Another pension partial transfer and the elephant in the room

By now it’s no secret that I dislike investment expenses and continually work to minimise them in the most cost effective manner.  I’ve also written previously about how my work defined contribution (DC) pension scheme gives no special benefits but does extract at least 0.6% in annual expenses.  I’ve also previously written about how I take advantage of the pension partial transfer rules by transferring to either of my SIPP providers when they have some sort of special offer and I have a sensible amount of funds in my work DC pension.

Well Hargreaves Lansdown currently have a cash back offer running:

Click to enlarge, Cash back of between £20 and £500 available

I also had a little over £10,000 in my work DC pension so again the used Hargreaves Lansdown electronic transfer service.  It was another good experience with the online form being completed during last week’s bank holiday, Hargreaves Lansdown acknowledging my instructions on the Tuesday and the transfer being complete by the Friday.  The end result:

• Partial transfer completed in 4 days;
• Expenses reduced from 0.6% to between 0.07% and 0.19%.  I bought Vanguard ETF’s and that is their annual expenses.  On the Hargreaves Lansdown side, other than purchase costs, there are no extra expenses because I only buy shares/ETF’s in this SIPP and already have more than £44,444 which means my expenses are capped at £200;
• £20 will soon appear in my SIPP. 

Too old or a fool and his money are soon parted

At age 45 I’m beginning to think I might just be falling behind all the cool kids.  Let’s use grocery shopping as an example.  Throughout the week as we use up (or get within about a week of using up) items we write that item down on what is usually the back of a piece of junk mail.  As the week progresses that starts to form into a grocery shopping list.  Then before we go on our weekly grocery shop we write a weekly meal plan which may require some additions or subtractions to that list.  Once in the supermarket we know which products we normally buy as we’ve already done the lowest price grocery shop but of course we also quickly scan the shelves to see if there is anything on special that week or whether any prices have changed that might alter our buying habits.  This results in minimal waste and hopefully pretty close to the lowest priced weekly shop for our tastes.

We’ve done this for many years so imagine my surprise when I discover something called a Dash Button which can do my shopping for me.  I don’t have one but as I understand it for £4.99 you get a Wi-Fi connected button (with many varieties available covering Household & Office, Food & Beverages, Health & Personal Care, Beauty, etc), which via your phone you pair with a product that you select from a particular brand tied to the Dash Button.  You then stick the button near to the place of use in your home.  So if for example you’re buying soap you might stick it near to your bathroom soap dispenser.  Then when you’re getting low or have run out just push the dash button and voila a new item magically turns up in your letter box the next day.

The Passive Investing vs Active Investing Debate

A search on Google for passive investing vs active investing yields 1,330,000 results with plenty of support on both sides of the fence.  In brief passive investing is a method where you buy an investment product that simply tracks an index.  They are commonly called index trackers and with this method you expect to do no better than the index it is tracking after expenses.

In contrast active investing is a method where you pay a financial professional higher expenses than those of a passive tracker and in exchange he or she is supposed to beat an index s/he is measured against.

Beating the index is the critical point as research I’ve quoted before shows that somebody entrusting their money to a UK financial advisor or investment manager will be paying an average 2.56% annually for financial planning services and financial product expenses.

Let’s demonstrate the effect these expenses can wreak with a simple example knowing that UK equities have ‘only’ returned a real 5.0% over the last 116 years.  Passive Punter self invests £10,000 into a UK Equity Passive Fund which sees expenses of 0.25% and then promptly forgets about it for 20 years.  Assuming that fund returns a real annualised 5.0% before expenses over that period our Passive Punter ends up with a real £25,298.  So far so good.

It’s starting to get Interesting (Part 2)

A lot of very thoughtful comment last week so I thought it might bring some value to the collective if I expand on my musings a little more.  Wandering Star I think hit the nail on the head – for me this FI (Financial Independence) moving to FIRE (Financially Independent Retired Early) lark is no longer about finances but now about psychology and so that’s where I’ll focus today.

I think The Accumulator also makes a good point with “I admire your willingness to play out your doubts in public. It is helpful on a personal level, while at the same time we, your audience, can't help but cheer, hiss, wince and cover our eyes from the galleries.”  I don’t believe I’ve ever claimed to know what I’m doing but what I have tried to always do is learn, experience and then share both the outcome and the journey.  I hope my tossing and turning proves helpful – the other option is to do that behind the scenes and then just communicate surety but I that doesn’t seem as useful from where I sit.  I guess it goes without saying that not for a second did I ever expect to find myself where I am today.  I honestly thought I’d reach FI, soon after convert that into FIRE and then ride off into the Mediterranean sunset.  So just what is going on...

It might be helpful to start with putting some backstory on the table.  I apologise to those who’ve read my book  as you’ll already know some/most of this.  I genuinely come from pretty humble beginnings which means that if I get this wrong I have nowhere to run.  This also means no top up inheritance to come should it all get a bit lean later in FIRE.  Thinking this through and for me it’s more than just a risk to manage.  I’d go so far to say it’s actually a fear.  I have seen and been part of poverty.  It’s not fun.  This is definitely having an impact despite me knowing I have enough.  Shucks, when I look at my wealth today my withdrawal rate if I went today would be less than 2.5% and that comes with knowing that additionally 47% of my spending could become discretionary if/when we see a very bad bear market.  One of the benefits of a quality of life for me costing very little.

It’s starting to get Interesting

Time since my One More Year call has passed by incredibly quickly.  In fact so quickly that if I’m to stick strictly to it resignation day is now just a few a short weeks away.  At the time of my last post this was looking to be an incredibly 100% easy call with Brexit being just over a year away as well as an employer who had apparently decided I was now Mr Average.

Enter 2 events that have shifted that to 20% work on a bit longer to 80% FIRE to the Med in 2018.

The first is the draft Brexit Withdrawal Agreement which was published on the 19 March 2018.  As somebody moving to the Med keeping my EU rights is a very important consideration.  With that in mind, if I’m reading the Agreement correctly, I now gain no advantage by being in the Med by Brexit day, the 29 March 2019, when compared with setting up my new home during the Transition Period, which is now agreed by both the UK and EU as ending on the 31 December 2020.  Brexit pressure off.