Author Topic: Case Study: UK - All-in on Amazon  (Read 3102 times)

Richie-not-rich

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Case Study: UK - All-in on Amazon
« on: February 05, 2020, 01:59:37 PM »
Hello folks, this is my first post here. I became aware of this group very recently and am looking for a general sense check of my situation, and keen to understand what you might do if you were in my shoes.

Some details before my questions:

Summary: My wife and I both worked at Amazon for a number of years. We accumulated stock as part of our compensation scheme and largely ignored it, regarding it as free money and not thinking too far ahead. The stock price has increased in recent years and we now find ourselves very heavily concentrated in one asset.
I started to scale out around 6 months ago, investing the proceeds into a general investment account with Money Farm in the UK. We always max out our ISAs, opting for medium risk profiles with Vanguard and an EU robo fund, Scalable Capital.

Iíve taken some time out over the last year and the lower income has meant I could sell some Amz stock without paying the higher rate capital gains tax.

Life Situation: Living in the UK, married, 2 kids under 5. Weíre both in our late 30ís.

Gross Salary/Wages: Combined annual income ~£100k

Investments:

Amazon Stock: £390k

Combined ISAs (Scalable Capital/Vanguard, medium risk profiles): £91k

General Investment Account (Money Farm, medium risk): £50k

Pension 1 (Money Farm, high risk): £41k
Pension 2 (Company pension): £27k

Cash: £100k

Bitcoin/Crypto: £30k

Total Assets (not including the house): ~£750k
Annual Expenses: ~£30k

Property: We own our house, 40% loan to value

Questions

What is your gut reaction to our situation? What would you do if you were in our shoes? Our goal (as of about 1 month ago) is financial independence, and although we are nearly there in terms of assets we canít access all of the money without substantial tax bills. Iím particularly interested to hear from those who have ended up with a large amount of your employerís stock and how you managed the allocation.
As I said above Iím pretty new to the idea of early retirement. Can anyone point me to posts / articles on how to structure a retirement portfolio? Iím from the UK but given that we can all access global funds online I guess the structure of a portfolio is quite typical, regardless of where you live. Am I missing something here? Are there specific considerations for folks living in the UK?
Lastly, does/did anyone work with an independent financial advisor to build a portfolio? I assume not given the philosophy of self-sufficiency on this board but I thought Iíd get a sense check.

Thanks everyone. Appreciate your time.

« Last Edit: February 06, 2020, 07:50:25 AM by Richie-not-rich »

Watchmaker

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Re: Case Study: UK - All-in on Amazon
« Reply #1 on: February 05, 2020, 02:16:00 PM »
Questions

What is your gut reaction to our situation? What would you do if you were in our shoes? Our goal (as of about 1 month ago) is financial independence, and although we are nearly there in terms of assets we canít access all of the money without substantial tax bills. Iím particularly interested to hear from those who have ended up with a large amount of your employerís stock and how you managed the allocation.
As I said above Iím pretty new to the idea of early retirement. Can anyone point me to posts / articles on how to structure a retirement portfolio? Iím from the UK but given that we can all access global funds online I guess the structure of a portfolio is quite typical, regardless of where you live. Am I missing something here? Are there specific considerations for folks living in the UK?
Lastly, does/did anyone work with an independent financial advisor to build a portfolio? I assume not given the philosophy of self-sufficiency on this board but I thought Iíd get a sense check.

In short, in your shoes I would diversify and simplify.

I would sell the Amazon stock. Probably all right away, but I'd try to model the impact on my taxes and if I could save a considerable amount of tax (at least 25k) I might consider selling half this tax year and half next. You've done well with the Amazon stock so far, but it's a risky thing to bet your future on. Sell that and buy index funds.

I'd also sell the bitcoin and buy index funds. Bitcoin is gambling, not investing. Keep 10% if you worry about missing out completely.

That's a lot of cash to be carrying, do you have a short term need for it? If not, I'd look at investing some of it in, you guessed it, index funds. Keep however much you feel you need for an emergency fund.

Going forward, I'd max out the ISAs every year in index funds (mostly stocks, some bonds). Are you interested in RE, or just FI?
« Last Edit: February 06, 2020, 07:55:44 AM by Watchmaker »

Richie-not-rich

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Re: Case Study: UK - All-in on Amazon
« Reply #2 on: February 05, 2020, 03:13:24 PM »
Selling the Amz stock:
The average cost per share at acquisition = £420 (referred to as the 'pooled cost' in the UK - this is used to calculate the gain & tax).
They are worth ~£1500 now,  so that's a taxable gain of £1000 per share. Assuming a capital gains tax of 20%, we would need to pay ~£52k in tax after allowances if we sold all 260.  So yes we would save £24k if we sold half next year (£12k capital gains allowance for my wife and I).

Cash:
Most of this is from the Amz stock I sold this year. I've been drip feeding ~£6k per month into index funds (Money Farm / ISA). Some is reserved for mortgage payments as I've been earning a lot less freelancing part time.

RE vs. FI
Just did a little Googling but still not quite sure of the difference?

Thanks for the reply. It's useful and quite cathartic to say all of this out loud, so to speak.

SunnyDays

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Re: Case Study: UK - All-in on Amazon
« Reply #3 on: February 05, 2020, 07:28:11 PM »
FI means you donít have to work, but have enough money to support your chosen lifestyle.  You can still work if you want to.

RE means that youíve chosen to use your assets to leave work at a younger age than typical (in my definition, before 65, not necessarily in your 30ís or 40ís.)

Lady Stash

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Re: Case Study: UK - All-in on Amazon
« Reply #4 on: February 05, 2020, 08:31:36 PM »
You have more than half of your total net worth in a single company stock.  I wouldn't be able to sleep at night until I had that moved over to index funds tracking the larger market.

On paper it makes sense to wait to sell it all to lessen the tax hit as you outline above, but in your shoes I might just sell it all now to avoid the risk of a down turn.
« Last Edit: February 05, 2020, 08:34:52 PM by Lady Stash »

Richie-not-rich

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Re: Case Study: UK - All-in on Amazon
« Reply #5 on: February 06, 2020, 02:48:15 AM »
Thanks both.

Could anyone help with these other questions?

As I said above Iím pretty new to the idea of early retirement. Can anyone point me to posts / articles on how to structure a retirement portfolio? Iím from the UK but given that we can all access global funds online I guess the structure of a portfolio is quite typical, regardless of where you live. Am I missing something here? Are there specific considerations for folks living in the UK?

Lastly, does/did anyone work with an independent financial advisor to build a portfolio? I assume not given the philosophy of self-sufficiency on this board but I thought Iíd get a sense check.

Manchester

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Re: Case Study: UK - All-in on Amazon
« Reply #6 on: February 06, 2020, 03:00:38 AM »
First of all, I'd say well done for getting yourself in the position you're in.  You're in one of those nice positions where the big headache is how much tax you're going to have to pay on your capital gains etc.

My best suggestion is to KISS (Keep it simple stupid). 

- Get rid of bitcoin/amazon stock (do this in a tax-efficient manner)
- Figure out what you require in an emergency fund and retain this in cash
- after your emergency fund and monthly expenses, invest everything else into an index fund (ISA preferred, SIPP are tax efficient, but figure out your retirement date before deciding on this).

You also have other incentives such as junior ISAs which can help you reduce tax further. 

Manchester

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Re: Case Study: UK - All-in on Amazon
« Reply #7 on: February 06, 2020, 03:13:45 AM »
Also, I wouldn't advise using a financial adviser. 

Playing with Fire UK

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Re: Case Study: UK - All-in on Amazon
« Reply #8 on: February 06, 2020, 03:20:45 AM »
Monevator.com has great articles on structuring a retirement portfolio. Basically, balance your ISAs/GIAs and pensions in global index funds, add bonds until you sleep well at night and wait until you have between 25x and 40x your annual spending in your available accounts.

Look for an article at Monevator on defusing capital gains to use the annual allowance. This is what I'd be selling each year as a minimum in Amazon stock. If your wife hasn't sold any Amazon stock this tax year make sure to do it before the end of March.

Don't use an advisor to build a portfolio. They know less than Monevator and can charge up to 1% per year for the privilege. At a later point it may be worthwhile speaking to an IFA on a fixed fee basis to run through your scenarios, they may be able to access some nifty modeling tools and can help with estate planning, fancy tax and providing for your kids.

On paper it makes sense to wait to sell it all to lessen the tax hit as you outline above, but in your shoes I might just sell it all now to avoid the risk of a down turn.

Selling out of Amazon will help if Amazon has a downturn relative to the rest of the market. In order to protect against a global downturn you'll need to buy bonds.

Check what fees you're paying with Scalable Capital and Money Farm. I haven't heard of them but they sound expensive. Vanguard are fine. [If you do move, you must TRANSFER the ISA not WITHDRAW the ISA otherwise it'll scupper the ISA protection.]

Another thing to consider is buying a put option (a choice to short the stock if it falls) for your employers stock, I don't think this is right for you (and it's against the terms of employment at some places) because it adds a chunk of complexity and you didn't have a problem with holding all the stock last month.

I can't see what the income split is and whether the joint £100k is your current freelancing or from your former salary. Quickly check if you can use the spousal tax allowance or salary sacrifice into a pension to keep child benefit (I don't think either applies to you).

highlandterrier

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Re: Case Study: UK - All-in on Amazon
« Reply #9 on: February 06, 2020, 03:46:50 AM »
Nice problem to have :) on the Amazon shares as most will say diversify from one company, but you could save quite a bit on tax by doing over the next 15 months or so, although obviously you retain some risk for longer.

You could sell most now, but keep aside enough to transfer 80K between you to isa's and 48K of get CGT relief over that period. Back of a fag packet calc is 17K tax saving for risking 128K over that period which is worth considering.


Richie-not-rich

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Re: Case Study: UK - All-in on Amazon
« Reply #10 on: February 06, 2020, 07:49:35 AM »
@Manchester, @Playing with Fire UK, @highlandterrier

Thanks for the replies. This is all very useful.

I'll dig into Monevator.com as suggested.

I didn't realise we could transfer stock into an ISA wrapper. This is good to know.

FYI Scalable Capital and Moneyfarm are both comparable with Vanguard in terms of fees. My wife is with Vanguard and I thought we'd test out a couple of different platforms in the EU.

Thanks all.




highlandterrier

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Re: Case Study: UK - All-in on Amazon
« Reply #11 on: February 06, 2020, 08:02:27 AM »
Sorry to mislead, you may be able to transfer 80K into ISA wrapper, it depends on how your employer has structured the share scheme. If you have random shares you could not transfer into an ISA wrapper.

Richie-not-rich

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Re: Case Study: UK - All-in on Amazon
« Reply #12 on: February 06, 2020, 08:39:42 AM »
No problem, I'll take a look at that. Thanks again.

londonstache

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Re: Case Study: UK - All-in on Amazon
« Reply #13 on: February 20, 2020, 04:42:06 AM »
@Richie-not-rich I'd want to have a look at pension savings as a proportion of that.

I would be interested in upping the personal pension contribution a bit and potentially looking at turbo-charging  whilst you prepare for FIRE and diversify the stock options. May seem counter-intuitive at this stage but letting it run for up to 20 years as tax free contributions before you can withdraw will provide a rocket booster when you hit the withdrawal age.

This will help with the tax bills and if you are in a position to FIRE in early 40s will mean there is a sizeable chunk to access later. Any way you could up contributions by say 5%?

lutorm

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Re: Case Study: UK - All-in on Amazon
« Reply #14 on: February 20, 2020, 03:27:21 PM »
What is your gut reaction to our situation? What would you do if you were in our shoes? Our goal (as of about 1 month ago) is financial independence, and although we are nearly there in terms of assets we canít access all of the money without substantial tax bills. Iím particularly interested to hear from those who have ended up with a large amount of your employerís stock and how you managed the allocation.
Our situation is way worse than yours, ~2/3 of our paper NW is in illiquid private equity. I'm trying to get rid of a big chunk of that as soon as I can, which is not very fast at all.

Your Amazon stock is liquid, so you're not at the same risk as getting stuck with it as we are. I'd definitely dump at least half of it before I was somewhat comfortable with the concentration. That said, it's not like Amazon's going to go out of business tomorrow either, so if you can save a significant amount on taxes by spreading it out over a few years that's probably what I'd do.

That's my gut reaction. It's not so bad.




Lady Stash

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Re: Case Study: UK - All-in on Amazon
« Reply #15 on: March 23, 2020, 06:11:58 PM »
Our advice to you on this thread to diversify from your Amazon stock did not age well.  In the past 30 days the broader market is down ~35% and Amazon stock is up.  Doh!