha. ... From what you are saying I might be looking at it all wrong.
Not all wrong, but perhaps approaching it backwards. But then, lots of people do this, so don't beat yourself up. Nobody is born knowing this stuff.
Joshalf1997 wrote: Fri Sep 11, 2020 3:57 pmCan you point me in the right direction to deciding a plan as I am just reading books, listening to podcasts and ive just found this forum. Is there anything else I should/can do?
Aside from our wiki, some of which is US specific (so do be a bit careful on that part of it), there are several UK resources you can use. For example, Vanguard has a complete series on building a portfolio, starting here:

How to invest, part 1: understanding risk and reward | Vanguard UK Investor

Or, if you want to shortcut this process, you could easily do a lot worse than using one of the example portfolios in these or other similar articles:

Moneywise's ready-made and cheap portfolios for beginner investors - interactive investor
Building a really simple investment portfolio | EQi

The one wrinkle here is that you may have a limited choice of funds in your pension, and perhaps Vanguard funds or ETFs, or iShares, are not available in it (or if they are, have added charges that you would rather avoid). In this case, where you can't directly hold the funds in the portfolio you're copying, you can usually synthesize something that replicates it out of the things available. For example, to manufacture an all-world stocks holding, your current Aviva all-world ex-UK fund paired with a modest Aviva UK-only fund would be fine, perhaps an around 90:10 ratio for simplicity.
Joshalf1997 wrote: Fri Sep 11, 2020 3:57 pmI do apologise if i seem a little silly but I've only just started looking into this the last month/2 months and have been reading and accumulating as much information as I can.
No problem. Many people never get round to tackling this, so by starting now you are already well ahead of the pack.
Thank you very much for your time and feedback. I looked at the wiki link you provided last night and i will look into all the other links to organise a portfolio that makes sense that will put me in good stead for the future. Thanks again.
Valuethinker
Posts: 41146
Joined: Fri May 11, 2007 11:07 am

Re: Uk investor planning for early retirement

Post by Valuethinker »

Joshalf1997 wrote: Fri Sep 11, 2020 3:30 pm
steveyg50 wrote: Fri Sep 11, 2020 3:03 pm Have you punched all your figures into a retirement calculator, such as Vanguards?

https://www.vanguardinvestor.co.uk/what ... calculator

Its only a ball park figure, and there are others on various websites...they seem to vary quite considerably.
hello, yes I just punched them in and aviva also provide a retirement calculator and they both are very similar numbers and say im on track.
Those retirement calculators make assumptions about your salary increases (and thus increases in contributions) & returns. Which may not be the case.

TBF, in the early years your salary will probably increase faster than they assume. Tends to flatten out a lot in your 30s, though. Once you get to your 50s, for most people, just hanging in there is what becomes important.
Fortune Seeker
Posts: 104
Joined: Mon Apr 13, 2020 9:52 am
Location: UK

Re: Uk investor planning for early retirement

Post by Fortune Seeker »

You also need to invest into one asset that's often overlooked: yourself.

Constantly improve your skills, obtain new/better certifications, look for opportunities to get promoted; check what other companies are paying and do not hesitate to jump ship if you feel like you're stuck in dead-end position.

It is better to earn more money and invest more conservatively than earn less money and invest in more risky way.
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

Fortune Seeker wrote: Sat Sep 12, 2020 1:09 pm You also need to invest into one asset that's often overlooked: yourself.

Constantly improve your skills, obtain new/better certifications, look for opportunities to get promoted; check what other companies are paying and do not hesitate to jump ship if you feel like you're stuck in dead-end position.

It is better to earn more money and invest more conservatively than earn less money and invest in more risky way.
Hello thanks for your feedback
For me this attitude and work ethic is mandatory and goes without saying as my father has been telling me this for many years. I've just pushed my company to fund me through a mech and manufacturing engineering BEng degree so will increase my opportunity in the future for a better job to increase my investments and put me in better stead for the future.
chipperd
Posts: 732
Joined: Sat Sep 24, 2011 5:58 am

Re: Uk investor planning for early retirement

Post by chipperd »

I retired fairly early (52) and relied on this calculator to do much of the heavy lifting in my retirement planning, as it can accommodate pension, changes in income/spending over time and some other issues that fit our situation.
Just seems more flexible than many of the others. (Note: this isn't a Monte Carlo type calculator):
https://financialmentor.com/calculator/ ... calculator
Topic Author
Joshalf1997
Posts: 14
Joined: Thu Sep 10, 2020 3:24 pm

Re: Uk investor planning for early retirement

Post by Joshalf1997 »

chipperd wrote: Sun Sep 13, 2020 5:55 am I retired fairly early (52) and relied on this calculator to do much of the heavy lifting in my retirement planning, as it can accommodate pension, changes in income/spending over time and some other issues that fit our situation.
Just seems more flexible than many of the others. (Note: this isn't a Monte Carlo type calculator):
https://financialmentor.com/calculator/ ... calculator
Thats great thanks! Congrats on the early retirement! i will use this calculator as a guide to see if im roughly on track.
chipperd
Posts: 732
Joined: Sat Sep 24, 2011 5:58 am

Re: Uk investor planning for early retirement

Post by chipperd »

Joshalf1997 wrote: Sun Sep 13, 2020 9:58 am
chipperd wrote: Sun Sep 13, 2020 5:55 am I retired fairly early (52) and relied on this calculator to do much of the heavy lifting in my retirement planning, as it can accommodate pension, changes in income/spending over time and some other issues that fit our situation.
Just seems more flexible than many of the others. (Note: this isn't a Monte Carlo type calculator):
https://financialmentor.com/calculator/ ... calculator
Thats great thanks! Congrats on the early retirement! i will use this calculator as a guide to see if im roughly on track.
You bet.
Best of luck.
Cheers.
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