UK Investing

[VanDyk]

Hi,

Van Dyk here.

I am about to start the investment adventure, but in the UK. In a couple of years we hope to move to the US. We think we can create a total retirement fund for FI within the next 5 years. We were never smart when it comes to financials but we paid of our mortgage and are debt free. We have all our savings on 1-2% saving accounts, and a company pension that takes 1% off the top every year. Changing that to a SIPP (Self invested pension) atm.

So we want to change that around, and I thought I'd post my ideas here for some Mustachian criticism.

The build we're going for is a 50% bond/50% index fund split - we're more interested in stability, sleep, etc than becoming centenarian multimillionaires. (I've even considered a 25% 5 year fixed savings (3%), 25% bonds, 50% index fund split - for extra stability, even more sleep and maybe some more tax efficiency. But what do I know.) Atm, I am looking to realize one of the Lazy Portfolios - https://blbarnitz4.wordpress.com/2014/07/31/taylor-larimore-three-fund-portfolio/

Vanguard Total Stock Market (VTSMX)   - 38%
Vanguard Total International (VGTSX) - 12%   
Vanguard Total Bond Market (VBMFX) - 50%

For the cheap and flat fee trader - Interactive Investor (www.iii.co.uk). They're a flat fee trader, with 10 pound trades, and offer ISAs and SIPPs - I'll run up a 300 pound bill every year. According to http://www.comparefundplatforms.com/ they're at least the best/cheapest there for us. If anyone has experiecee with them, or thinks another one is better - let me know!

The silly thing is that they don't trade in the normal US based Vanguard funds. They have their own FTSE ones and other UK oddities - its like the driving on the left all over again. To be honest I am a bit lost - all I have available it seems is this (the total fund set is available here http://www.iii.co.uk/funds/fundfilter?task=show_fund_search) :
- Vanguard US Equity Index Acc - http://www.iii.co.uk/investing/factsheet/FPD3/vanguard-us-equity-index-acc - Suitable as a US Total Stock fund.
- Vanguard SRI Global Stock Acc GBP - http://www.iii.co.uk/investing/factsheet/0GDT/vanguard-sri-global-stock-acc-gbp - As a Global fund, it already includes the US, so it would off balance
- Global Bonds - http://www.iii.co.uk/investing/factsheet/FPD9/vanguard-global-bond-index-hedge-acc-gbp - Maybe suitable as a Global bond, but there is no US one. But, hedge?

I need someone with a decoder ring!

More complications. Due to Brexit etc, I am actively looking to avoid UK funds. Also, I am totally in the dark on having deep investments in the UK and getting foreign income once we make it to the US. So I'd love to trade trade secrets with some other UK savvy people, or future US compatriots who've dealt with the expat thing.

For example, if I was 100% sure on going to the US, would it make more sense to invest there from the outset?

Thanks,

VanDyk

[VanDyk]

Of course, just after posting I find this : https://www.bogleheads.org/wiki/UK_investing

Reading ...

[Doubleh]

Welcome! First question we'd need to understand is are you a uk citizen? Are either of you a us citizen, greencard holder, dual national etc? If not how do you plan to move to the USA? It's notoriously difficult to do get residence there without already having family ties.

But if you do already have the right to reside in USA then you'll be subject to fatca which means you probably won't be able to open an account with iii or most cheap UK brokers, and will still need to pay us taxes on your isa. Work pension is exempt from us taxes while sips are a very grey area. This is worth looking into and may mean it is worthwhile keeping your employers pension where it is if you're in this situation, even if the fees aren't the best.

If youre 100% certain you'll move to usa, know how you can achieve this and are able to invest there now doing that is probably your easiest path. If you don't have the right to live in the US I would guess that your plan to move may have a much lower chance of succeeding, in which case you may as well invest in the uk for now and be ready to reassess if and when you're plan advances.

With that in mind I'd really question the wisdom of investing so heavily in the US if you are not certain to be living there in retirement. You seem to be targeting this high a % to follow advice that had been given for investors living in USA, and it makes sense for them as it significantly reduces their exposure to currency fluctuations. However if you end up living in the uk with a heavily us tilted portfolio you'll be very exposed to fluctuations in the dollar. This is why most UK investors would have a more uk heavy portfolio. If you don't know for sure where you'll be living you may want to hedge your bets and just go for a single global fund - this is what many advisors would recommend in any case. Bear in mind that the global market is around 50% us anyway you would still have a fair amount of us exposure.

If you do still want to follow that allocation after understanding these concerns I can give some pointers, but am going to break or into a separate post as this is long enough already!

[Doubleh]

Ok, here's the nuts & bolts. I have an isa with iii and have had good experiences with them so far. Not sure where you get the £300 figure from, I don't think you should need to pay them that much. When I was doing about a year ago they seemed pretty much the cheapest provider of you have over about £30k invested; below that some of the %fee brokers can work out cheaper.

The flat fee of £80 covers multiple isa's, so you as a couple you don't need to pay the fee twice. If you want sips included the is an extra admin fee of about £100 but again you only pay that one even if you both have sips. Also remember that the £80 fee comes back as £20 per quarter dealing credits. They say this is two trades, but if you use their regular trade service the fee is only £1.50 per trade so you can actually make 13 trades each quarter without paying another penny in fees which should be plenty for a lazy portfolio. You can change the amount you invest and the funds you invest in each month very simply via the website - the only restriction is that your trades always happen on 23rd of each month so they can reduce costs by batching them. To me this is a no brainer

Assuming you're a uk resident couple and neither of you pays us taxes your first priority should be to max out both isa's before 5th April for a total of £30k. From 6th April you can invest a further £15k each.

So the main reason iii has different funds in the uk is because the us funds would not be tax efficient for a uk investor. This is why vanguard have a separate fund selection in the uk market, and they are the same vanguard funds you would buy at any other UK brokerage. Also bear in mind that "international" means something different wherever you are in the world. For a us investor international means global market excluding us, while for a uk investor international means global excluding uk - most investors tend to have a so called home bias and own their own local market in a higher percentage than it makes up in the global market. So there is relatively little demand in the uk for a global ex us fund although you could build the same exposure using 5 separate regional vanguard funds through iii - uk, Europe ex uk, Japan, Pacific ex Japan, and emerging. A more simple way to get the exposure you want would be just to buy a global fund and top up with a us only fund to overweight the us. For example this factsheet on the fund holdings tab shows the vanguard global fund is 57% us equities, so the remaining 43% is global ex us

http://www.iii.co.uk/investing/factsheet/0GDT/vanguard-sri-global-stock-acc-gbp

So if you have an equity portfolio of say 100k and want to get 80% us and 20% non us, you would buy 20 / 0.43 = 46.5k of global (of which 43% or 20k is non us) and 53.5k of a pure us fund.

[VanDyk]

Hey Doubleh,

I already spotted some posts from you on the UK, including the iii experience. The thorough explanation is also thoroughly appreciated! I understand the home field advantage a bit better now as a concern, esp with the currency aspect (it just went to 0.7!) and I completely grasp the 'want to go to the us' vs 'actually going to the us distinction' - especially if your investments are built towards one of those futures.

- I am Dutch, resident in the UK - no dual nationality of any kind.
- Talking with my employer about a move to the US about 1 year from now, so not strictly 100% but high.
- iii costs - £300,- was based on a maximum/expected number of trades, definitely can be lower if I sink it and don't move or invest

I've definitely grabbed an off the rack build for US, and didn't think of many of the considerations you've just opened my eyes to. The way you can blend a balance of countries based on 5 funds with some spreadsheet magic sounds good - once I've done the math I'll drop a line here to show what I was thinking of. As I said, I get the home advantage and see why that is sane, but Brexit makes me shiver when it comes to putting into UK stock. Regardless of up or down, in or out, that just seems like turbulence I'd normally avoid - or - buy when its dropped to its knees!.

So likely outcome is I come up with a mix that is 'just' a world percentage split, which will tend a little more to the us (and some others), and a little less to the uk automatically.

Thanks,

VanDyk
 

[cerat0n1a]

As I said, I get the home advantage and see why that is sane, but Brexit makes me shiver when it comes to putting into UK stock. Regardless of up or down, in or out, that just seems like turbulence I'd normally avoid - or - buy when its dropped to its knees!.

So likely outcome is I come up with a mix that is 'just' a world percentage split, which will tend a little more to the us (and some others), and a little less to the uk automatically.

I think that it doesn't really make sense to have a UK bias whether you're planning on living here or not and regardless of your views on Brexit. Our stock market is heavily weighted by the selection of multi-nationals that happen to have listed in London - a FTSE tracker will get you good exposure to global banks, oil, commodities, pharma, but not to say technology. The FTSE-100 is currently ~15% down on where it was in 1999.

You want to hold something like Vanguard's world fund (VWRL) but to do so in a way that minimises costs and taxes while you're in the UK.

[Doubleh]

Glad to be able to help a little; by all means do come back with your further thoughts. A good book to read to get some more perspectives is "smarter investing" by Tim Hale, this is a good general primer on investing and is written for a uk audience.

I don't lose too much sleep over Brexit, ultimately it's noise. Ceratonia does make a good point about the ftse 100 being very concentrated in a small number of sectors, more so than the s&p for example. There can be some advantage to the home bias, like the currency issues we talked about but to be honest most investors are far more invested in their home market than would be ideal, largely because they feel more comfortable owning the companies they know.

If you don't feel the need to be overweight any particular country a global fund is probably your best bet and is theoretically probably the best  solution in any case.

Sounds like you have a good prospect for moving to the states, although I don't know how hard it is to go from getting a visa sponsored by an employer to being able to live there indefinitely in retirement. Ultimately if you do want to skew your portfolio to a particular country it's most relevant where you plan to live in retirement. If you don't know where this will be, or are likely to travel around, there's a good argument for going for a global fund and being as diversified add you can be to keep your options open.

[financialfreedom]

We are:_
 
60% - VVDWEU - Vanguard Dev Wld Ex UK
10% - VVUSEQ - Vanguard US Equity Ind
20% - VVUKEI - Vanguard UK Equity Income
10% - VVAAAM - Vanguard UK All Share

so a maybe have a look at some of these. Essentially a home bias of 30% UK based vs 70% Ex UK

[VanDyk]

Hi,

It took a while to get this organized, but finally made the actual moves. Its quite a step from having the idea to making it real, surprisingly big hump to get over.

The mix:

• 45% Vanguard FTSE Developed World ex-U.K. Equity Index
• 5% Vanguard FTSE U.K. All Share Index
• 50% Vanguard Global Bond Index Hedge Acc GBP

Thanks for the help,

Van Dyk

[frugledoc]

The 5% uk is a pointless addition imo.  Would have been simpler to just have 50% in vanguard all world.

[financialfreedom]

0.08% charge v 0.15% - so depends on the portfolio size as to whether that will make much difference.

[VanDyk]

III doesn't offer an all world fund, and although I did't want a high exposure to UK to have zero with ex-UK seemed similarly weird. So, yes I understand the slight futility, but I am happy to have found a way to reflect my 'personal investment philosophy'. Total cost basis is around 0.15% which makes me happy too. 50% bonds makes me similarly happy, since I am more interested in keeping what I have, rather than risking it to get more. I don't want to die rich, I want to life happy.

Thanks,

Van Dyk