Consumer for a day

All this Black Friday talk has given me flashbacks to my last consumer experience a few weeks ago.  Now before I go on I do need to warn you that this might be a little biased in its viewpoint given I actually opted out of consumerism many years ago and so far this year have had an average monthly spend on clothing of £2.64, miscellaneous (which covers gifts, gadgets, a suitcase, non-work/entertainment related public transport and homewares) of £15.80 and entertainment of a hefty £56.15.

While I opted out many of those around me haven’t and so I was asked if I’d like to partake in a little ‘retail therapy’ with a close friend.  I hadn't caught up in a while and am conscious I've lost a number of ‘friends’ because of my lack of interest in consumption so I agreed to spend a few hours in a very large East London shopping centre.  It really did reinforce to me that this was no longer my thing.  It particularly hit home when I was looking at a scene not unlike this:

Source: Wikipedia.org

Firstly, not a single thing was as nature intended.  It was all concrete, steel, glass, lights and colours designed to heighten your senses and draw you in like a moth to a flame.  Importantly though watching the shoppers themselves moving through the walkways and aisles really did remind me of a hoard of zombies lumbering along in pursuit of the unknown.  It was all just so passive with everyone moving along to the next bargain waiting for stuff to just wash over them.

Raise the Private Pension Access Age & My Global Exposure

Firstly, an interesting article in the Financial Times today – Retirement experts campaign for pension freedom age to rise to 65 (should be a free click through or alternatively Google the title and you’ll also find it for free).  It looks like the pensions industry is starting to lobby the government to push back the age at which we can access our pensions from as early as 55 (some of us are not that fortunate) to 65.  Apparently, according to the Society for Pension Professionals:

• “...55 “was far too young” to allow full access to retirement savings...”
• “...it is also too young to consider oneself retired from a working life...”
• “Although I recognise this will not be popular it would result in better outcomes in true later life.”

It’s really great to hear that the Pensions industry apparently has our welfare at the top of their agenda.  To be honest though, in my years of investing I've never seen the Pensions industry do anything that has my best interests in mind so I’m not going to start believe their tripe now.  The cynic in me says that this is yet another way to extract more expenses or fees from us.  Just think about all the extra fees available if you can’t access your wealth for another 10 years.  Come to think of it maybe the third bullet point above is actually right.  Maybe it will result in “...better outcomes in true later life”.  It’s just unfortunate that those better outcomes will be for the Pensions industry rather than the punter.

As always some great Comments in response to last week’s post which included some questions around my International exposure.  Rather than give half an answer in a Comment I thought I’d spend some time and give a more thoughtful detailed answer.

As of this morning my Asset Allocation looks like this:

Click to enlarge, Retirement Investing Today Low Charge Investment Portfolio

In pounds, shillings and pence it is £819,004 and represents everything I own.  Let’s work around the pie chart to uncover my Globall exposure.

Further UK Equity Diversification

I am a disciple of Tim Hale who in my humble opinion is the investing granddaddy for UK investors.  From the emails I receive it’s rare that I can’t refer a reader to his book Smarter Investing: Simpler Decisions for Better Results for the answer to their question.  It’s a must read for anyone serious about investing from the UK.

It’s therefore probably no surprise to find out that my investing strategy is largely based around the teachings of his book (I started in 2007 and so I used the first edition as a basis).  At its most basic he starts with what he calls a Level 1 portfolio mix consisting of Level 1 UK equities and Level 1 UK bonds.  He then goes on to show how you might diversify a portion of your wealth away from these to create a portfolio for all seasons.  Importantly though no matter what your investment horizon large allocations always stay with the Level 1 building blocks.  So the question then becomes what Index should be used to represent Level 1 Equities?  As always Hale has the answer with “For your Level 1 equity allocation, the return benchmark should be the return of the whole domestic market, which provides a diversified and representative benchmark as it includes most public companies, be they large or small and weighted according to their market size... The FTSE All Share is the index of choice for the rational investor.”

I followed this guidance with no other exposure to UK Equities other than the All Share until late 2011 when I realised, that for me at least, I wanted more dividends than my strategy was forecast to give me at the end of my accumulation stage.  I therefore started to diversify a percentage away from Level UK Equities towards a UK based High Yield Portfolio (HYP).  Today that HYP contains 17 companies with 83% of them by valuation coming from the FTSE100 and 16% coming from the FTSE250.  I then continued with this strategy until I reached the point where it looked like my total portfolio would enable me to live off the dividends.  I’m fairly comfortably there now and so don’t need to keep growing my dividends at such a great rate.