It’s no secret that Personal Finance is a hobby of mine (498 blog posts help reinforce that) and within that hobby I’ve done a reasonable job of DIY investing myself to FIRE using the knowledge I’ve gained to focus on a few mechanical principles. I would suggest that this has also been helped by having a “head vs heart” approach to life, a reasonable grasp of maths, gaining a sense of achievement by reading personal finance books/blogs and an enjoyment of spreadsheets.Mrs RIT on the other hand is the very opposite of me which makes our non-financial relationship great as we balance each other well. She would never take on personal finance as a hobby, is more “heart vs head”, is more arts than maths and most definitely doesn’t enjoy spreadsheets. She does however very much see the benefits of wealth creation and FIRE having been a willing participant in the journey to FIRE.
With this in mind, over a reasonable period now, I’ve been teaching Mrs RIT DIY investing. The reason I’m not just doing this 100% for her is that someday there is of course a risk that I won’t be able to for a number of reasons. We therefore want her to be able to stand on her own investment feet. We are making progress but I’m still answering plenty of questions. Then a couple of weeks ago it went a little pear shaped. Mrs RIT was about to buy an investment with some new money. The night before we agreed what the ETF purchase should be to move her current asset allocation closer to plan and she was to then buy the ETF the next morning. That afternoon I asked how the purchase went and would she like me to answer any questions. The response was “Oh I didn’t buy the one we agreed because when I logged on to buy I saw that it had been going down so I bought this other one which has been going up”. This started me thinking about whether DIY investing is for her and what other options we might have as a risk mitigation to me being unable to help with her (and maybe inherited from me) investments in the future.
The obvious one is to get her an independent financial advisor for a portion of her wealth now. If I then ever pop my clogs (or worse) she’d be set. She could contact them and get all the other wealth under their management leaving Mrs RIT to go fishing (or whatever hobby takes her fancy). I’m reticent to do this though because this option is probably going to take the most of her wealth over an investing lifetime in expenses, particularly if all our combined wealth was eventually wrapped up with one. Given she is learning we just might not need to be this extreme so haven’t advanced this option.
Another option would be to get much more basic with the DIY investing and maybe just settle on Vanguard LifeStrategy funds in a few different wrappers. This is not as cost effective as full DIY investing but it is much simpler. She’d still need to do some DIY which might include occasionally finding new wrapper providers if (when?) they change their fee structures but it would be simpler than what we do now. To move this forward a little we’ve already moved Mrs RIT’s SIPP into LifeStrategy. I would be reticent to put all her wealth here though because I’m not a fan of having all her/our eggs in one basket.
The final option I could think of was to use a reasonably new concept in investing which is a robo-advisor. They seem to use tracker funds/ETF’s and their own proprietary algorithm, with the data inputs coming from some basic questions, to build a targeted portfolio. Cost wise they seem to sit between DIY/LifeStrategy and an independent financial advisor. The two in the UK I am most familiar with are Nutmeg and Wealthsimple as they have both contacted me (Nutmeg some years ago and Wealthsimple a few weeks ago) about whether I would be interested in reviewing their products.
I have decided to start an experiment with Wealthsimple as they have offered me and any reader who signs up via this link no Wealthsimple fees on the first £10,000 invested for the first year (we still pay fund expenses which are indicated as circa 0.2%).* This seems to mean no downside to my DIY investing approach from a cost perspective for the first year making it a good platform to experiment on.
It should be noted that after that initial discounted year Wealthsimple does currently seem more expensive but I’m not sure at this time if the levels of advice differ – I’ll likely phone Wealthsimple once we FIRE to test this out given how significant a change in circumstances this event will be. On up to £100,000 the lowest cost Nutmeg option seems to be 0.45% (0.25% once over £100k) + circa 0.21% fund costs + circa 0.09% market spread costs. In comparison Wealthsimple are 0.7% (0.5% once over £100,000) + circa 0.2% fund costs. They don’t mention market spread costs but do mention 0.2% currency conversion costs if they need to buy/sell different currencies in your account.
Having settled on Wealthsimple I then signed up. The whole process took me 37 minutes which included taking some screenshots that might have been useful for this post as well as finding my passport and photographing it to upload as evidence of who I was. The questions to select the portfolio were quite basic with the themes being why are you investing, how long are you investing for, incomings/outgoings, life changes expected in the future, current wealth, current debt, current cash to cover living expenses, investing experience and attitude to risk. They then asked, which I didn’t take up, if I was interested in a free consultation with one of their qualified Investment Advisors with the callout “Personalised investment advice from our team comes at no additional cost. We are on hand to talk through your finances and help ensure you are on track to meet your long term goals.”
The outcome of this was the following portfolio:
Click to enlarge, Wealthsimple robo-advised portfolio
It’s interesting to compare this portfolio at a high level with with my current DIY plan:
- Wealthsimple 67.8% Equity : 32.3% Bonds
- RIT DIY 65% Equity : 35% Bonds
I’ll report back in periodically on how this experiment is going as robo-advising is very new to me and I’m sure many others as well.
Are you currently using a robo-advisor? Have you tested out their advice? Do you have any better ideas for cost effective advice? Do you have any better ideas for how to protect loved ones if the family DIY investor can no longer perform that task? Please do share your comments below.
Finally as always please do your own research / get your own advice and remember your capital is at risk with these types of products.
*Full disclosure: I am not an employee of Wealthsimple and they did not pay me for this post. I did however take advantage of this link to invest a small amount of my own money to get no Wealthsimple fees for a year on my first £10,000 of investments (I will still be charged fund expenses of circa 0.2%) and if you decide to also experiment with Wealthsimple for each reader who signs up with £500 or more they will give me a fee which is equivalent to about 0.003672% of my current wealth.
It's a bugger working out how to provide for your widow. My best moves, probably, have been to buy her annuities, principally by deferring state pension, both hers and mine. This is a good deal on the old-style pensions, much less appealing on the new. One non-state annuity will pay out only after my death, which should be OK unless I spend years gaga in a care home.
ReplyDeleteAnother notion is to set up a Nil Rate Band discretionary trust in my will. But who should I appoint as Trustees? The friends and family I'd prefer to use are nearly all our age and therefore not likely to outlive me by much. They are particularly unlikely to outlive my relict, who is from a very long-lived family.
I have wondered if some variant of this might be used.
http://monevator.com/family-income-benefit-the-forgotten-policy/#comments
The idea would be to have the equivalent of a fixed term annuity, exercised only on own death or intellectual disablement, and of a term that would cover a widow until she's old enough (75? 80?) that buying a classical until-death annuity might make sense.
I'd expect my missus to blow the lot on travelling, clothes and other stuff I consider a waste of money in short order if I pop my clogs before she does - as that's what she tends to do with windfalls. No matter, I won't be in a position to care and if that's what she wants to do, fine by me. Even so I suspect it would probably take her a decade or more to get through it as she is fairly frugal about stuff that isn't important to her.
ReplyDeleteIt may even be a wise decision considering we have no dependents and she has had cancer in the past. Serious illness tends to change your perspective on life. Some double down on being cautious, others figure you're a long time dead and who knows what will happen tomorrow so enjoy it while you can.
I have used nutmeg and moneyfarm both are useful if you don't want to diy your finances but I joined primarily for the generous intro offers and left because I can save.money going diy.
ReplyDeleteI have since transferred out but would consider it as an option for my widow.
I have read that these platforms struggle to break even and the high fees reflect the fact that they need to have money coming in to keep in business.
They are useful for say less than £50-£100K as you have no dealing fees and instant allocation.
And it's very much hands off no stress investing
Sorry for the pedantry, but reticent = "not revealing one's thoughts or feelings readily", i.e. it is a type of reluctance (the word you were looking for), but specifically related to communication (so not appropriate in your context.)
ReplyDeleteRIT - you seem to have lost focus.
ReplyDeleteThis may give you a nudge back in the right direction.
http://www.cyprus-property-sales-resales.com/moving-to-cyprus/reasons-against-moving-to-cyprus.html
As always - do ( some more of ) your own research.
LOL - Do you have one showing a list of reasons for leaving the UK by any chance?
DeleteNot immediately to hand but I think most of us can very easily produce our own lists.
DeleteChoosing the area where you want to live is usually a compromise especially if work , schooling , nearby family , elderly relatives who need your support are significant factors in your life ( which must include a very large proportion ).
Choosing the kind of house is also a compromise - with price being a significant factor , mortgagability ( is that a word ?) flexibilty , accessability to roads / train stations /airports /ferries etc etc.
Even if sociability is not a strong point - and the need for local contacts is not a priority - I would like to feel welcome ,comfortable , accepted and part of where I choose to live .Think about all the services that we all need to make life easier: doctor/dentist/locally provided Council type services/schooling /other education/plumbers, builders ,roofers,electricians , garages for repairs and servicing,window cleaners,cleaners,gardeners (if your house and lifestyle requires any of the last 3) etc. Most of these need - in the first place - need recommendations, or some other way of sorting the wheat from the chaff. The article I posted on Cyprus suggests that this may be a significant problem - and more likely to happen if you are a foreign newcomer who keeps himself to himself ( I am ot saying that RIT's family fits this description )
Cyprus has had a turbulent history in relations with UK/GB and the island is itself divided ( bitterly so for some), UK citizens are not particularly welcomed there - especially if they do not make efforts to integrate and learn the language(s) or choose to live " out of town "
Rather than write all these ( which are clearly from my viewpoint ) I thought the article helped say some of these things in a more " authoritative way "
OK - I may be raining on RIT's parade - but maybe these things are best considered before rather than after the event.
My comment to RIT last week about what bank to choose was a serious one - Cyprus had a massive banking crisis in the very recent past.
10. Erdogan
DeleteHaving lived in 5 different countries (3 different languages) over the past 20 years I am sceptical of these kind of lists. Ultimately they are the opinion and perception of one person (usually a foreigner and not very authoritative in my opinion) and others will see things total differently.
DeleteIf you are prepared to keep an open mind and make an effort to integrate with the local people rather than isolating yourself in an expat enclave then you chances of enjoying the place are much higher. I know two expat families who live in Cyprus and love it with no desire to leave.
Once you decide its the place to go to then the best thing is go and try it and find out how it feels when you are there. I wouldn't put too much credence on these kind of articles.
All countries have pluses and minuses - but the one constant you'll have anywhere you move to is your own personality.
ReplyDeleteWhinging Poms springs to mind. Running away won't solve anything - you need to be moving towards something better.
And it's all what suits you personally RIT - you can't ski in Cyprus so that would make it a no-no for GFF. :)
You can Ski in Cyprus. Try the Troodos mountains.
Deletehttps://www.youtube.com/watch?v=PLEOUUZq3VU
Just re-read last week's posts and comments from RIT.
ReplyDeleteRetirementInvestingToday25 August 2018 at 14:11 I guess it depends on the definition of "whole hog". My investment strategy is still very much that of a "UK Investor" which has hurt us on current exchange rates. As mentioned to John (diy) we also won't buy immediately just in case. However at the same time we are packing everything up fully as we want to make Cyprus our home. I'm conscious of the saying a rolling stone gathers no moss and if we don't try and build a home there is a risk of us having a one year holiday, not integrating because of that and then moving on not because it's not right but because we didn't integrate. Not for a second are we saying Cyprus is our forever home but we at the same time want to give it the best chance possible.
Relieved to hear this ! ( a bit late )
I meant a bit late from the points expressed in my posts.
DeleteThat Wealth Simple portfolio looks unnecessarily complicated, massively home biased and like it's taking too much risk on the bond side. It's more like 15% defensive: the 32% in fixed income is a red herring when much is in emerging market debt, high yield bonds and corporate bonds with less than AA ratings. Obvs, suitability for any individual investor depends on how well their algorithm can match the questionnaire to genuine investment needs.
ReplyDeleteI've been using the Vanguard Lifestrategy funds for a couple of years now. I like the concept. My only concern is the total assets looks quite low for example the 2040 fund has £10 million total assets. Do you think I should be concerned about the level of liquidity?
ReplyDeleteOff Topic: FIRE in the press
ReplyDeletehttps://www.theguardian.com/money/shortcuts/2018/sep/17/retire-early-fire-movement-never-work-again
I never knew the frugal Mr Money Moustache had a $400K / year cushion from his blog ... (then there's Mrs MM's Etsy shop)
Perhaps it's just the way I've read it, but I have to say that parts of this piece (and a couple of the comments) come across as pretty condescending. If Mrs RIT is struggling to get the hang of investment principles, had you ever considered that the problem lies with the quality of your 'teaching', rather than with her? Just a thought...
ReplyDeleteJane
https://www.marketwatch.com/story/these-are-the-bad-things-about-early-retirement-that-no-one-talks-about-2018-09-26?mod=MW_home_top_stories
ReplyDelete