What caught my eye this week.
We’re often told these days that we must take more responsibility for our own financial futures.
And we must! This site partly exists to help.
Taking responsibility is pretty straightforward – simple, but not easy – if you’re spending more than you earn, or you haven’t saved a rainy day fund.
Like a vasectomy, it’s a matter of cutting the outflow and redirecting internally.
But once you’re free of debt and you’ve got 3-6 months in a cash emergency fund, the picture gets more complicated.
Not with the part most people fret over – how to invest. That’s a solved problem.
Invest in a global index tracker fund, offset the risk with an appropriately-sized slug of government bonds, do it in tax shelters (ISAs and pensions), use cheap platforms, and add more monthly – rather than fuss daily – for the next 30 years. Tweak to suit.
Yes we like to dig into the minutia around here – exactly which fund, how much in what bonds – but you won’t go wrong if you get the basics right.
The big picture
Things get tricky not with the tactics…
- Index funds, platforms, tax shelters
…but with the strategy…
- How much to save? When can you retire? What can you spend?
We’ve written many series on everything from doing your planning to estimating a sustainable withdrawal rate.
They’ve typically come in multiple installments, because there are no pat answers.
Indeed faced with more complexity, many people are tempted to turn to professional advice.
And when it comes to issues such as taxes or estate planning, seeking advice could be very wise.
However I’m usually wary of suggesting people re-introduce higher costs and murkiness back into their core financial planning by offloading responsibility to a third-party.
Unless you’re very wealthy, such advice will probably just be outsourced to software – albeit someone charming who might spend an hour explaining the system’s output to you, and if you’re fortunate help you with the inputs.
But it won’t be truly individual advice, typically.
This is a problem, because such software models can spit out very different numbers.
Pension planning: from plenty to penury
Consider the results of an investigation into online pension planners by Trustnet’s magazine this month, pointed out to me by reader P.J.:
After almost two solid days on five platform websites, I have to say I was surprised to see there was almost no agreement at all on what my money would provide in retirement.
I am now wondering if the calculators are plain wrong, steeped in regulatory pessimism or a victim of their own complex assumptions.
The range of results is pretty astonishing, in some cases suggesting your income will run out 15 years earlier from what are essentially the same inputs.
The article’s author John Blowers fed the same fairly standard retirement scenario into all five planners. The results that came back do appear to be… a mixed bag:
There are some huge variations in there! Read the full article for more about the assumptions, and a discussion of what might be going on.
I’d suggest you do the hard miles with your own pension calculations. You can then sanity check them with an online planner or two.
If nothing else you’ll be better able to understand how these tools reach their conclusions!
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
UK house prices fell annually for the first time since 2012, says Nationwide – Reuters
Wealth tax more likely than ever, former civil service head says [Search result] – FT
Retailers face a tough slog to flog mountains of stock – ThisIsMoney
Savers put away record amounts of cash – but a third isn’t earning any interest at all – Which?
Source: S&P and ECB. Horizontal axis is weeks into the crisis, vertical axis is percent of BBB bonds downgraded to junk.
A slow-motion credit crisis in 2021? – Klement on Investing
Products and services
Dimensional Fund Advisors is finally launching ETFs [US, but they should come here eventually] – Dimensional
Holidaymakers offered little to no Covid-19 insurance – Guardian
School fees are now very expensive, or are they? – Finumus
Working from home and the rise of the ‘shoffice’ [not my term!] or shed/office – ThisIsMoney
More: homes for sale with an artist’s studio [Gallery] – Guardian
Death of cash mini-special
The (near) cashless society arrives – Axios
More: the pandemic is doing to credit cards what iTunes did to CDs – Protocol