Money

Picking bang for buck investments for a Junior ISA (JISA)

admin · Mar 2, 2021 ·

DISCLAIMER: I do write some stuff about financial topics such as cryptocurrency and investing. I am not a financial professional and please don’t rely on what I say to make financial decisions. Please check with your financial adviser before making these decisions.

A JISA is a great way to test Einstein’s Eighth Wonder of The World: Compound Interest.

“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
Attributed to Einstein

Zach is one now, and so setting his JISA up now would mean his JISA would have 17 years until he took ownership of its assets. The maximum you could invest in a year is £9,000 (which we can’t afford to do!), but that’s a lot of tax shelter. 17 years is a long time in compound interest terms and could be even more if he doesn’t bomb it all on booze and good times when he’s 18.

A fun tool to play with is a compound interest calculator. Bear with me.

If we assume an 8% return a year using equity index trackers (the historic returns over the last century of the stock market is around 8%), and assume a conservative £5,000 cash deposited as well into the JISA, that’s a huge £193,263.60:

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

If we assume a 15% return a year, with the same £5,000 annual deposit, it’s a whopping £439,074.39:

The three main drivers of the final amount over this time period are:

the Rate of Return
the number of years
the size of the annual deposit

(and not paying fees. You won’t pay tax on any returns in a JISA)

The Rate of Return

I reckon you could get 8% fairly straightforwardly with cheap equity index trackers.

The number of Years

This graph from Seeking Alpha shows that returns are not linear with the number of years. The more years you add, the greater the relative returns for that extra time. You’ll also notice that the non-linear impact of small changes in the rate of return.

The True Power of Compounding

If you just invested £5,000 today and left it for 17 years at a 8% rate of return, it would be over £19,000! That’s more than £14,000 in returns!

What investments to put into the JISA?

Unlike with my ISA asset allocation, which is a mix of equities and fixed-income, a child at the age of one is young enough to not have to think about the greater volatility of equities vs bonds. So it could be 100% equities in his JISA until he hits 18.

I’m looking for:

Strong returns over at least a 5 year period (around 15% to 20%)
Funds, so that I don’t have to do any stock picking.
Exposure to as much of the world as possible. Funds with US and Asia stocks have been going great guns in the past 5 to 10 years (in part because their indexes have strong exposure to tech growth stocks). I also read a book that shows how with a bunch of trackers, and funds, you can literally own the world. Eg. if you invested in a Global fund, in theory, you should have exposure to geographically diverse companies.

The funds I’ve picked

FUNDSMITH EQUITY CLASS I – ACCUMULATION (GBP)

*Screenshot from Hargreaves Lansdown as at 30th Dec 2020*

I also want some Asia exposure so I made up this watchlist of Asian focused funds:

There’s a fair bit of overlap in these funds, so of the Asia-focused funds, I’m leaning towards:

FSSA JAPAN FOCUS HEDGED CLASS B – ACCUMULATION (HEDGED GBP)
SCHRODER ASIAN ALPHA PLUS CLASS L – ACCUMULATION (GBP)

I haven’t decided how to split the allocation between these funds yet. Will add an update to this post when I do.

God I love Chip

admin · Aug 14, 2020 ·

Chip is a savings app that helps you to save effortlessly. I’ve written about Moneybox before about how their app helps you save without feeling the pinch. Chip does something similar but with AI.

You connect the app to your bank account and it looks at your previous spending history and what you’re spending currently and then somehow calculates what you could save without feeling the pinch.

You choose how aggressive you want the AI to be. I opted for the medium level at the beginning and now I play with the higher settings just to see how much more aggressive they really are. So every now and again, I get a message from Chip saying that I could save say £30 today without feeling the pinch, and that this will be moved from my bank account to Chip at 3pm. You can choose not to move it but I always let it go.

I opened my Chip account on 19th June 2020 and as of 14th August 2020, I have £182.40 in my Chip account. Annualised, that’s would be around £1,100. Not bad at all.

What would have happened to that money if I hadn’t been using Chip? I’d probably have spent it on some stuff I didn’t really need. With it gone to Chip, it’s out of spending reach. These apps that focus on the ‘small change’ that you wouldn’t even notice help you save effortlessly. Give it a go!

This is the bot that tells you how much you could put aside

This is the accounts page. The 0.9% interest rate looks interesting on the other account I can’t yet get into.

How did the David Swenson allocation do during the Covid-19 market tumult?

admin · Jun 5, 2020 · Leave a Comment

Now I know that it’s not over yet and there’s big questions over the shape of the recovery post-Corona, but it’s worth a look at how the David Swenson allocation that I use performed during this crisis.

There were some huge moves across almost all asset classes. At one point, the UK 100 index was down around 30% from its highs in Jan 2020. The idea behind diversified asset allocations such as Swenson’s is that you should be protected from the big moves like this. If you were 100% invested in equities, then you would track the 30% fall yourself. If you had a proportion of your portfolio in bonds, then in theory, you should see some insulation from this this 30% move because bonds are supposed to move roughly in the opposite direction.

My asset allocation definitely didn’t see complete insulation. At the lowest point, my portfolio was down about 16%, with all of the bond assets in overall positive territory. So the diversification definitely protected me from the full impact of the drop in equities.

As at 5th June 2020, my portfolio is around flat since inception around 2 years ago. (That might sound pretty naff but that does include regular monthly investment into a previously rising market, which would dampen overall returns) But to be flat and in slightly positive territory after such a crazy downward move in equities feels pretty good and gives me confidence in the Swenson allocation that it can weather seismic events.

How Moneybox helped me painlessly save and invest £722.50 in 15 months

admin · May 26, 2020 · Leave a Comment

This is a follow up to an earlier post I wrote called How you can save money effortlessly using Monzo, Marcus by Goldman Sachs, and Moneybox and an update to how the Moneybox part is doing.

How Moneybox helped me painlessly save and invest £722.50 in 15 months

Automatic equals painless

Ramit Sethi is all about having systems in place so that you don’t have to use your willpower. Because willpower is fickle and it gets exhausted and it doesn’t always work.

Systems on the other hand do work. Such as setting up automatic payments to come out of your account straight after pay day to go into your savings account or into your investment account. This way you don’t even think about it. This is how I’ve set up my Marcus savings account and my Hargreaves Lansdown ISA. It comes out of my account and automatically saves and invests for me. I don’t have to think about it and I don’t have to remember to manually make the transfer or the investment.

What is Moneybox?

Moneybox is a mobile app that I started using in February 2019 and it’s designed to make saving and investing super simple and painless. I use the iOS version.

How does Moneybox work?

In the Moneybox app, you connect your bank accounts that you spend money with eg. Monzo or HSBC as I use. You decide to round up transactions to the nearest pound or two pounds (as I’ve started to do). So let’s say you have a transaction for a coffee at £2.50. You could choose to round it up to the nearest pound (£3.00). Your Monzo account would show a £2.50 to the coffee shop, whilst the 50p round-up would be added to the Moneybox weekly pot. (50p might not sound like a lot but it all adds up. Like my mum used to say, watch the pennies, watch the pounds.)

Once a week the amount in the Moneybox weekly pot is taken from your chosen bank account (with which you’ve set up a direct debit). For me, it’s generally about £10 to £20 that’s built up over the week and this is swept from my HSBC account to Moneybox who then invest it in a Stocks and Shares ISA according to your chosen risk appetite in a simple mix of funds.

(The choice of mix of funds is Cautious, Balanced, and Adventurous, where Cautious has the least equity funds and more bond funds, and Adventurous has the highest allocation of equity funds. Mine is in the Balanced mix, which is 65% global equities, 10% global property shares and 25% corporate bonds.)

You can also ‘boost’ your savings with Moneybox through one-off injections of £10, £20 etc. The app shows you how that can positively impact your total savings and investments over a longer time horizon.

How much have I saved and invested through the app?

As of today (26th May 2020), I’ve got a grand total of £722.50 in the ‘balanced’ mix of funds. I’m chuffed to bits with that because it was easy. I didn’t even have to think about it. It was almost literally made up of the loose change in my pocket.

What’s been my return on my investment?

As at 26th May 2020, £1.50! That’s 0.21%! Not great I know 🙂 but remember we have just had a big correction in equity markets due to the Coronavirus pandemic, and we’re in this for the longer term. It was a negative return for a while during March and April 2020.

Would I recommend Moneybox?

Absolutely! It’s genuinely painless. I don’t even think about it anymore. The app is easy to use and the act of ’rounding up’ and ‘boosting’ your weekly pot is fun and almost delightful. It’s a well-designed app.

If you struggle with saving and investing, if maybe you don’t have the discipline to manually save and invest each month or just regularly, then this type of app/system could be what you’re looking for.

Check out Moneybox here!

How you can save money effortlessly using Monzo, Marcus by Goldman Sachs, and Moneybox

admin · Jul 1, 2019 · 1 Comment

I’m not a great saver. In general, I’m a spender. But I want to become a decent saver so that that I can invest it and make a good pile of money before I retire and hopefully live well before that. Given my spending nature, for me, it’s about creating systems that take out the need for willpower and that make it easy for me to spend less and save more. Monzo, Marcus, and Moneybox help me do that.

Monzo

Monzo is a new bank account that’s mobile-only and aimed at young people. It has a cool bright pink card that when you tap it or use it, sends an instant update to your phone. So I know immediately when I buy a coffee or lunch. It literally tells me as soon as I tap my card on the reader.

So how does Monzo help me save money? Two ways:

First, it is a load-on card. I have to have funds on it to use it. My main card is with a major bank (not Monzo), and my salary is paid into that. I then transfer £100 to my Monzo whenever my funds in Monzo runs low. Monzo is my spending card for everything. The fact that so little is on my account and I have to top up when I run out, means that I don’t mindlessly spend and tap on stuff I don’t even register I’m spending on. Recently, I bought a jumper for £90 but I had to transfer money from my main account to my Monzo (I don’t carry a card for my main account). This act of transferring made me stop to see if I consciously wanted to buy the jumper. (I did!). I’ve made Monzo my default Amazon card as well so that it makes me scrutinise how much I’m really sending on Amazon books (the answer is a lot).

Second, it has a round-up function on transactions, which takes a transaction (say £2.90), rounds it up to £3 (which is what is debited from your account), and puts the £0.10 into a separate saving pot in your Monzo account. Since I turned this feature on a few months ago, I’ve had 113 round ups (£0.47 average) for a total of £53.03. Not much, but better than nothing and I don’t even realise it’s happening. Effortless.

Get a Monzo account here:

Get one through this link and we’ll both get £5!

Just follow these instructions: https://join.monzo.com/r/argg9bi

Marcus by Goldman Sachs

Saving is easier when your savings account isn’t the same bank that you spend with. Say you’re with Barclays as a current account and a savings account. When you’re feeling the pinch at the end of the month, you might be tempted to transfer some savings into your spending account. When it’s a separate bank that you have to log into, then it’s a big effort to do so, and this effort is often enough to stop you doing it.

ING Direct used to fill this role for me. Its password alone was too difficult for me to remember, so I was able to set a regular monthly payment into it and not be able to touch it, as I had forgotten the password! It helped me save enough for my deposit on my flat.

Unfortunately, ING closed down in the UK. But Marcus is here to fill the void. It also has one of the highest savings interest rate out there (at time of writing it was 1.50%, which is still lame by historic standards!). But it’s a decent bank with a name that you can believe won’t go bust (touch wood).

(Update as at May 2020, regular savings of £100, then £150, and now £200 per month has amounted to a total of around £2,300 in my Marcus account)

Moneybox App iOS

This probably the most fun of these three services. In a nutshell, Moneybox rounds up your transactions to the nearest pound and invests the change into their Stocks and Shares ISA. You decide which risk appetite you want for the funds in which your ISA invests in. I chose ‘balanced’ below:

Then this is the asset allocation ‘balanced’ gives you:

This is what I’ve saved effortlessly on Moneybox in the past several months: (It’s not huge, but it’s something, and it’s invested. It’s good because it’s effortless and even fun when you ’round up’ your transaction. You get a rewarding noise when you round up, and it gives you the dopamine hit needed to reward you and keep you going.

(Update as at 26th May 2020, my Moneybox account has £722.50 in it invested. I’ve written a follow-up article to it here called How Moneybox helped me painlessly save and invest £722.50 in 15 months)

Conclusion

If you’re struggling to spend less and also struggling to save, then give these apps/accounts a go. Along with Yolt (to be covered in a later post), these make money fun to handle!