Low interest rates on savings

[kabbes]

It’s hard to justify the switch to bonds before retirement these days unless you are buying an annuity. The reason wasn’t just generic stability, by the way, it was because annuities are priced based on (largely A-rated) bond yields, so bond prices and annuity prices are heavily correlated. As such, if your bond portfolio dropped that didn’t matter because annuity prices would also have dropped and you’d be able to buy the same income.

If you aren’t going to buy an annuity then there is less justification but bonds can still provide a stability of income that equities lack. I’ve got as much equity as I can stomach at the moment so I’m going to start building this: Royal London Sterling Extra Yield Bond Fund A|IE0032571485 — the long-term returns are less than a good equity portfolio but it has considerably less volatility and has still returned an average of 6.8% per year over the last 10 years. Importantly, it’s income yield (i.e. the amount it will pay you as income rather than the amount it will grow by) is about 5% at the moment. That makes this kind of thing a solid core to a pension fund.

 

[kabbes]

So vanguard is registered with the FCA but i cant figure out what that actually means, it cant be the same as with a bank, its not like up to 85k the government will (somehow) give you your money back if the firm implodes is it?

The FCA is the Financial Conduct Authority — they are the regulator that makes sure that financial firms are behaving properly in terms of how they treat customers and what information they put out there, that kind of thing. (It’s the PRA that regulates solvency of financial firms. Banks are regulated by both.). The FCA run the deposit and savings protection scheme but that’s just something covering the arses of customers if everything else they do goes wrong.

 

[bimble]

The FCA is the Financial Conduct Authority — they are the regulator that makes sure that financial firms are behaving properly in terms of how they treat customers and what information they put out there, that kind of thing. (It’s the PRA that regulates solvency of financial firms. Banks are regulated by both.). The FCA run the deposit and savings protection scheme but that’s just something covering the arses of customers if everything else they do goes wrong.

ok.i see if vanguard implode then it might be possible to try to claim compensation up to 85k, like with a bank, but i suppose if that happens we'll have other problems to worry about, them being so big.

 

[kabbes]

ok.i see if vanguard implode then it might be possible to try to claim compensation up to 85k, like with a bank, but i suppose if that happens we'll have other problems to worry about.

Yes, but if Vanguard implode, although it will be an admin nightmare, the money it is investing on your behalf should all be safe anyway, as it is in shares that are owned by you, not by Vanguard.

 

[nick]

..... feeling that <£40k was small fry, a silly amount to consider investing. ....

a few £k into Fundsmith and a FTSE 250 fund. A.....

the Fundsmith one in particular went up up up, and last week they both went down down down, it’s a very small investment and I still have another DB pension (and state pension) to come, and it doesn’t terrify me if this keeps going down for a while.
I think having 24/7 access online to its performance has a huge downside for a complete numpty like me. Over 30 years ago my ex and I started a Unit Trust saving scheme with £250 and it was going to be £25/month ongoing, but for whatever reason we only did about three more months. Every year I get an annual paper statement and it’s mostly grown, slowly, to about £800 now, but only seeing that yearly statement is so easy compared to being exposed to daily, weekly, monthly ups and downs!

Bowing here to the undoubtedly greater expertise of others on this thread but - here's another random 2c worth.

Supposedly, Einstein called compound interest the 8th wonder of the world.
If the maths is a pain - simplify with the Rule of 72. Using that on Kabbes' 6.8% as an example, that will double in value in 10 something years, quadruple in 21 years and be worth 8 times in 42 years - just in time for Kabbes to pass it onto any progeny

So even small amounts can grow to something substantial over time. You can't go back in time and start investing, but even a little from tomorrow is gonna make a lot of difference in years to come:

Don't worry (you weren't) about the short term fluctuations of the fundsmith last month . Here is a 5 year profile: Covid start was a little squeaky bum time, but overall it is all pointing in the right direction (as did Woodford, until it didn't )

 

[fucthest8]

Of the first two, one is domiciled in Ireland and the other in the UK. It's best to choose the UK one for reasons that don't really matter (another layer of post-Brexit FSCS protection should Vanguard commit fraud or something, and possibly it will trade a day quicker).

The last one has a few percent in emerging markets which probably won't make much of a difference either way.

Firstly, can't believe I'm posting on this thread, but I have spent the past year saving every penny that I didn't spend on things like travelling to work or going to the pub and have got a bit to do something with.

So, ta to everyone who's contributed thus far and here I am looking at one of the ESG funds on Vanguard.

Question though:
of the two mentioned above - one domiciled in Ireland, one in the UK - the UK one (at least I presume that is it?) was only started last year, no previous performance to judge it on (yes, I know, previous performance is not yadda yadda) and is overall a much lower value in terms of share class assets ... anyone have an opinion on whether that really matters? Or do I go with the advice above re: going for the UK one?

Thanks in advance and I'm now off to hang my head in shame at betting on capitalism. Fucksake.

 

[platinumsage]

Firstly, can't believe I'm posting on this thread, but I have spent the past year saving every penny that I didn't spend on things like travelling to work or going to the pub and have got a bit to do something with.

So, ta to everyone who's contributed thus far and here I am looking at one of the ESG funds on Vanguard.

Question though:
of the two mentioned above - one domiciled in Ireland, one in the UK - the UK one (at least I presume that is it?) was only started last year, no previous performance to judge it on (yes, I know, previous performance is not yadda yadda) and is overall a much lower value in terms of share class assets ... anyone have an opinion on whether that really matters? Or do I go with the advice above re: going for the UK one?

Thanks in advance and I'm now off to hang my head in shame at betting on capitalism. Fucksake.

Neither the newness and lack of past performance data, nor the small size of the fund matter in this instance. If it was an actively managed fund run by a small fund manager then both of these things might be an issue. Performance because you‘d want some evidence that the manager had a suitable strategy, and size because you’d want to know they had sufficient millions to play with in order to keep the fund liquid.

However because it’s a passive tracker, past performance can be seen by looking at the index it’s tracking, or by looking at the Irish-domiciled fund. And the size doesn’t matter because Vanguard is huge and it’s effectively a sub-fund of a multi-billion giant, and its passive nature means the managers don’t have to deploy X millions here or there to maintain their strategy, they just follow the index.

 

[fucthest8]

Neither the newness and lack of past performance data, nor the small size of the fund matter in this instance. If it was an actively managed fund run by a small fund manager then both of these things might be an issue. Performance because you‘d want some evidence that the manager had a suitable strategy, and size because you’d want to know they had sufficient millions to play with in order to keep the fund liquid.

However because it’s a passive tracker, past performance can be seen by looking at the index it’s tracking, or by looking at the Irish-domiciled fund. And the size doesn’t matter because Vanguard is huge and it’s effectively a sub-fund of a multi-billion giant, and its passive nature means the managers don’t have to deploy X millions here or there to maintain their strategy, they just follow the index.

Thank you, really appreciate the reply.

 

[Hollis]

Following on from this I found this article re retirement income strategies..

The Smartest Retirement Withdrawal Strategies | The Motley Fool

Fortunately I had worked out, all by myself, a variation of the 'Buckets' strategy and this is what I'm planning on doing.. . Though there is no way I am keeping aload in cash. I figure bonds for the next 3 years, and the rest in equities - with some lower risk equity funds for the 3-5 year period. I admit it is probably a riskier strategy than some, but I can indulge in this..

 

[fucthest8]

Following on from this I found this article re retirement income strategies..

The Smartest Retirement Withdrawal Strategies | The Motley Fool

Fortunately I had worked out, all by myself, a variation of the 'Buckets' strategy and this is what I'm planning on doing.. . Though there is no way I am keeping aload in cash. I figure bonds for the next 3 years, and the rest in equities - with some lower risk equity funds for the 3-5 year period. I admit it is probably a riskier strategy than some, but I can indulge in this..

"Buckets
When you implement a buckets strategy, you have three separate sources of retirement income:

• A savings account that holds approximately three to five years’ worth of living expenses in cash"

Hahahahahahahahahahahahahahahahahahahahahahahahahaha you get where I'm going with this

 

[pseudonarcissus]

Question though:
of the two mentioned above - one domiciled in Ireland, one in the UK - the UK one (at least I presume that is it?) was only started last year, no previous performance to judge it on (yes, I know, previous performance is not yadda yadda) and is overall a much lower value in terms of share class assets ... anyone have an opinion on whether that really matters? Or do I go with the advice above re: going for the UK one?

Vanguard are massive in the USA, they pretty much invented low cost tracking funds, and they keep trying to reduce costs. I think they are expanding to the UK at the moment. I have a retirement account in the US with them and it's done very well. 75/25 equities/bonds. I don't know how it's set up in the UK, but it's a mutual (like an old fashioned building society) so I get a few grand dividend at the end of the year (they make money from managing stuff like work pension funds).
Safe as...well, safe as any investment that can go up and down like a roller coaster, I guess

 

[pseudonarcissus]

of the two mentioned above - one domiciled in Ireland, one in the UK - the UK one (at least I presume that is it?).

Just be careful about regulation; if you are a UK resident, it's likely neither the FCA nor the Irish equivalent would provide any redress in the (unlikely) event of a problem. This was one of the problems with folk that had invested their savings in Iceland in 2008, and I am very conscious of the fact that my financial advisor us FCA regulated....but this means nothing to me as a non-resident.

 

[nick]

Just be careful about regulation; if you are a UK resident, it's likely neither the FCA nor the Irish equivalent would provide any redress in the (unlikely) event of a problem. This was one of the problems with folk that had invested their savings in Iceland in 2008, and I am very conscious of the fact that my financial advisor us FCA regulated....but this means nothing to me as a non-resident.

Also watch out for those floaty bits around the edge of the UK.
In 2008 my (very risk adverse) elderly mother had some Iceland stuff, but didn't like the thought of directly investing in another country . Instead she did it via something in the Isle of Man. She got it back eventually but it took a year or 2.
My Icesave stuff was part of the FSCS - so I only had to wait for a few weeks before getting the money back

 

[pseudonarcissus]

Also watch out for those floaty bits around the edge of the UK.
In 2008 my (very risk adverse) elderly mother had some Iceland stuff, but didn't like the thought of directly investing in another country . Instead she did it via something in the Isle of Man. She got it back eventually but it took a year or 2.
My Icesave stuff was part of the FSCS - so I only had to wait for a few weeks before getting the money back

My bank is on the Isle of Man
For UK residents I suspect it's best to stay with regulated firms in the UK.

 

[platinumsage]

Just be careful about regulation; if you are a UK resident, it's likely neither the FCA nor the Irish equivalent would provide any redress in the (unlikely) event of a problem. This was one of the problems with folk that had invested their savings in Iceland in 2008, and I am very conscious of the fact that my financial advisor us FCA regulated....but this means nothing to me as a non-resident.

If it's a UK domiciled fund it will be covered by the FSCS. But really this doesn't matter - Vanguard is basically an administrator and you own an interest in the underlying shares which in the case of the Vanguard ESG fund above are held by their depository, State Street Corporation, which looks after nearly $40 trillion of investments and is classed as a systemically important financial institution i.e. too big to fail, and regulated as such by the Fed. Even if the US government declines to bail it out you still own your share of the shares in the companies - the £85k FSCS compensation is to cover the costs of another company to go in and sort out the mess and give you back your shares.

It's not worth breaking sweat over this with Vanguard. Where it might matter is if you invested via a smaller platform or fund manager that struggled to break even and did some dodgy stuff on the side, for example if you held shares with SVS Securities in 2019 you may have needed to avail yourself of FSCS protection: Failed Firms - SVS Securities.

 

[Hollis]

Something perhaps someone can help with - I go on morning star, look at a fund and there are different classes of it.. I then go on my broker platform ii, and you can buy a class of the fund which isn't necessarily the same class that was being recommended in an article e.g article recommends class C, broker is selling class L.. Err, does it matter?

Also if I see a fund with USD, GBP or EUR at the end, should I go for the GBP one?

 

[platinumsage]

Something perhaps someone can help with - I go on morning star, look at a fund and there are different classes of it.. I then go on my broker platform ii, and you can buy a class of the fund which isn't necessarily the same class that was being recommended in an article e.g article recommends class C, broker is selling class L.. Err, does it matter?

Also if I see a fund with USD, GBP or EUR at the end, should I go for the GBP one?

Fund classes are just about fees, its exactly the same fund but each class will have a different % management fee. Make sure you go for the cheapest your platform carries.

There are various reasons for different classes, for example a fund might have an A class at 1.05% which is only available buying it directly via the fund manager, so it includes an element to cover their platform fee. Then there might be a B class at 0.9% availed on ii and other platforms, a C class at 0.75% only with HL as they negotiated a discount, and a legacy D class at 1.5% which includes bundled commission which was common before unbundling reforms in 2014 and shouldn’t be purchased by new investors nowadays. The actual letters used are pretty random, just look at the fee.

I‘d always choose a GBP one unless I was holding some other currency on a platform for some reason, if maybe I was an expat or something.

 

[kabbes]

This might help if you want to know more about what those few differences might be:

How to decode confusing investment fund names

Why are there half a dozen or more versions of the same fund listed on the performance tables, followed with abbreviations like Acc, Inc, No Trail, R, I, and Z?

www.thisismoney.co.uk

Other letters that are important are the ones that say “Acc” or sometimes A for “accumulation” versus “inc” or sometimes I or “dis” for “income” or “distribution”. The former uses dividends to buy more shares, hence accumulating money in the fund. The latter pays the dividends out as income.

 

[Winot]

Might be useful to some:

‘Spark of hope’ as rates start to head upwards
UK savers given hope as interest rates edge up from all-time lows

 

[bimble]

Question:
Is there any good reason to not withdraw my WINNINGS from vanguard when i'm feeling like it?
I'm really happy with the platform, feel like its demystified the whole thing for me quite a bit. i've split my money between 3 things of differing risk (different proportion equities). I'm up 3% right now overall, after whatever it is about a month, which feels like LOADS OF FREE MONEY, and a bit like I just won at gambling and would like to leave the betting shop with my winnings now.

Is it perfectly ok to withdraw (into cash and into my current account to spend on frivolous things like plants for the slugs to eat) just the winnings whenever i feel like it or is that in some way very stupid?

 

[kabbes]

Question:
Is there any good reason to not withdraw my WINNINGS from vanguard when i'm feeling like it?
I'm really happy with the platform, feel like its demystified the whole thing for me quite a bit. i've split my money between 3 things of differing risk (different proportion equities). I'm up 3% right now overall, after whatever it is about a month, which feels like LOADS OF FREE MONEY, and a bit like I just won at gambling and would like to leave the betting shop with my winnings now.

Is it perfectly ok to withdraw (into cash and into my current account to spend on frivolous things like plants for the slugs to eat) just the winnings whenever i feel like it or is that in some way very stupid?

First of all, there is no stupid. If you want the money to spend on things then take it and spend it on things.

I definitely recognise the feeling you are talking about. “If I bought this for £1000 and now it is valued at £1030 then it isn’t really worth £1030, it’s still worth £1000. So I should sell up whilst people have overvalued it.” It’s like the inverse of the sunk cost fallacy that tells you to keep doing something that isn’t working because you already put so much into it.

Just remember that at some point, your £1000 used to be ”worth” £970. The person who bought it at £970 also could have sold at £1000 and been happy to make their 3%. The point being that it has its value today because on average, that’s what people think it’s worth paying for it. It’s a fair price to sell it at, and it’s a fair price to buy it at (in the average view of it). This means the same principles that made it worth investing in up front continue to make it worth investing in.

So take your 3% and spend it if you have things you want to spend it on and it will make you happy to do so. Or keep your 3% in the savings pot for the same reason you’re going to keep the original 100% in the savings pot — because over a long time period, you expect it to do well. And remember this dilemma because exactly the same dilemma is, at some point, going to hit you in reverse. One month, your pot will be worth 3% less than it was the previous month and this will feel like a disaster the first time it happens. But that’s the nature of a volatile market! It goes up and down by 3% regularly, but sometimes it goes up by 3% and then another 3% and then another 3% and settles at a much higher level, and that’s the rise you’re trying to not miss out on.

 

[bimble]

thanks kabbes . i think i will withdraw & spend my winnings on flowers, at least just this time. In my hand its real money, on the vanguand website its some numbers on a screen that might disappear tomorrow, that sort of feeling. I've never been tempted or interested in gambling, never once bought a scratch card or anything like that, so all feels a bit too exciting.

 

[kabbes]

thanks kabbes . i think i will withdraw & spend my winnings on flowers, at least just this time. In my hand its real money, on the vanguand website its some numbers on a screen that might disappear tomorrow, that sort of feeling. I've never been tempted or interested in gambling, never once bought a scratch card or anything like that, so all feels a bit too exciting.

I’d say that if that will make you feel good, you should do it. Life is only a series of moments that you can feel good or bad within.

With respect to it being like gambling: I see it as like gambling, but a form of gambling in which I am the house. My “side” is the entire institutional corporate infrastructure of the world. If that isn’t the house, I don’t know what is. And on average, it wins. That makes me the house, not the punter. The house still occasionally loses, though, for a while!

 

[bimble]

Thing is, if say I knew about horses and understood what makes a good strong happy horse, i'd probably bet on horses, feeling like I have useful knowledge to guide my gambles.
With the global stock market, I look at it and see that it really loved Donald Trump and it's celebrating the end of the virus when the virus is (imo) nowhere near done, and I just feel like its a wagon hitched to lunatics, tbh, just a measure of other people's unhinged emotions, So yeah. I'll buy some flowers.

 

[kabbes]

It reacts to the prospects of making profit. Trump made tax cuts that allowed corporations to keep an estimated extra trillion dollars plus of their profit. That automatically makes their shares worth more. The virus threatened a choking of economic activity, which would obliterate profit, and shares responded by halving at their worst. As it became apparent this threat wasn’t really going to be the case and that, for many companies, their profit was secure, the shares came back to their old value. The virus doesn’t have to be “over” for this, it just has to not prevent e.g. Unilever or Microsoft from making their profits. The house wins again.

 

[teuchter]

thanks kabbes . i think i will withdraw & spend my winnings on flowers, at least just this time. In my hand its real money, on the vanguand website its some numbers on a screen that might disappear tomorrow, that sort of feeling. I've never been tempted or interested in gambling, never once bought a scratch card or anything like that, so all feels a bit too exciting.

You'll just need to make sure you don't continue looking at the numbers in case they show that your money would have doubled in the 24hrs after you withdrew it.

 

[bimble]

You'll just need to make sure you don't continue looking at the numbers in case they show that your money would have doubled in the 24hrs after you withdrew it.

I think i'm safe from that particular kind of regret, don't think i'd feel loss of money i never had but could've. Funny old business.

 

[Elpenor]

I’ve got some more money to find a place for from tomorrow. It’s a nice problem to have but I’d feel much better if it was tied up in a house!

My dad has emailed to tell me Mum’s probate has been granted and he’s passing on some money to me and my brother.

So - I’ve got the maximum FSCS amount of 85k in Marcus, nearly a full 50k subscription in Premium Bonds, and used this years ISA subscription already in a HL S&S isa. Goal is to buy a house early next year so the money can’t be too risky. The ISA is my risky element.

No debt, no current need to replace the car either. Obviously no holidays. I have quite a low income currently and despite the investments I have I’m trying to live within my means.

What do I do with another 25k?

 

[kabbes]

Do HL give you a free investment account to go along with the ISA? If so, or if it’s a straightforward % anyway, I’d suggest putting it into a high-grade bond fund. I am not very savvy on what is currently considered good value, though, so I’d take some proper advice.

 

[tony.c]

What do I do with another 25k?

Saga Savings are doing two instant access savings accounts with 0.4% interest. Not very much but higher than most others.