Pocket Money

Investments Sorted For Now

2006-09-27T20:45:00.000+01:00

Over the last weekend I have sorted out a number of issues with my investments.

To start with I have invested the Child Trust Fund Voucher (See previous post : http://pocket-money.blogspot.com/2006/09/child-trust-fund-voucher.html) ). I decided to go with the Children’s Mutual Baby Bond Choice. We have an existing policy with the Children’s Mutual and it was recommended as a best buy on one of the many sites I visited. By selecting the ‘choice’ option I could select the investment fund from a limited range. Fortunately one of the options was the Invesco Perpetual Income fund managed by Neil Woodford. This is a top-performing fund over 10 years and is very consistent. As I said in my previous post, I don’t envisage adding much to this investment, but I still want good long-term performance.

I also decided on the long-term savings vehicle that I would use to build a nest egg for our son as discussed here : http://pocket-money.blogspot.com/2006/09/saving-for-children.html . I did go with RIT Capital Partners and I expect this investment to perform well over the foreseeable future.

I have also restructured my own portfolio, which was triggered in part by the availability of a new fund. The Skandia UK Best Ideas Fund is being launched shortly and will run in a similar way to their Global Best Ideas Fund, which I invested in earlier this year. A number of top quality managers all pick their current best ideas for a portion of the fund. The Global fund has made 10% already and as new quality funds tend to rise initially I am hoping for a reasonable start to the new fund. I am able to invest with all of the initial charge discounted so this is a good opportunity to get in to this fund. I see this as a core holding and have sold three existing holdings and added some new money in order to make a reasonable investment in this fund and also a smaller investment in the Invesco Perpetual Income Fund mentioned above.

This means that my core funds are now:

SVM Global plc – 25% of portfolio
Skandia UK Best Ideas Fund – 21% of portfolio
Invesco Perpetual Income Fund – 9% of portfolio

These represent 55% of my portfolio with the remainder split across Europe, the far east, other emerging markets, Japan and a UK blue chip holding.

I’m happy with this structure and will review the situation again towards April when next years ISA allowance is available.

The funds I sold were:

Ruffer Total Return
Invesco Perpetual UK Aggressive
Cazenove UK Dynamic

These are good funds but the new structure fits my needs better at the moment and I think offers better prospects for now.

The Case For Gold

2006-09-26T07:45:00.000+01:00

For many months now I have been considering diversifying my portfolio by buying gold. Years ago gold investors were considered doomsayers and nutters. The gold price was stuck at low levels and equities were all the rage. However, the technology bubble burst, share prices plummeted and gold started to increase in value.

Gold can be a good way to diversify a portfolio as it usually negatively correlated with equities, in other words when share prices come down, the gold price goes up.

Many commodity analysts think that gold could reach record-breaking highs in the coming years just like other commodities have. Gold can also be considered a safe haven in troubled times as its price does not rely on the performance of governments or corporations. Unlike currency, gold should maintain its value over the long term, as its value is not eroded by inflation.

Having said all that the gold price peaked in 1980 at $850/oz and fell to $252/oz by 1999, which is a huge bear market. Today the gold price is around $580/oz with many people believing that we are in the middle of a multi year bull run. One of the financial commentators, whose views I respect, wrote earlier this year that he was buying some gold as and when there was a price correction in the run, and this seems like a sensible policy to me.

There was an article in the FT a couple of weeks ago about a man who was so convinced about the case for gold and silver that he sold his house and invested the lot in these two metals. He now rents his house off the person he sold it to. He is already sitting on a tidy profit.

There are plenty of people who don’t think gold is such a great idea. I read an interview with an excellent fund manager where he said that gold could not be considered an investment as it does not pay a dividend, therefore it is just a punt.

I’m still not entirely sure, but a small holding as a diversifier and insurance against some sort of financial chaos in this uncertain world does seem appropriate.

If I do decide to buy gold, how do I go about it? There are certainly many options and I shall consider them in a future post.

Saving For Children

2006-09-18T20:23:00.000+01:00

As I mentioned in my last post, I want to put aside some money to give our son a decent start in life, probably towards a deposit on his first home. As he is only six weeks old time is on my side. The questions are where and how to invest.

I’ll tackle the where part first. With a time frame of over twenty years equities are the only asset that make sense to me, especially as I wish to contribute regular small sums. The alternative of a bank or building society deposit account would expose us to a huge amount of inflation risk. We must also remember, when considering risk, that shortfall risk i.e. not making enough return is an important consideration.

£100 invested in the average building society account back in 1945 would have increased to £4,747 by the end of 2003. Whereas if the £100 was invested in UK shares, with all dividends re-invested, it would have been worth a staggering £78,743. Even if inflation is stripped out the shares would have increased your purchasing power 30 times whilst the bank account would only have increased 2 times. (Source: Article by Nick Louth on MSN Money - Here)

Now I’m not investing for 57 years but you can see the point.

So, having decided to invest in equities, how should I go about it?

A major concern is that I want us as parents to control the money until we decide to give it to him. That pretty much rules out anything in his own name unless we want to go to the expense of setting up a trust.

Investing small amounts means that single company shares are out, so that just leaves us with Unit Trusts/OEICS or Investment Trusts. I am a huge fan of Investment Trusts and indeed my largest single investment, outside my pension, is in shares of SVM Global plc.

An Investment Trust is a closed ended investment company that invests in shares of other companies. The closed structure means that there are a fixed number of shares in issue and the price is determined by supply and demand. The major advantage of this is that when investors want to sell, they do so in the open market and the trust does not have to sell any of its investments. The manager of a Unit Trust or OEIC, however will have to sell investments to pay investors that wish to withdraw their money. This invariably means selling at the worst possible time when investors are panicking and the share prices have fallen.

I need to find an Investment Trust that offers a cost effective savings scheme, that allows small contributions and re-invests dividends. Also, as this is to be a single investment it needs to be a trust that invests in a wide number of areas.

I think the Trust that best meets these criteria is RIT Capital Partners plc. This trust has a very good long term track record, invests in different assets around the world, including private equity and property and operates a savings scheme that can accept as little as £20 per month or lump sums of £250. The chairman is Lord Rothschild and the Trust holds large amounts of Rothschild’s money.

From a tax point of view dividends will have been taxed at 10%, which could not be reclaimed by non-taxpayers. So as long as the parent whose name the investment is in remains a basic rate taxpayer there should be no more income tax to pay. We are unlikely to save enough to worry about Capital Gains Tax and if we did we could sell over 2 tax years to utilise 2 lots of annual allowance.

It would be better in the child’s name perhaps as for at least 18 years he is likely to be a non-taxpayer but the lack of control would worry me more than any tax implication.

This is my current thinking. If anyone has any other ideas please let me know.

Child Trust Fund Voucher

2006-09-15T07:53:00.000+01:00

Having had a child and registered him, you can then claim Child Benefit. This is available to everyone and is not means tested. It is currently the princely sum of £17.45 per week, which is a little over £900 per year.

Once you have registered for Child Benefit you are sent a £250 Child Trust Fund voucher. The idea being that you invest this for your child, parents, grandparents and friends can add to it each month, the Government will give you another £250 when the child is seven and when he is eighteen the money is his to give him a good start in life.

In my opinion as far as stupid ideas go this is right up there with paying children to stay at school and the Millenium Dome. If you give the average eighteen year old, probably on the way to university, several thousand pounds, what is he going to spend it on? Beer I suspect, or something equally daft. I don’t suppose there will be many who think of it as a deposit for their first home.

So, I will take the £250 voucher, thank you, and the top up when he is seven and invest them for the long term, but we shall not be adding anything to them. When he is eighteen he will have maybe a thousand pounds to spend as he wishes.

However, I still wish to give him a good start in life, but how do I do that?

Hopefully I will answer that question in my next post.

Nappies Everywhere

2006-09-14T12:54:00.000+01:00

It’s been a long time since my last post due to the birth of my son on 4th August. I had a couple of weeks off work and thought that I could go to the gym, do some gardening and write some posts for this blog, how wrong was I!!

We have barely had time to eat. If we could do one thing in a day, other than looking after the little one, it was a miracle. However, things are starting to settle down a bit now so hopefully I can start to get some things done including posting here.

The new arrival has thrown up (excuse the pun) some interesting financial situations, such as:

The price and effectiveness of nappies
What to do with the Child Trust Fund voucher
How and where to save to give him a good start in life

I will use the next couple of posts to share what we have decided.

Today…………………Nappies.

We have officially tried them all. From our practical experiments we can reveal that our nappies of choice are Tesco’s own brand.

We started by using Pampers, thinking that only the best was good enough for our child. However, we found two problems. Firstly, they are very expensive at about 13.5p a nappy and secondly they leaked just like all the others in some circumstances.

Next we tried Huggies; they leaked a lot and were similarly expensive.

So we decided to try the supermarkets own brands. Asda, Sainsbury’s and Tesco’s were all fine with Tesco’s being no more leaky than Pampers and also being a more comfortable fit. The other clincher was the price, at around 8p a nappy we save 5.5p every time we change him, which is approximately 10 times a day. Some quick maths reveals that this saves us nearly £200 per year.

We are currently using size 2, so it remains to be seen if the later sizes are as good value.

There is good quality and value to be found in the supermarkets own brands these days and not just for nappies. For example I prefer the Tesco’s crunchy nut cornflakes to the Kellogg’s original and I also like the cost saving.

Please comment with any good own brand products that you have found.

Selecting An Investment Fund

2006-07-25T20:43:00.000+01:00

Crikey, it’s been a while since my last post. What with preparations for the arrival of Greg Junior in about a week, being insanely busy at work and the heat I have been remiss with my posting. I shall try to be a bit more regular in future.

Anyway, in my last post I explained why I invest in actively managed funds and said that I would detail how I find the funds to invest in.

I find that a good starting point is the Bloomberg Money magazine. This monthly publication is more in depth than your basic consumer finance magazine and will not suit every one, but it is a good source of ideas and the performance tables at the back of Unit Trusts/OEICS and Investment Trusts are pretty good. There are usually interviews with fund managers and various funds are reviewed each issue. The current issue has an article on the specialist sector and picks a number of funds for closer examination.

I then use the www.morningstar.co.uk website to get a performance breakdown of the last six or seven discrete years plus the current year to date. To me this is important as a five year cumulative, which is available in many magazines, can be distorted by a freak performance in one year. At the moment it is easy to get information back to around 1999, so you can see how the fund has performed in good times and in bad. Although past performance is not necessarily a guide to the future, I think that if the same manager has run the fund for the period in question and he has delivered in rising and falling markets over at least five years, on a discrete year basis, then this is a good sign and the first tick in the box.

I then look at Hargreaves Lansdown’s Wealth 150 List http://www.hargreaveslansdown.co.uk/wealth150/funds.asp . Hargreaves are an Asset Management and Stock Broking company and this is where I keep my stock market investments. The head of research, Mark Dampier, maintains a list of 150 funds that he believes will deliver over the long term. These are good funds run by good managers and are constantly under review. It is important to note that not every good fund is on this list, but if it is on the list that adds some comfort.

Finally, I have to buy in to the Managers philosophy. I like to know how they invest and if it matches the way I think then I’m happy. I like the house style of companies such as SVM, Ruffer and Artemis and consequently I invest in their funds. I like the manager to have a large stake in his own fund if possible as this aligns their interests with mine. The companies own websites such as www.svmonline.co.uk and www.ruffer.co.uk are excellent sources of this sort of information.

If all this seems like too much effort then there is always the fund of funds route. This means that you buy into funds that invest in other funds, so you are in effect paying someone to select the funds and manage your asset allocation for you. This brings with it an extra layer of charges but the team at Jupiter, for example, are delivering results and winning awards. The manager of the Jupiter fund of funds team, John Chatfield-Roberts has written a great book on fund investing called Fundology which is available here: http://books.global-investor.com/books/22930.htm?ginPtrCode=00000&identifier=708f875ea3b70ddbd50550d102061bbc

The bulk of my non-pension stock market investments are invested in shares of SVM Global plc. This is an investment trust managed by Colin McLean and Donald Robertson. They invest in shares of other investment trusts and hedge funds that the private investor just can’t get into. They also like to select funds where the manager has a large stake in the success of the fund. This Trust has considerably out performed the FTSE World Index over the past five years and both managers have substantial personal investments in the fund.

So, in a nutshell, that is a brief overview of the way that I select funds after I have decided on my asset allocation. Please comment with your ideas and methods.

Active or Passive Investment

2006-07-11T12:58:00.000+01:00

I thought it was about time that I put down my thoughts and opinions regarding active versus passive investing.

For those that don’t know, in terms of collective funds such as unit trusts, active investors select the stocks for their funds that they think are going to perform and passive funds investments are selected by a computer in order to track a particular index like the FTSE 100.
The often-touted advantages of passive investing are that over the long term around 75% of active funds don’t out perform the index and, because there are no expensive fund managers to pay, passive funds are cheaper. Charges for passive funds are usually around 0.5% pa as opposed to active funds charges which are around 1.5%.

It is, of course, no coincidence that passive funds get pushed harder in a bull market, such as the last 3 years. In a rising market, with indexes rising, tracker funds are going to increase in value, and with low charges helping they will out perform many unit trusts. In a bear market however trackers will just follow their index down.

There are a number of reasons why I’m not convinced by the passive argument.

Passive funds can only ever under perform against their index. This is because they track the index then deduct charges, so the best they can do is a small under performance.
In a bear market trackers are losing money with no thought.
The main argument that most active funds fail to beat the index is flawed. It assumes that these funds are impossible to avoid and I don’t think they are. There are a lot of poor funds out there and people who know what they are doing know which they are. There are a number of funds that consistently beat the index and again they are not difficult to find. A lot of active funds are closet trackers, that is they hold lots of stocks weighted closely to the index so are in fact trackers with high charges, but again not that hard to avoid.
In a bear market I think you need a manager to reposition the fund more defensively to minimise losses and then to search out the recovery stocks that have been oversold.
It is for these reasons that I prefer to invest in actively managed funds and shares of individually selected companies.

Having said all that I do believe that there is a place for trackers and 75% of my current pension arrangement is in tracking funds. The reason for this is simple, I don’t believe that my pension manager is capable of out performing the index. I have no choice but to use this manager because my employer will put 9% of my salary into this fund providing I add 4% of my own. That is a deal too good to turn down. There is some fund choice so I have selected the fund that is 75% passive and 25% managed by external managers. If I ever move employers then I would move this fund, but for now I’m happy enough to leave it knowing that over the long term the index will rise and should out perform cash, bonds and property and cover me against inflation.

For the novice investor a low cost tracker with say 0.3% charges, like the one offered by Fidelity, should provide a good holding for the long term. However, by selecting quality funds run by good active managers it should be possible to out perform over the long term.

So how do you pick the quality funds?

I will look at this in my next post.

Which mp3

2006-06-30T13:04:00.000+01:00

I acquired a new gizmo this week. Having bought my flash drive a few weeks ago I found (on ebay) a small gizmo that plugs into the cigarette lighter in your car. You then plug in your flash drive loaded with some mp3’s and it transmits the music to your radio.

By using a flash drive, of course, you don’t use any batteries and 1gb can hold a fair few songs.
You can also plug in any mp3 player and this will also be transmitted to your radio. I think this is probably even more useful as you can then sort and skip through your songs more easily.
I’m having a bit of a dilemma over mp3 players at the moment. I have a 1gb Sony Walkman, which I use in the gym. This is great as it slips in your pocket and holds plenty of tunes for working out. However, I like the idea of having most of my music collection with me most of the time, so I can play it in the car or when I’m out and about.

The dilemma is that the iPod Nano seems to fit the bill but with only 4gb will only hold around 80 albums. I know this is a lot but I have 500+ and would like more of them to go on if possible.
The other alternative is the latest 30gb iPod. I will certainly get all the music I want on this, but with it being a hard disk player what are the implications in the gym. Also, I am reading mixed reports about quality of the case, the hard disk life and the battery life, with many people calling it style over content. I am wondering if another manufacturer does the same thing with more reliability and cheaper. Does it really cost £100 to replace the battery on an iPod?

The trouble with new technology products is that buyers seem to be treated with some contempt by the manufacturers and we take it. If we spent £200 on anything else and it didn’t work properly we would take it back, but we seem to accept bugs in new technology. If I’m going to spend £200 on an mp3 player I want it to work, and I want it to work for a long time.

So I’m stuck, if anyone has an iPod or a Nano or an alternative please let me know the pros and cons.

More Cost Savings

2006-06-22T13:02:00.000+01:00

Following on from my energy and Sky savings which I explained here:

http://pocket-money.blogspot.com/2006/06/keep-checking-for-deals.html

I have now targeted my phone and broadband service.

I have been paying £35 per month with Onetel, which includes line rental, evening and weekend calls and 1mb broadband. I usually make a few calls in the day time plus the odd international call to France which means that my monthly bill over the last 12 months has consistently been £40. This was a saving of £5 per month over what I had been paying BT, which only included dial up Internet access.

When I joined Onetel they told me that when 2mb broadband was available I could be transferred for free, however Onetel has since been acquired by the Talk Talk, the landline arm of Carphone Warehouse, who have a better offering.

I have just signed up for £31 per month for a deal that includes all calls at any time including international plus landline plus 8mb broadband. So for £9 per month less I can chat away to family in France for free and my broadband is 8 times quicker, not too disappointing!!

However, and this is the good bit, Talk Talk are in the process of "unbundling" all the telephone exchanges and once my exchange is done the broadband becomes free and they reduce my bill by £10 per month. So I get a far superior service at a saving of £228 per year. The catch, if you can call it that, is that there is a one off connection fee of £30, I can live with that.

There is a broadband limit, but it is a whopping 40gb, which equates to over 8,000 mp3 downloads a month. If you go over the limit you won’t be charged you will receive a letter asking you to be more courteous to other users. The limit is basically just a deterrent for people downloading movies all day; to all intents and purposes it is unlimited.

So, a win win situation, I like those.

I need some savings as my wallet is currently bracing itself for a visit to Babies R Us at the weekend…………………

Investing In Best Ideas

2006-06-19T13:11:00.000+01:00

When investing in collective funds, like Unit Trusts, it is not always possible to invest in the fund managers best ideas. This is because the funds have to hold a large number of stocks to reduce the risk of each one on the whole portfolio. Research in the 80’s showed that holding 10-15 stocks was enough to diversify away stock specific risk, however more recent research suggests that the number is closer to 50. Unit Trusts have to hold a minimum of 16 stocks, but most hold many more.

What if there was a way to invest in the some of the very best fund managers Top 10 very best ideas? Well now there is. I received information about this new fund whilst I was on holiday and took advantage of the recent price falls to invest some of this years ISA allowance into this fund and another best ideas fund.

The new fund is called, unsurprisingly, the Skandia Global Best Ideas fund. The fund managers involved are:

Mark Tyndall (Artemis)
Ashley Willing (Gartmore)
Richard Plackett (Merrill Lynch)
Roger Whiteoak (Framlington)
Crispin Odey (Odey)
Stephen Whittaker (New Star)
Hugh Young (Aberdeen)
Nathan Gibbs (Schroders)
Tom Walker (Martin Currie)
Angus Tulloch (First State)

Each manager selects his 10 most favoured stocks and the mandate allows them to change any stock when they see fit. 50% of the portfolio is split between 5 UK Managers and the rest is divided as follows: Europe 14%, US 17%, Japan 6%, Far East 6% and Emerging Markets 7%.
This seems like it would be a useful core holding for many people offering instant diversification across the globe and access to some of the best managers.

The other fund I have decided to invest in is the Invesco Perpetual UK Aggressive fund. The manager holds a low number of stocks (in the low 20’s) and invests in the way that most people assume funds are run. He wants each stock to matter and is not constrained to any particular size of company. Usually the fund is heavily invested in smaller companies, but at the moment the manger sees better value in large cap stocks.

I still have some of this year’s ISA allowance left, but I’m going to see what happens over the rest of the summer before making any decisions.

Holiday Spending

2006-06-14T16:47:00.000+01:00

We have just returned from a wonderful week’s break in North Devon. We had great accommodation and wall to wall sunshine for the whole week. It should be our last holiday as a couple before the arrival of Junior in a few weeks time. From a financial point of view it was a success too as we came back underspent.

We save for holidays by putting money away each month into an Ingdirect savings account. This account is just used to phase the cost of large expenditure over the year. We get paid monthly so it makes sense to match our expenditure pattern to our income pattern. It is a lot easier to put a few hundred away each month than to suddenly have to find large sums of money for home insurance, a holiday or Christmas out of one month’s pay. I don’t consider this account as ‘Savings’ as it is really just to help the timing of expenditure. We always set a holiday expenditure budget, usually we have so much a day and a bit extra for diesel and food. This year the weather helped a great deal, you don’t spend much lying on a beach for a week. In poor weather we hit the shops and that’s when the trouble starts.

In previous years we have returned from holiday seriously overspent. For example on our first holiday to Scotland we both bought walking boots. We’ve had them many years now and they get a lot of use but it certainly wasn’t planned.

A few years ago we returned from East Devon with several hundred pounds worth of artwork which consisted of two lovely pictures which finish off our living room great but were certainly a shock to the wallet. We have also returned from holiday with a hand crafted vase that cost a few hundred pounds and we bought a full-length mirror back from the Isle of Wight.

All this expenditure created months of juggling money and saving to try and get back on track, thankfully I’d like to think that we were a bit more disciplined now. At least the actual cost of the holiday and the normal expenditure is budgeted for all we need to do now is try and curb our impulse buying a bit.

Keep Checking For Deals

2006-06-02T20:15:00.000+01:00

It certainly pays to keep looking around for deals even if you think your finances are in pretty good shape.

This week I was helping my mother to switch her energy supplier using the excellent www.energyhelpline.com/cashbackmse (this site gives you cashback for switching) when I noticed that her rates were better than mine even though they were both with Powergen. A quick phone call to Powergen, whom I have always found very helpful, confirmed that we were on different tariffs because mine was not an online account. They were happy for me to change tariffs and switched me to the online plan there and then. An extra £50 saving per year for me, excellent.

Anyone still having their gas from British Gas and their electricity from their original electricity board is almost certainly, in effect, paying an apathy premium for not switching. Just look at the energyhelpline website and see how much you could save.

With the imminent arrival of Greg Junior in a couple of months time I have been thinking if there was any other way of saving some money for those first months when I shall be spending cash like it’s going out of fashion on baby related paraphernalia. I decided to look at my Sky TV package. Now don’t get me wrong I love my Sky service, it has given me no trouble and Sky+ is the best gadget known to man, but I pay £36 per month for the privilege and with baby on route I set about seeing if I could do anything about this.

I explained the costs of impending fatherhood to the first person I got through to but she could not do anything for me apart from offer me £3 per month off for 2 months, a total saving of £6. I asked to be put through to the disconnections department, as I was quite prepared to switch down to just the FreeSat channels. I explained my situation and I was offered a £9 per month discount whilst keeping all my channels. A saving over the year of £108, result!

I’ve been a Sky customer for some years and not had a deal before so this may be why I was eligible, but it just goes to show if you don’t ask, you don’t get.

Car Trouble

2006-05-30T21:53:00.000+01:00

Over the weekend the exhaust on my car gave up after a huge 92,000 miles of service (the car is diesel). It is going to cost a disappointing £161 to put right, as I need 2 sections. A little investigation at www.parkers.co.uk tells me that my car is worth about £1,000. This got me thinking about just when is the point that it is not worth repairing.

How many times have we heard people say that they are changing their car because the old one is starting to need repairs and it’s just not worth it? I wonder how many of these people have done their maths and how many just fancy a new car and are just trying to justify the expense to themselves.

Again looking at the Parkers site shows that in another years time my car will be worth about £750, so that’s £250 depreciation in one year. Add to this my exhaust and say another couple of hundred pounds of repairs gives a total of £611. Now if I replace this car with a similar model that’s say 3 years old it will cost at an independent garage about £6,750. At 4 years old its trade in value would be about £4,455, that’s a whopping £2,295 in dealer’s profit and depreciation. The £611 doesn’t look so bad now. Even if we forget the dealers profit and assume we can buy and trade in for the same price the trade in value of the 3-year-old car is £5,570 so taking off £4,455 is £1,115 of pure depreciation.

If I were to buy a newer car the figures are even more scary. New cars lose on average half their value in 3 years so say I spent £16,000 on a new car that’s the best part of £2,700 per year in depreciation and it would be heaviest in the first year.

On purely financial terms, providing you get a reasonable car, I think maintaining an old one is nearly always going to be cheaper than buying a new one. I’ve been lucky I’ve had my car 5 years and apart from normal wear like tyres and brakes nothing has gone wrong (touch wood). Last year the clutch wore out but that had lasted 88,000 miles. The case for keeping it is even stronger now that it has a new clutch and it will have a new exhaust.

So if I do change it, I won’t try to kid anyone, including myself, that it is on financial grounds (unless it needs a huge repair) it will more than likely just be because I want a new one.

Pay Yourself First

2006-05-28T08:44:00.000+01:00

When my wife and I first started living together we opened a joint bank account. We had our salaries paid into our personal accounts and each transferred an amount each month, relative to our salaries, to the joint account to cover the bills.

We both worked full time, had 2 car loans, spent money on anything we wanted and saved virtually nothing.

Today we keep our ‘Emergency Fund’ at around 3 months of our joint outgoings, we save enough to run and replace 2 cars when needed, we invest in shares and still manage to live just fine.

The key to the turnaround was some organisation and ‘Paying Ourselves First’.

Firstly, we started getting paid straight into the joint account and transferring some of this to our personal accounts to cover our own expenses. We also decided on a figure we would each have just for us to do with as we wished.

I then made an annual plan on a spreadsheet of all the income and outgoings though the joint account, filling in the savings lines first. My spreadsheet has expenses down the left hand side and months across the top. For example, the cash ISA allowance is £3,000 so I put £250 a month in the spreadsheet for contributions to a cash ISA.

By doing this, the spare money, that we used to just fritter away, is now being saved for our futures. Now Greg Junior is on the way a bit of security is more important than ever.

We don’t get paid a fortune and the above on its own, whilst providing the lions share of the savings, is not the full story. By paying ourselves first (saving) we then had less to spend and we have cut our cloth accordingly. I’ve kept my car much longer than I used to, it’s now 8 years old, and we don’t have everything we want, but we are hardly deprived.

Basically instead of falling into the normal trap of getting some spare money and spending it on “nice things” we try to use a decent chunk of it to purchase assets (shares) that should in the future generate more cash (dividends).

I’m sure our system won’t suit everyone, but the security enables me to sleep at night.

Portfolio Analysis

2006-05-18T18:01:00.000+01:00

I am currently unsure where to invest this year’s ISA allowance. I need to add some more cash to my Emergency fund (Cash ISA) so this means that I shall be contributing to a mini shares ISA as opposed to a maxi ISA.

In previous years it has been easier to see which areas looked over valued and avoid them, but at the moment it looks a little more tricky. Emerging markets have had a good run, commodities have had a very good run, most analysts seem to think that the US is looking expensive, Japan’s recovery seems to have faltered and the UK market has had a few bad days.

I know that trying to time the market is a fools game, so as I was starting from zero 3 years ago I just tried to get a good geographical spread of quality funds whilst avoiding areas that looked obviously expensive.

My portfolio is currently made up as follows:

Region	% of Total Portfolio
UNIT TRUSTS / OEICS
CF Ruffer Total Return Fund	23.5%
Cazenove UK Dynamic	5.9%
Artemis European Growth Fund	6.8%
Fidelity European	7.0%
Aberdeen Asia Pacific	7.2%
JPMorgan Japan Fund	6.8%
Jupiter Emerging European Opportunities	8.4%
INVESTMENT TRUSTS
SVM Global plc	26.7%
Templeton Emerging Markets Inv Tst plc	7.7%
TOTAL	100.0%

Before making any investments this year I decided to try and analyse my portfolio by geographic region so I can see if there are any areas of weakness in my asset allocation. This task did not prove to be that simple. I could find no one source that contained information about all my holdings, and different sources defined their regions differently. I have made the following list by using the BestInvest Portfolio Health Check Tool, which is available here:

http://www.bestinvest.co.uk/planning/portplan/portplan0.htm

and adjusted it slightly with reference to information from the individual fund managers.

Region	% of Total Portfolio
United Kingdom	19%
North America	9%
Japan	13%
Far East	15%
Europe - Developed	18%
Europe - Emerging	16%
Other	10%
TOTAL	100.0%

My broker does offer its own portfolio analysis service so I have sent off for this report. Until this arrives the above list is a close enough guide.

I am happy to take a long-term view on emerging markets and Japan, but I think there may be better buying opportunities in the future. It looks from the breakdown that I am underweight in the UK and America.

A further analysis from BestInvest shows that my portfolio is split 63% in large companies, 24% in mid caps and 13% in small caps. I would usually think that the large cap figure is too high and more opportunities are likely to exist with smaller companies, but fund managers seem to have been moving into large caps over the last year as they were starting to look better value. I suspect this is why the weightings are as they are.

I now need to think which investments would be right for me at this stage. I am thinking about a focussed UK fund and possibly some directly held shares in a couple of UK companies. I’ll post my deliberations next time.

Passwords – Problem Solved.

2006-05-12T17:51:00.000+01:00

Following my post on the 8th May, I have been investigating ways of remembering all my usernames and passwords, whilst making the passwords stronger and making sure I can still log on to any site I need from anywhere.

The following solution looks like it will work for me.

I have decided to keep all my usernames and passwords in an encrypted file on my PC. There are a number of programs that enable you to do this, but the one I selected was KeePass.

http://keepass.sourceforge.net/index.php

I like this for a number of reasons:

It is easy to use.
It’s free (open-source).
There is a binary stand-alone version that can be run independently from a flash drive.
It is very secure, using AES and TwoFish.
It generates very complex passwords for you.
You cut and paste passwords from the package to the site you are logging in to, so it is safe from anyone recording key presses, as you don’t press any.

Point 3 Is very important. I use KeePass to generate very secure passwords that I could never remember, so I need to carry a copy of the database with me. So I purchased a very nice 1gb LG flashdrive for under £30 from here:

http://www.cclonline.com/product-info.asp?product_id=4056&category_id=147&manufacturer_id=0

I have installed the mobile version of KeePass on here and included a copy of the password database that resides on my PC at home. As well as providing portable access to all my passwords, it also acts as a useful backup, should anything happen to my PC.

Now I have a flash drive I can also carry copies of files from my PC with me. In order to do this in a secure way I downloaded Cryptainer LE from here:

http://www.cypherix.com/cryptainerle/

This product again comes with a mobile version that can be run directly from the flash drive, so it doesn’t need to be installed on every PC you might use.

The software creates a strongly encrypted vault on your flash drive into which you can drag and drop files.

So now I just need to remember two passwords, one for KeePass and one for the vault containing my other files. I can carry my flash drive safe in the knowledge that should I ever lose it, the data is not recoverable by anyone else.

I am happy with this new system. It’s much more secure than using easy to remember passwords and I don’t have to worry about forgetting them. Please let me know what you think and ways that you use to remember all your usernames and passwords.

Safety In Numbers

2006-05-08T20:07:00.000+01:00

How many usernames and passwords do you have to try and remember? I must have 30 to 40 passwords and possibly a few more usernames as I have the odd password used in more than one place. The problem we all have is trying to tread the line between remembering the information when we need it and keeping it secure.

Do we try and keep all the information in our heads? Or do we write it down? If we write it down, how do we keep it safe? I also tend to log on to various sites away from home so I need some way of having the information constantly with me.

If you just use one or two passwords or always pick easy ones then you are compromising the security of your information. If you have many difficult passwords then you can’t remember them.

What do you do?

I have a colleague who, when setting a password, hits random keys in a spreadsheet, then copies it into the website. Next time he logs in, he opens his password spreadsheet and copies the password in to the login screen. I quite like this idea because his passwords are very secure (even he hasn’t got a clue what they are) and they are recorded (in the spreadsheet) so they won’t be forgotten.

My problems with this approach are:

You need to keep the usernames with the passwords, so if your PC gets stolen or hacked, the thief has access to all your passwords in one handy file.
You can’t log-in away from your own PC as you don’t know your passwords.

I’m sure someone must have an inventive way round this problem, and I would love to know what it is?

I will do some investigation and let you know what I find. In the meantime please comment with your ideas.

When Am I Ready To Invest In Shares?

2006-05-04T18:17:00.000+01:00

Yesterday I explained how my first attempt at stockmarket investing was pretty much an unmitigated disaster. Today I’ll cover the way I recovered from this set back and took some positive steps towards investing success.

I realised that my investable funds really weren’t large enough to consider investing in single company shares. I was starting from zero, so if I bought 3 shares they each represented a third of my funds. If something went wrong with one of the companies I was invested in I could lose a quarter of my money very easily, especially as I was investing in small, high-risk companies. I also realised that I simply did not know enough about what I was doing.

Before embarking on any investment, the most important question to ask yourself, in my opinion, is am I ready to invest?

I obviously wasn’t ready, because I could not afford to take much in the way of losses. I had a half baked emergency fund of less than £1,000 that would not do me much good in the event of any sort of emergency, redundancy for example, and I was basically gambling with the little I did have to try and get quick wins in small company shares.

I had started in 2003 to look at collective investments, in particular unit trusts. I did my research and started to save some money each month into a UK fund and a couple of international funds, all wrapped in a mini Stocks ISA.

I also started to build up my ‘Emergency Fund’ in a mini Cash ISA.

Today my emergency fund would cover 3 months expenditure if we both lost our jobs at the same time and about 6 months if one of us lost our job. In reality I should have done this first (before starting the unit trusts) as it has taken a couple of years to get to this level and what would I have done if something went wrong in those two years?

The reason I didn’t sort my emergency fund out first was because:

I was overpaid by a few thousand pounds on my mortgage and thought that if push came to shove I could have some of that back; and
I was convinced that we were at the start of a strong bull market for shares and I was adamant that I wished to start building my investments.

Over the past 3 years I have managed to build a portfolio of collective investments that are well diversified geographically and that have shown strong growth of around 25% per year. I have branched out into Investment Trusts and feel I have a good base. I could now buy shares in a single company that would only represent a small percentage of my overall portfolio.

I think, if you want to start investing in shares, then you first and foremost need to build your ‘Emergency Fund’ and then only consider single company shares when each one would represent no more than say 5% of your portfolio. I’m sure there will be many people that think this is too cautious, but I feel happy with this approach.

Investing………The Story So Far….Part 1 – Not The Greatest Start

2006-05-03T19:39:00.000+01:00

Around March 2003 I had read enough to be fairly certain that if the stockmarket wasn’t at the bottom of the slump, it was fairly close to it. I decided to dive in and start investing in shares. My timing was impeccable, my stock selection abysmal.

If only I knew then what I know now. I bought a number of small company stocks like Skyepharma, CMS Webview, iTrain and French Connection. The case for all of them was compelling at the time but I lost money on each and every one.

My first mistake was buying on the basis of positive news / tips in a magazine. By the time you or I have read the magazine and disturbed our broker on his yacht, the share price has already risen as a result of the positive coverage. The magazine, of course, claimed success with its small company share picks, but it does have a couple of advantages.

When calculating returns very few magazines include the difference between the buying and selling price of the shares (bid / offer spread) and even fewer allow for dealing costs. On small Company shares these costs can be serious. You could end up needing 10% growth just to get back where you started.
People tipping shares, as opposed to buying them, can tip loads of Companies and a couple of stars will save the day. When you can only afford a few you cannot afford for them to all lose money.

There are two lessons here:

Do not buy on the basis of tips. Even if the tipster is right you will see the tip long after the professionals.
Don’t invest until you can afford a balanced portfolio.

My second mistake was highlighted by the purchase of my French Connection shares. I had not seen these tipped, I did my own research and their financial history was an impressive growth story. The numbers looked good, there were several continuous years of solid growth, so in I went. After initially rising the shares soon started to head south.

This brings me to lesson 3:

History is just that………..history. There is a reason why financial advisers constantly point out that past performance is not necessarily a guide to future success, because it’s true. After conducting my financial research, had I have looked into the market a bit more I think I would have seen that the FCUK brand was starting to show signs of trouble.

So, my first foray into stockmarket investing delivered losses and a few harsh lessons. I was wounded, but I’m not finished off that easily………

UK Based Personal Finance Blog

2006-05-03T19:35:00.000+01:00

Welcome to the first posting on my personal finance blog. Although I expect the majority of posts to have a financial theme, relating to making, spending, saving and investing money, I may include other topics that interest me as well.

I am a UK Midlands based 30 something who works as an accountant for a manufacturing company. I am married and we are expecting our first child this summer. My wife is employed in the NHS.

We are not loaded, we both work full time and after junior is born we will most likely both continue to work pretty much full time. I am interested in exploring other sources of income

In my spare time I am studying Financial Planning and hope to gain a qualification by 2007. I am interested in all things financial and have taken my first steps (not all forward) into stockmarket based investments.

I regularly read other financial blogs and a number of personal finance magazines. Once I started commenting on other people’s blogs it gave me the incentive to start my own.

Hopefully by sharing thoughts and ideas (and rants and moans) on this site we can help each other to increase our net worth and take some strides towards financial freedom.