2018 Half 1 Review, The penultimate accumulation post

A little over ten and a half years ago I started to accumulate wealth with a vague notion of work becoming optional in a relatively short time.  At the time I was calling this Early Retirement.  It was a time when the more famous sites like Mr Money Mustache or Early Retirement Extreme didn’t even exist.  It was also a time when terms like FIRE also didn’t exist.  It was a time of self discovery vs being able to learn from those that had walked the path.

With my resignation now in and FIRE now just over the horizon this post series about accumulating wealth is fast drawing to a close.  This is the penultimate one.  The second last post where I ramble on about how I’m try to accrue wealth quickly.  It will soon become all about managing drawdown to protect my wealth.  I’m looking forward to it.

To stay on the subject of accumulation, in the first half of 2018 wealth growth was a modest 2.8% or £36,000.  If I was at the start of my journey the word modest would not be one I would be using to describe wealth growth of £36,000 in 6 months but as someone looking back at a journey that has managed annualised wealth growth of 21.4% it is modest.  Let’s look at the details.

SAVE HARD

I unapologetically continue to define Saving Hard differently than most personal finance bloggers.  For me it’s Gross Earnings (ie before taxes, a crucial difference) plus Employer Pension Contributions minus Spending minus Taxes.  Earn more and one is winning.  Spend less or pay less taxes and you’re also winning.  Savings Rate is then Saving Hard divided by Gross Earnings plus Employer Pension Contributions.  To make it a little more conservative Taxes include any taxes on investments but Earnings include no investment returns.  This encourages me to continually look for the most tax efficient investment methods.  I finished the quarter with an uninspiring Savings Rate of 42.3% against a plan of 55.0%.

Click to enlarge, RIT Savings Rate

Resignation in

Recently I’ve been having doubts about taking early retirement.  What I’ve found particularly interesting is that since becoming financially independent back in July 2016 I just haven’t had the same level of hunger for it.  In the past few weeks I’ve been really trying to figure out why.  I definitely knew there was an element of institutionalisation in there but it was more than that.  There was also fear and plenty of it.

Fear of leaving a career that has plenty of negatives but also plenty of positives.  Fear of the unknown.  Fear of losing purpose.  Fear we’re making a mistake.  Fear of not having enough.  Fear of our move to the Mediterranean being a mistake and us returning with our tail between our legs.  Fear of...

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.