Sunday, 12 October 2014

A Retirement Investing Today Review 9 Months into 2014

My personal finance life follows a Plan, Do, Check, Act (PDCA) approach.  As I do every quarter it’s time to Check whether my Save Hard, Invest Wisely to Retire Early Plan is working.  It’s important to highlight that unlike many blogs what I write here is a real life, my life, and very serious DIY experiment. If I get it wrong then it’s likely that a ‘derisory’ State Pension awaits.  If I get it right then the world (or Europe in my families case) is our oyster.


This quarter I've continued to work very long hours, including a long commute, while as a family we continue to challenge all spending to ensure that every £ will bring improved health and/or happiness.  If it won’t then we don’t spend on it.  The end result is a savings rate for the quarter of 54% of my earnings, where earnings are defined as my gross (ie before tax) earnings plus any employee pension contributions.  This is against a target of 55%.

For the non-regular readers my H2 2014 review details why the target is now 55% compared with 60% when I first started down this road.

RIT Savings Rate
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Saving Hard score: Conceded Pass.  Close, but no cigar.  1% below target means a little more effort required as we head into the Christmas quarter.  A difficult challenge ahead.


My investing strategy remains pretty much intact however with financial independence now fast approaching this quarter has triggered the need to now start increasing my cash holdings which when combined with my NS&I Index Linked Savings Certificates will eventually buy my family a home.  My current asset allocations are:

RIT Asset Allocations
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A quick full disclosure in relation to a comment in that last link:  When I first started down this Retirement Investing Today road my family thought that Australia was a preferred early retirement location.  For that reason I divided the “domestic equities” portion of my portfolio equally between Australia and the UK.  That is no longer the case and so I am now actively and gradually reducing my Australia allocation by not investing new money into Australian equities as well as reinvesting Australian equity dividends elsewhere.  The sum of Australia and UK Equity is still aimed to be at target though which simply means my UK Equity portion will increase with time.

I continue to invest as tax efficiently as possible with my tax efficient holdings now consisting of:

  • 44.3% held within Pension Wrappers with the majority being within a Youinvest SIPP
  • 14.4% held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
  • 9.9% held within a TD Trading ISA.  

Tax efficiency score: Conceded Pass.  At the end of June 2014 I was 68.9% tax efficiently invested.  In this quarter that has reduced slightly to 68.5% however with NS&I Index Linked Certificates currently unavailable and a definite unwillingness to expose myself much more to Pensions given the continual risk of government meddling I'm a little stuck.  If any readers have tax efficiency ideas I’d love to hear about them.

Investment expenses also continue to be driven down.  In this quarter I've been able to reduce these from 0.32% to 0.31%.  Many people I'm sure will say 0.01%, you’re mad to be worrying about that.  However I think of 0.01% as £50 on a wealth pot of £500,000 and I'm very conscious of how many small amounts add up to big amounts with time.

Minimise expenses score: Pass.  An improvement and I also know very clearly where the large expenses are coming from:

  • I'm still choosing to salary sacrifice large amounts into the “expensive” insurance company pension fund offered by my employer.  This enables me to take advantage of an employer contribution match up to a certain point plus my employer also contributes a portion of the employers NI saved.  For me it means I end up with more wealth even after the higher fees.  As soon as I get the chance it will of course be transferred into my Youinvest SIPP which if done today would lower my expenses from 0.31% to 0.25%.
  • I refuse to expose myself to unnecessary taxes in the hunt for expense minimisation.  For me it’s all about minimising expenses and taxes not expenses or taxes.  This mainly means I’ll reduce my Australian Equities exposure with time.  Some of these I bought before I understood the importance of minimising expenses and so have expenses of up to 0.99%.

If I'm Investing Wisely I should be able to beat (or at least match if I was 100% Index Tracking, which IMHO is an admirable pursuit) an Index Benchmark.  For me that Benchmark remains a simple UK Equity and Bond Portfolio aligned in percentage terms with the building blocks of my own portfolio which is then rebalanced once every year.  Today that benchmark allocation is 68% UK Equities and 32% UK Bonds. The 2 indices I use to replicate that benchmark are the FTSE 100 Total Return (Capital & Income) Index which so far this year has returned -0.2% and the iBoxx® Sterling Liquid Corporate Long-Dated Bond Total Return (Capital & Income) Index which has returned 8.2%.  The return of my benchmark year to date is therefore 2.5%.  In contrast my portfolio has year to date provided a return of 3.1%.

Investment return score: Pass.  I've beaten my benchmark.  I'm particularly happy with this given my benchmark doesn't carry any costs where my portfolio sees expenses including fund and wrapper expenses, investment spreads, trading commissions, withholding tax on some investments and deducted at source tax on savings interest.

In the scheme of a lifetime of investing 9 months is an insignificant time period.  My strategy is all about time in the market and not timing the market.  So zooming out a little and the long game also still looks good with the chart below tracking the performance of my portfolio, my benchmark and inflation (RPI) since starting on this DIY investing journey.  Note that the chart assumes a starting sum of £10,000 which is not my portfolio balance at that time but is instead simply a nominal chosen sum to demonstrate performance.  As always I never reveal my portfolio values in £ terms as it’s irrelevant to readers as we all have different earnings, investments, risk profiles, savings rates and target retirement amounts.

RIT Portfolio Performance vs Benchmark vs Inflation
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Since the end of 2007 the benchmark continues to beat inflation with Inflation growing at a Compound Annual Growth Rate (CAGR) of 3.0% compared with the benchmark at 4.7%.  In contrast my portfolio has increased at a CAGR of 6.3%.  In real inflation adjusted terms that’s now 3.3%.  My whole investment strategy since 2007 has been to generate a Real Return of 4% over the long term and I remain below that plan.  Will it improve?  Who knows what Mr Market is going to throw up so only time will tell.

Long term investment return score: Conceded Pass.  Not at my long term real return target of 4% but better than my benchmark.


This is what the Saving Hard and Investing Wisely is all about.  When I started this site in November 2009 I stated that my aim was to retire (which at the time I defined as work becoming optional) in less than 7 years.  We are nearly 5 years on and assuming I can continue to save at expected rates while achieving a real return of 4% I forecast that financial independence will arrive in about 2 years at the grand old age of 44 years.  That will be spot on 7 years from waking up to what the game was all about to goal achieved.  It will also mean financial independence in less than 10 years from when I went DIY in 2007.

“Rule No.1: Never lose money. Rule No.2: Never
 forget rule No.1.” – Warren Buffet

In addition to the 3.1% investment return year to date my total net worth gained 5.4% from Saving Hard.  Looking at these results it really reinforced how important the Buffet quote above is for my investment strategy, which is a strategy targeting financial independence very quickly.  I’m 2 years from the option of retiring early and my savings are still making a bigger contribution to my wealth building than my investments.  It’s been this way every year of my journey bar one.

RIT Year on Year Change in Wealth
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As I write this post I have now accrued 76.9% of the wealth I need to Retire Early.  You can see my progress to financial independence and optional early retirement in the chart below.

RIT Path Trodden Towards Financial Independence
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Retiring early score: Pass.  On target for 7 years from blog start up and less than 10 years from going DIY.  I've moved 7% closer to retirement in 12 months.

A reasonable 9 months thus far with no Fails and progress to retirement continuing nicely even with Mr Market taking some back in recent weeks.  How has your first 9 months been financially?  Are you happy with your achievements?

As always please do your own research.


  • RPI for September 2014 is estimated.


  1. It's an inspiration that you've been doing this since 2009 and can see how your plans are unfolding and slowly coming into fruition! I hope that I too can be just as dedicated and focused, although my plan is at least 10 years long!

    1. I started blogging in 2009 but my DIY financial independence journey actually started in late 2007. Waking up to what the game was all about through to optional early retirement should therefore run to somewhere between 9 and 10 years depending on what Mr Market throws my way. So pretty close to your journey in terms of timing.

  2. Tax Efficiency Ideas. Once a higher rate taxpayer in retirement - always a higher rate tax payer . I think this is almost 100% correct- and it behoves investors approaching retirement to use ISA's, National Savings products ( when available !) as efficiently as possible.

    With yesterday's announcement of CPI @ 1.2% and RPI @ 2.3 % it got me thinking about retirees who went for an index linked pension annuity within the last 10 years.

    Why ? Well - it strikes me that things can still go horribly wrong - even at the last moment. So - an individual or a couple - who have worked and saved hard and have looked forward to a reasonably " comfortable" retirement ( whatever that is - and who wants one anyway ?- comfortable sounds very boring )- because they chose an index linked annuity .

    Can RIT help me with this ? How have retirees who have chosen an RPI linked pension fared compared to those who chose a fixed annual increase ( 3% pa or 5% pa ) or even a flat rate .
    I think that most index linked pensions are linked to RPI - which was negative in 2009
    ( but I don't think that meant a reduction in payments - simply that they were frozen ) and over the last 5 years both RPI and CPI have been extraordinarily low.

    So how much have pensioners lost by having opted for index linking ? - and how do their prospects look for the next 10 years or so ? Can RIT throw some lights on this ?

    1. Hi stringvest

      Let's look over the period that this post covers - End 2007 to end Q3 2014. Over this period the RPI has grown at a CAGR of 3%. If our retiree had a starting income of £10,000 and a lifestyle that equalled the contents of the RPI then s/he now needs an income of £12,233 to just stand still.

      If our retiree was instead able to secure an annual increase of 5% (instead of RPI) and was able to also start with an income of £10,000 (which is a big if as surely this type of guarantee would result in a lower annuity rate) then they now have an income of £13,903. Their standard of living has theoretically increased by 14% compared with our RPI annuity holder.


  3. Another interesting post RIT. How do you feel about the currency fluctuations now that you're no longer looking at Aus as a destination?



    1. Hi A1

      Continental Europe is now my likely retirement destination and so the £ to EUR rate is likely to be very important going forwards. Particularly at the point I move a large sum of money for a home purchase although I'll likely hedge that by moving chunks over a period of time.

      That said these days I only worry about the things I can do something about. I now have a globally diversified portfolio exposed to many exchange rate risks. For now I just let my mechanical strategy deal with it. If a currency strengthens then the value of my assets in that currency might (the value of the asset in that currency might fall to compensate) put me overweight which at a preset band would force me to rebalance by selling. The opposite is true if a currency weakens.


  4. In regards to additional tax efficient investments take a look at the better VCT's
    30% up front credit and no capital gains or dividend taxes for life. (30% credit subject to 5 year tie in)

  5. Hi RIT,

    I see you have already thought about this, but did you see this short piece?