Hey friends,

I'd planned on writing a guide to investing in the stock market but instead have written an entire framework of using the stock market to retire early. This is life changing stuff, enjoy!

Contents

1. Inflation
2. Why Not Overpay The Mortgage Instead?
3. Compounding - 'The 8th Wonder Of The World'
4. The Stock Market
5. How To Pick Stocks (or not)
6. Fees
7. Index Funds
8. Bonds
9. Tax Wrappers
10. Platforms
11. When To Invest
12. How Much To Invest
13. Saving Vs Earning More
14. Summary
15. Actions To Take
16. Financial Advisors/Planners/Wealth Managers
17. Investing Ethically
18. FAQ

Foreword/s

If you've not yet started investing, it's likely due to either a lack of understanding or fear, which really boil down to the same thing. There is clear, actionable advice here that I sum up under the section 15. All the rest is to build your understanding and confidence which I believe is critical and not fluff. It's a long read (a massive understatement) but I've highlighted the Key Takeaways under each section if you just want to take the lesson and move on.

I've tried to put in as many graphics as possible so it's not a wall of text and I tell you what I'm doing wherever possible to keep it from being theoretical only.

Disclaimer

None of this should be construed as Financial Advice. I'm not a financial advisor and this is all my opinion. Nor is this tailored to you or your specific circumstances. Instead, this is what I'd say if a friend came to me and asked me to explain how to invest in the stock market or what I wish someone had explained to my younger self.

Any trust you have in me is deeply appreciated, but when it comes to money and content creators, you should always have your sceptic hat firmly on. Am I or anyone else talking utter twaddle or trying to sell you something? Do your own research and due diligence.

What about property?

I really like property as an asset class. In fact anyone who's ever wielded a drill has probably at some point fancied themselves as a property tycoon. However, investing in property is a lot of work, it takes time to get started and there's a huge amount of knowledge you need to get going: from Section 24 to Legionnaire's Disease - it's not for everyone. Investing in stocks on the other hand is simple by comparison, can be started right away and it's something nearly everyone should be doing. The good news is that anyone with a workplace pension is already investing in the stock market so congrats, you're halfway there!

What do I know about investing anyway?

I'd say a lot more than I know about DIY but like DIY it's all self-taught. To me though, this is DIY. It's the exact same principles of taking control, trusting and believing in yourself and not handing over responsibility to somebody else. Remember what I said in Part 15 of the GRW series?: 'Nobody cares more about your garden room than you'. Triple that sentiment when it comes to your finances. In fact, if I were asked what this newsletter, my youtube channel or anything else I put out there is really about, this would be it.

Investing also appeals to my nature - you know I like to make sense of things and think long-term. Throw in a bit of maths and this is all just quite fun for me.

Do you have everything in place to start investing?

We are jumping past a huge amount of personal finance here and you probably shouldn't be thinking about any of this unless you have the following in place:

• Paid off all high interest debt (anything above 4% as a loose rule but this excludes student debt which is more like a tax as well as some BTL mortgages where the rental income more than offsets the mortgage interest rate). I'd personally extend this rule to paying off any personal loans or credit card debt, even if on a 0% fixed rate, but each to their own.
• Have an emergency fund in cash (savings account) of 6 - 18 months' worth of outgoings, the amount of which depends on your income security (public sector job is safer than private sector or two household incomes rather than one, for example).
• You have a long time horizon. Any funds you'll be investing shouldn't be required within the next 5 years i.e for a first home purchase. For that stick with a cash Lifetime ISA. For a home extension, car, wedding etc - again, a savings account or premium bonds.
• You know how to save money. Sounds simple enough but some really struggle with this. We all know the type: what comes in goes right out again. And I sympathise because I believe saving is an innate thing. We all have our vices; some of us like alcohol a little too much, some can't not finish a plate of food, and some can't stop spending. If you struggle to save money, you're just going to have to fight harder to do so than others, probably with the aid of a well worked out budget, 'paying yourself first', little rewards along the way and other tactics to keep yourself on track.

I'm skipping past all the above for a couple of reasons:

• You're on this list because you're building/built a garden room which means you own a house (I was probably the only one mad enough to build a garden room in a house I didn't own) and you likely saved for it and passed the mortgage criteria and then saved again for materials for your build so you're probably past most if not all of the above anyway (and felt smug reading through it!).
• I don't find this area of personal finance all that interesting. I also can't relate or provide personal experience as I've always been an okay saver, consumer debt scares the hell out of me and I don't really budget, so I can't help there either. If you're struggling with debt, please contact StepChange.

What if you are nearing retirement, is this for you?

I'm aware from my Youtube stats that the majority of you are a bit older than me. This piece focusses mainly on the accumulation stage of investing, not the drawdown stage (taking an income from it) but many of the principles apply. Indeed, I've recently been sorting out my mum's finances along the same lines as what I propose here (which I'll detail in Section 16) but we won't be talking about things like sequence of returns risk or weighing up drawdowns vs annuities for example, though there is a bit in Section 12. Just like the beginning of personal finance, as I'm not yet at the end stage, so I can't talk from personal experience.

What's the point in investing?

Perhaps this doesn't need spelling out too much because who wouldn't want to be a bit wealthier, have more financial security and retire a bit earlier whilst safe in the knowledge that you are making your money work for you along the way, right?

However, I realise that many of us require a deeper, more tangible reason to get ourselves to do stuff that we're not that interested in. I certainly do. Perhaps you don't want to be a financial burden to your kids or maybe you want to help them through uni or with a deposit for a home. Or possibly you want to buy a Lamborghini on your 50th birthday. Like all personal finance, it is just that: personal. For me, I prize freedom and autonomy over pretty much everything else so for this piece we'll make the goal a comfortable or early retirement/job optionality/financial independence - whatever you want to call it.

Some virtue signalling

A problem I sometimes run into in my videos is that when I'm making a point about something it can come across that I'm not taking the bigger picture into account so I just want to say that it doesn't escape me that to do this requires a somewhat privileged position and many can't afford to. That said, there are many more that can but don't. Here's a stat: less than 5% of Brits have a Stocks and Shares ISA (S&S ISA). It should be far higher.

1 Inflation

What's wrong with just sticking your cash in savings account? Inflation. Inflation is the rising cost of goods and services over time. A clearer explanation though is that the value of the money used to purchase those goods and services decreases over time - a pint of milk stays the same, it's the money that's changed.

The Bank of England actually has a remit to keep inflation around 2% (currently 2.5%) which it does through moving interest rates up and down and increasing/stagnating the money supply (quantitative easing). There's a whole lot more that could be said about how inflation is measured and how money is really created (private banks!) but this is all you really need to know.

Current interest rates on savings accounts are running at about 0.5% - pretty dismal, so this means that if you are saving for retirement and have a nice savings pot of £200k, you need to be adding £3k a year (at 2% inflation) just to keep your purchasing power the same as today. You're running but not going anywhere, treading water if you will. If you have the belief that investing is risky, in actual fact leaving money sitting in the bank is far riskier over the long term.

We all buy different stuff so your personal inflation rate may be higher - we've previously discussed price hikes on building materials for example. So inflation is the enemy and you will face an uphill battle to save for retirement and instead must invest for retirement.

If you're wondering why the government wants inflation, it's because the opposite, deflation, means that prices get cheaper over time leading people to delay purchases and the economy faltering. The other reason is that we've racked up a huge amount of national debt, £2 trillion of it, which let's face it, we'll never be able to pay back. Fortunately inflation works in the same way on debt as with savings - it erodes it.

Key Takeaway: Inflation is the invisible enemy that is eating away at your savings. Saving for retirement is an uphill battle, you must invest instead.

2 Why Not Overpay The Mortgage Instead?

This is harder to argue against because of the phycological benefits from owning your home free and clear as well as the flexibility of not having a mortgage payment going out each month affords you.

If you cross certain loan-to-value (LTV) thresholds your rate of return can be very attractive but at the very least you'll be receiving whatever interest rate your mortgage is. Well, you'll save from not paying it which equates to the same thing. Pretty good, I wouldn't mind being mortgage free.

Here are two reasons though:

• Mortgage rates are currently less than inflation. For ease, let's assume you have an interest only mortgage (no capital repayment element) and in year 1 owe the bank £100k at a rate of 1.5% per annum. You pay the bank £1,500 in interest BUT while you still owe £100k, 2% inflation has reduced the purchasing power to £98k in Year 2's money. While you still have to find that £1,500 each year, you're effectively making £500 and acting like the government does in the previous section. To make this feel a bit more real just think of your parents who bought houses decades ago for what probably seemed like a pretty large amount back then. The whole lot could be paid off in one lump sum in today's money.
• You can pay off your mortgage from your investment pot. Over time, your money is likely to grow by a larger % each year on average compared with your mortgage rate. So you can either just ride your mortgage till the end of its term or use some of the investment pot to pay it off later on and pocket the difference.

Some people employ a mixed approach: overpaying the mortgage and investing. Nothing wrong with that. Others are more gung-ho and pull money out of their home's equity to invest with.

My approach: We're only 2 years into a 30 year term and for the moment are just letting it ride, no overpayments. We may make some lump sum payments at re-mortgaging to bring us below an LTV threshold and/or pay it off close to the end of the term from our investments if we're nearing retirement. If mortgage rates go up, then I may re-think this. If we're below an LTV threshold but can't reach the next lower threshold then I would consider taking money out up to the higher threshold in order to invest but doubt we would do this before we were at least at 60% LTV as that's where mortgage rates are typically lowest.

Key Takeaway: You can get a greater return on your money by investing in the stock market than you can from paying down your mortgage and instead let inflation erode your mortgage debt. Later you have the option of paying off your mortgage from your investment pot. There is no right or wrong approach here though.

3 Compounding - 'The 8th Wonder Of The World'

Einstein said that, supposedly, and he was right on the money! Put simply, compounding is the interest you earn on your interest. Let's do it with numbers:

• You put £1,000 in a savings account paying 10% interest, paid yearly.
• After the first year you'll have the £1,000 (the initial principal) plus £100 of interest for a total of £1,100.
• The next year you're now earning 10% on £1,100 and so earn £110 of interest. (£1,210 total)
• Over the next few years your interest each year keeps increasing: £121, £133.10, £146.41, £161.05 and so forth.
• After 7 years and 4 months you'll have more than doubled your initial capital (£2,011.62 total). Compare that with withdrawing the £100 interest each year and keeping it in cash, it would take you 10 years to get to £2,000, a whole 2 years and 8 months longer.

The longer you allow compounding to do its work, the greater the benefits. Starting a pension at 20 years old will result in double the retirement pot at 60 compared with starting at 30.

Key Takeaway: Compounding is the driving force that will get you to where you want to go and we'll see it in action later on. The earlier you start the greater the compounding.

4 The Stock Market

There are no savings accounts paying 10% interest like in the example above so we need to invest in companies, also known as stocks or equities. You can buy a small part of a stock - a Share or even a fraction of a share.

The companies you buy have a product or service that they sell, employees working to innovate and drive sales and the profit the company makes is either put back into the company (more staff, machinery, advertising etc) to make even more profit in future and therefore make the company more valuable; and/or it's paid to you, the shareholder, as dividends.

These are two mechanisms that will drive your stock portfolio higher over time:

Capital growth: the companies you own making more profit and becoming more valuable.

Dividends: the payout to you the shareholder being re-invested in more shares.

If this is at all confusing, use property as an analogy. The capital growth is the house going up in value and the dividends are the rental income.

The stock market is simply a collection of all the listed companies and in the short term can move up and down based on the sentiment of investors but over a long period of time these two mechanisms will send the stock market ever higher.

The real underlying reason why the stock market goes up is because of human nature. We're always inventing, innovating, improving, re-imagining, wanting to better ourselves. As a species we're rarely content. This drive has pulled us out of Africa to conquer every habitable landmass all the way to society today. It's what will send our species to the stars. It's not necessarily a good thing as we've sucked up so much of our planet's resources in the process but as far as your stock portfolio is concerned, it's good news. Seeing the stock market through this lens will help you see the big picture and weather the storm through market troughs.

Key Takeaway: Stocks go up over the long term because of human development. This is returned to you by capital gains (the stock going up in value) and dividends (the profit given back to shareholders).

5 How To Pick Stocks (Or Not)

The above sounds pretty good but what if you buy shares in a company that is outcompeted by another, how can you pick the winning companies?

You can't.

I can't.

Not over the long term.

Everything is already priced in. Let's say you think the covid vaccination program is going well and international travel will pick up quickly in a couple of months so buying British Airways shares is a good bet. Yeh, that's already priced in.

When a company delivers their quarterly profit statement and it's better than expected, that gets priced in within seconds.

Moreover there are people paid huge sums to study markets and economics. You can't beat them at their own game, but as we'll discover shortly, they often fall short too.

Even if you could successfully pick stocks, you might be able to be an expert on perhaps 20 companies at any one time? That's not going to be very diversified and reading up on them and the industries they're in and buying each stock individually will take up a significant amount of your time.

What about sectors? Perhaps you think tech will do better than oil over the next 20 years and you may be right, but you don't know that.

Small cap (capitalisation) vs large cap - maybe the large companies will continue to use their economies of scale and huge resources to grow faster than the smaller ones or maybe the smaller ones, because they're more agile and can pivot more easily will out-compete the large ones - who knows. Not me.

The same applies to countries, U.K. vs Japan for example; regions, Asia vs Europe; emerging markets vs developed. You don't know.

Perhaps we need to find someone who does know? A team which analyses the markets and invests your money for you in their fund of many well-chosen stocks. This is known as an Actively Managed Fund. They move billions of pounds in and out of companies they think will do well and try to beat the overall market by selecting more winners than losers. Sometimes they put your money into a series of other actively managed funds creating a Fund Of Funds.

Globally, more money is invested in actively managed funds than anywhere else. We trust that they know what they're doing and have our interests at heart.

Well there are big problems with this:

1. They underperform the market, only 18% of actively managed funds outperformed over a 15 year period.
2. Even a winning strategy over the long term will have consecutive years of underperformance. Are you going to stick with a fund that is underperforming? We'll see how important staying consistent and not selling is later.
3. Just like individual stocks, sectors or regions you can't pick the winning 18% of actively managed funds. As you will see in the fine print of every platform or fund: 'Past returns are no indication of future returns'. As a cautionary tale, the much lauded Neil Woodford went on to lose £1billion of investors' money for example. By not investing in actively managed funds you are protecting your downside risk.
4. Fees!

This might be the most controversial section because you might know an Uncle Bob who went all in on Apple shares back in the day and is now a multi-millionaire living the life or Riley on a Caribbean island. BUT you'll also probably know or have heard of an Uncle John who lost his shirt investing in the stock market, along with his wife and home. This is exactly the point, there are always going to be winners and losers and we're ensuring we're not in the latter camp. Still unconvinced? Well I backtrack a little in the Section 11.

Key Takeaway: Picking stocks or fund managers that will beat the market is incredibly tough, especially over the long term. It will take up a lot of your time and you're at least as likely to lose as you are to win.

6 Fees

As well as picking underperforming stocks, a large part of the reason why actively managed funds often underperform the market is because of the fees they charge, sometimes in excess of 1% of your pot each year.

Warren Buffet famously made a £1million bet with the hedge funds that they couldn't outperform the overall market for their investors over a 10 year period once fees were factored in. He won.

Let's say that the overall market averages 7% growth a year for 30 years. You invest £250 a month in an actively managed fund that performs exactly the same but charges an extra 1% per year, leaving you with an average 6% return. This is when compounding comes back in to play:

6% return, leaving you with £244,812

7% return, leaving you with £294,016

That's a whopping £50k difference! Gone right in the pockets of the fund manager. To put it another way, that 1% fee has resulted in a nearly 17% reduction of your pot at retirement.

As well as fund fees, there are platform fees to take into account which we'll look at in Section 10.

Key takeaway: Keeping fees low is of fundamental importance and we'll deal with the option of having a Financial Advisor later on.

7 Index Funds

Here's where we get specific. Index Funds are what I invest in but what are they?

Index Funds are the opposite of Actively Managed Funds. Instead of trying to beat the market they instead match or track the market by following an index. Sometimes they're called Tracker or Passive Funds for this reason.

Which indices? Well there are plenty and no doubt you'll have heard of some:

S&P 500 - the 500 largest US companies (by market capitalisation -i.e adding up the value of all their shares)

Dow Jones Industrial Average - 30 blue-chip (deemed to be reliable and safe investments) US companies

FTSE ('footsie') 100 - the 100 largest UK companies

FTSE 250 - the 250 largest UK companies

Nikkei - top 225 blue-chip Japanese companies

You can buy an Index Fund which tracks one of these indices, such as the Schwab S&P 500 Index Fund which, to no surprise, tracks the S&P 500 index and they perform very closely to their benchmark index. This one in particular charges a fee of just 0.02%. Smashing!

Something like this will almost certainly perform very well for you, but what did we say about not picking countries or large cap over small cap? Instead, we want to own the world!

We need to find a global/all-world index fund. There are a few but here's what I invest in:

Vanguard FTSE Global All-Cap Index Fund- Accumulation

This fund tracks...yup, you guessed it: The FTSE Global All-Cap Index. As far as investing in stocks goes, this fund is all you ever need. Let's get comfortable with it.

All makes sense right?

This fund, at the time of writing, invests in 6,913 stocks but not an equal amount in each. Instead, the fund buys according to market capitalisation. Let's take a look at the current top 20 companies in this fund:

If I've typed those % in to my calculator correctly, it means that, as things stand, 17.21% of your investment pot will be in these familiar companies (Alphabet is Google's parent company FYI) or to put in another way, all the employees at these companies are now working for you and whenever someone buys an iPhone or watches a Youtube ad, that all helps your retirement. Pretty neat.

At the other end of the spectrum there are companies like Myer Holdings Ltd which is apparently some kind of Australian department store. This makes up just 1 millionth of the fund but if it does well and climbs the rankings, you'll buy into it all the way up. Awesome.

As for countries, here are the top ones:

As you can see the US is huge in comparison to everywhere else and this is simply because it has many very large, valuable companies. It demonstrates that if you just bought a FTSE 250 index fund, how narrow this would be in regards to the wider market.

Sectors:

It's wonderfully diversified and there's nothing scary at all here. You're owning the world and the world will keep on doing what it does: growing.

Allow me to demonstrate the point of not picking stocks:

Coca-Cola and PepsiCo make up a very similar % of the fund. In all likelihood they'll both continue to do well but if one is outcompeted by the other, it doesn't matter one jot to me as I own both!

Congratulations, now whenever you flick on the news and hear that stock markets have hit all time highs, that's you. Enjoy!

The fee? 0.23%. This is a little higher than some index funds but none have as many stocks as this fund and it's still a very low fee. A similar fund, the HSBC FTSE All World Index - Accumulation has a lower fee of 0.13% but half as many stocks. Don't get hung up on deciding, it doesn't really matter much which you go for, I just happen to like the Vanguard one.

Exchange Traded Funds (ETFs)

Another way of investing in a wide diversity of stocks is through an ETF. Unlike mutual funds these funds trade more like a stock so rather than pricing once a day, there's always a live price. There are a few other minor differences but for our purposes either are fine. An equivalent ETF to what we've discussed is the Vanguard All-World UCITS ETF (VWRL). This has fewer stocks, 3,589 at time of writing, excludes small-cap and has similar ongoing charge of 0.22%. I prefer the All-Cap mutual fund but wanted to mention ETFs for completeness.

Key Takeaway: Investing in a global index fund is the only thing you need to invest in. Remarkably, the easiest method is also the best method. My fund pick is the Vanguard FTSE Global All-Cap Index Fund- Accumulation.

8 Bonds

Bonds aren't companies but they often get lumped in with 'stock market investing' so we'll briefly cover them. Bonds are perhaps the only other thing you might want to invest in besides a global index fund.

A bond is essentially an I.O.U issued by a company or a government when they need to raise money. They issue the bond with a fixed time period (5 years for example), you buy the bond and they pay you a fixed income every 6 months usually. This is the interest rate or 'coupon rate'. At the end of the bond's term (the maturity date) they pay you back your capital.

However you don't have to hold on to the bond all the way through its term as bonds are publicly traded so can be bought and sold at any point which also means the value of bonds can increase or decrease.

That's a high level overview but there are some key things to know:

• Bonds often (but far from always) move in the opposite way to stocks, so when stocks go down, bonds go up and vice versa. This means they act a 'hedge' against your stock portfolio or cancel it out to some degree.
• Bonds also move inversely with interest rates.
• Bonds are not as volatile as stocks, i.e. they don't go up and down nearly as much which helps smooth the ride.
• Bonds almost always underperform stocks in the long term.

What % of your portfolio should you have as bonds? The often quoted rule of thumb is: keep your age in bonds. So a 35 year old would have 35% of his or her pot in bonds and 65% in stocks. A 60 year old would have 60% bonds and 40% stocks. This rule increases your bond allocation as you age and get closer to needing the funds and therefore less willing to take risk/volatility.

I think this is far too conservative and was brought about when the coupon rate on bonds was much higher. You need more stocks!

A better rule of thumb is: how much volatility can you accept without keeping you up at night or panic selling your portfolio?

Don't answer just yet. By the time we're finished you'll hopefully enjoy it when you lose 50% of your portfolio overnight!

What's my position here? Well I'll be 35 later this year and own no bonds.

Here are my reasons:

• I'm relatively young so I'm investing for the long term (decades) with money I don't need in the short or medium term. Stocks will perform better than bonds over the long term so I'd rather go for growth than try to limit volatility with bonds. If my portfolio halves in value (this is generally a worst case crash scenario) for a few months or a year, it doesn't matter. It will recover and do better over time compared with having a % of my portfolio in bonds (most likely anyway).
• My investment pot isn't that big yet. It's easy to stomach a 50% temporary loss because in £ terms it's not huge. If I was 'losing' £500k I might feel differently, it's hard to say for sure.
• As we learnt above, bonds move inversely to interest rates so to go up in value due to interest rates would require a lowering of interest rates and where are interest rates? Rock bottom.
• Bond yields are currently below inflation so you're losing purchasing power by holding them.
• Because we have plans to do up our house including an extension in a couple of years, we hold quite a lot of cash above and beyond our emergency fund. When you have cash it's easier to ignore what your investment portfolio is doing week to week, month to month. The same could be done in retirement too. If you keep 2 years' worth of expenses in cash and the market drops, instead of drawing down from your portfolio (i.e. selling at a low point) you just use the cash to live on. When markets have gone back up you can then top up your cash position once again.

There is however a neat little trick with bonds explained in Section 15. If you want bonds in your portfolio, a good diversified option is the Vanguard Global Bond Index Fund - Hedged Accumulation.

Key Takeaway: Having an allocation of bonds in your portfolio will likely reduce the volatility (how much the value of your portfolio moves up and down) but bonds will also reduce growth. The closer you are to drawing down (retiring) the higher % you might want. The maths is generally on the side of stocks, but bonds help with emotions.

9 Tax Wrappers

Great! We now know what we're investing in and why but we don't want to have to deal with tax returns nor give away our gains to the government. Instead we're going to wrap our fund/s in a tax free account.

The great news is that the UK has some of the most generous, admin free, tax free schemes of many countries. The slight downer is that most people, myself included, don't earn enough to take full advantage. Ah well.

There are two main ones that will fulfil almost everyone's needs:

ISAs - divided up into the S&S ISA (Stocks and Shares Individual Savings Account) and S&S LISA (Stocks and Shares Lifetime Individual Savings Account)

The Private Pension - divided up into workplace direct contribution schemes and the SIPP (Self Invested Personal Pension). Final Salary/Defined Benefit pensions are outside the scope of this article.

So a couple could invest £120k a year between them and get tax free growth. Pretty amazing really.

First things first, always get the full company match of your workplace pension, even if it means contributing 12% of your gross income and getting 6% from your employer. It's free money, take it.

As for choosing between ISAs and SIPPS, I'll try to keep this simple as possible: if you're a lower rate tax payer (paying 20% tax) there's not a huge difference between the ISA and the pension. The pension wins slightly but not by a huge amount.

The real difference comes about above the higher rate threshold of £50k gross income. Any monies that go into a pension above this will qualify for 40% (higher rate) or 45% (additional rate) tax relief compared with what you could put in an ISA which has to come from net income. Upon withdrawing from your pension, you get a 25% chunk of your pot tax-free BUT it's likely that you'll be a lower rate tax payer at that point so the other 75% is taxed at 20% (which gives you a total tax rate on your pot at withdrawal of just 15%). So, you get 40 or 45% tax relief going in and might only pay 15% when taking it out. That's very powerful so for higher and additional rate payers you should be prioritising the pension over the ISA, at least on income over £50k gross. The same goes for company owners where you can save on corporation and dividends tax.

The ISA however can be withdrawn at any age so if you have plans to retire before 55/57 then you need to have an ISA from which to take an income until your pension kicks in, even if it's not tax optimal. This also works if you need the money early for some reason, and you can always move ISA funds across to a pension to get the tax relief later. As discussed earlier, if you want to pay off your mortgage from your investment pot before 55/57 then you'll need to do so from an ISA.

For any rate of tax payer this can leave you with a conundrum of how much to invest in each tax wrapper and would require some accurate guessing of what the market will do over the next few decades before you retire which is tricky.

My suggestion is to prioritise the pension initially regardless of tax rate because the initial boost you get from tax rebate will compound over time. As you get closer to retiring, if it looks like you might be able to do so before age 55/57 then start socking away into the S&S ISA as well/more/instead.

If you happen to be able to max out the pension allowance then start filling your ISA or use any funds from the first £50k gross income, taxed at 20%, that you don't spend can also go towards the ISA.

At the moment I'm doing a 4:1 Pension:ISA split. It's not that scientific or mathematically exact though.

To caveat, others think differently. If you start out working at a lower tax rate then you could (after your pension employment match) prioritise your ISA and then when you've worked your way up the career ladder start filling your pension to avoid higher rate tax.

In conclusion it's a very difficult subject to simplify, especially as the government may change the rules later. You can't go too far wrong with either though.

Some extra notes on the private pension (you can probably skip this)

• Anything contained in your pensions are Inheritance Tax (IHT) free. If you die before the age of 75, your pension passes to your beneficiaries tax free. After 75, there's no IHT, but the beneficiaries will pay income tax at their prevailing rate.
• You can only put in £40k a year if you earn £40k or more (gross). However you can top up the 3 preceding years - known as 'pension carry forward'. If you're not working you can still put in up to £3,600 a year (from gross) which is good for couples when one is a househusband/wife for example.
• You can pay into a pension up to the age of 75. And no, you can't take the 25% out tax free then put it back in to get the government top up (pension recycling), nice try though!
• If you need to claim benefits at any time, your pension will not be taken into account, unlike an ISA.
• There is a Lifetime Allowance for the sum of your pension (including the growth it has had) which currently stands at £1.0731 million. Above this level, tax on withdrawal is higher so you either want to avoid breaching this amount or look at ways of mitigating it. Or if you don't intend to use all your pension and want to pass it to your kids IHT free then don't worry about it.
• If you pay into your pension via Salary Sacrifice then you don't pay National Insurance on what goes into it - very helpful! Ask your HR or Accounts department whether this is the case. If it is, make all your contributions through your workplace pension and then transfer to your SIPP periodically which is likely to have better fund options and lower fees.
• There's a tapered annual allowance for incomes over £240k
• There's talk of raising the age of withdrawal further to 58 and then to have it lag the State Pension age by 10 years. My guess would be that might be 60 and 70 years of age respectively by the time I retire. The fact that the LISA has a set age of 60 seems to me like a good indicator that this might be the case.
• Because the pension comes out before tax, it reduces your Taxable Income. Beyond the perk of getting the tax free cash in your pension it also allows you to drop below certain thresholds such as Child Benefit which tapers to zero between £50-60k income or the weird 60% tax you pay between £100-125k due to losing your personal allowance at this level.
• For higher and additional rate tax payers you may have to get in touch with HMRC to claim the additional 20 or 25% tax. I feel a lot of people don't know this and miss out on some significant tax savings.
• You can access your private pension early under some circumstances such as critical illness.
• If you're wondering how to pay into your SIPP with after tax income - the platform will claim 25% extra on your behalf from the government which will land in your SIPP a few weeks later. Again, for higher and additional rate tax payers you'll need to claim the rest via HMRC.
• There may be other rules I'm unaware of.

Stock and Shares Lifetime ISA (S&S LISA)

The LISA is an interesting one, especially as it's the new kid on the block. Of the £20k total ISA allowance per year you can put £4k within a LISA which the government will top up by 25% (regardless of your income tax rate) bringing it up to £5k each year. It can be used for two things: for a deposit on your first home (price of house must be less than £450k - a Cash LISA is best for this if buying within 5 years) or for retirement which is what we're interested in here. If for the latter, you can access a just little later than a private pension: at 60 years old.

Warning: If you withdraw from a LISA for any other reason the government deducts 25% of the total which means you lose 6.25% of what you put in. Why? Well, you put in £100, the government tops it up to £125. You withdraw and lose £31.25 leaving you with just £93.75.

You can open a LISA anytime before your 40th birthday and can keep putting money into it and getting the government top up until 50 years old.

A higher or additional rate taxpayer should only contribute to a LISA after filling their £40k pension allowance each year. If you can't, I'd still recommend opening one before your 40th birthday and sticking in £1 in case your circumstances change during your 50s.

For lower rate taxpayers a LISA actually beats both a S&S ISA and pension because it's tax free going in and out but there are other caveats as detailed above which may not make it the best option (IHT, age of access, penalties for withdrawing early etc). Again open one before you turn 40 just in case.

If you're fortunate enough to max these out, to invest further you'll need to do so in a General Investment Account (GIA) where taxes will apply. This is outside the scope of this article.

What about the State Pension?

To get a state pension you need to have contributed between 10 and 35 years' worth of National Insurance. 35+ years will give you the highest state pension at around £9,300 a year currently, unless you defer a year or two. For a couple, with a paid off house an £18/19k income is a decent retirement but for me it won't kick in until I'm 68 years old (I reckon 70 by the time I reach it). I'm not waiting that long! I see the state pension as very nice to have but I'm not relying on it. You can check and top up your National Insurance record online.

Key Takeaway: A pension beats ISAs on many grounds, especially for higher rate tax payers but a mix is best. S&S LISA is the wildcard, best for lower rate tax payers or those maxing out their pensions. Just pick how much you'll save into each for now and adjust as needed over time, don't get hung up on it.

10 Platforms

Think of platforms like online banking. It's where you hold your accounts (tax wrappers) which in turn hold your funds.

As with funds the important thing here is to choose a platform with low fees and to a lesser extent, a clear user interface that you get on with. Just make sure they offer the fund/s and accounts (tax wrappers) you want. The fund fee is almost always identical across platforms, certainly so for the index fund I invest in.

Here are some good ones which all offer the Vanguard FTSE Global All-Cap Index Fund:

Vanguard: 0.15% platform fee capped at £375 a year. No dealing fees on mutual funds, £7.50 per trade on ETFs. (applies to S&S ISA and SIPP). Only has Vanguard products.

IWEB: S&S ISA - no platform fee, £100 S&S ISA account opening fee, £5 per trade

SIPP - no account opening fee, £5 per trade, quarterly admin charge of £22.50 for pots of up to £50k, £45 per quarter for pots above £50k.

Interactive Investor: £19.99 per month for a SIPP and S&S ISA. One trade per month free, £7.99 per trade after.

AJ Bell: 0.25% on first £250k, 0.1% between £250k - £1million, 0.05% £1-2million, none thereafter, £1.50 dealing fee for funds

As you can see, they make it bloody complicated to compare as they charge for different things but let's do 3 scenarios:

Person 1 has an existing pot of £40k in a SIPP and intends to invest once a month each into a S&S ISA and SIPP into a mutual fund.

This would cost £60 a year with Vanguard; £210 with IWEB + one off £100 account opening fee; £335.76 with Interactive Investor and £118 with AJ Bell.

Winner: Vanguard

Person 2 has a pot of £150k in a SIPP and intends to invest once a month each into a S&S ISA and SIPP into a mutual fund.

£225 with Vanguard; £300 with IWEB + one off £100 account opening fee; £335.76 with Interactive Investor and £393 with AJ Bell.

Winner: Vanguard still

Person 3 has a pot of £400k in a SIPP and intends to invest once a month each into a S&S ISA and SIPP into a mutual fund.

£375 with Vanguard; £300 with IWEB + one off £100 account opening fee; £335.76 with Interactive Investor and £793 with AJ Bell.

Winner: IWEB (if you keep the account for 3+ years)

Key Takeaway: Vanguard is the place to be when you're starting out and it's where I invest currently. As your portfolio grows you may want to move to a different platform.

Vanguard is a pretty wholesome platform that is set up to reduce fees to its investors, is essentially owned by its investors and the founder Jack Bogle created the first Index Fund. Good stuff.

11 When To Invest

Let's take stock (excuse the pun). We know what fund/s we're investing in, what accounts/tax wrappers we need to open and which platform to host it all for us. Easy.

Now we need to take a look at when to invest, this is a super important lesson.

'Time IN the market beats timING the market'

It's very difficult to time the market but let's suppose it is possible. Here's the story of three ladies based on actual market data over 41 years: Tiffany Top, Brittany Bottom and Sarah Steady. Each had £200 leftover each month to save or invest (read full version here)

Tiffany Top saved her £200 each month in savings account paying 3% interest. When the market reached the absolute peak, she took it all out and stuck it in the market only to see it drop the next day. She repeated this cycle many times over the 41 years and ended up with a retirement pot of £773k.

Brittany Bottom did the exact same thing but managed to perfectly time the bottom of each cycle and came out with £1.124million.

Sarah Steady however simply put her £200 each month into the stock market and never deviated. Wherever the market was, she bought. Sarah ended up with £1.621million.

We should all therefore act like Sarah and invest the same each month after we're paid, increasing as our income goes up, all the way until retirement, letting the dividends reinvest and compound away.

Do not sell

'The stockmarket is a rollercoaster, but the only way to get hurt is to get off the ride.'

You can follow everything I've laid out here for years but if you panic sell during a market crash, you will have undone all your good work. A market crash can feel like the world around you is collapsing. In 2008 the whole system was under threat and a global pandemic - well, that's the stuff of apocalypse movies. It's normal to feel jittery and it's difficult to see your retirement pot halve in value but do not be deterred! The market has always recovered to new heights. Imagine me shaking you by the shoulders as I say this, it's that important! If you ever find yourself in such a scenario listen to this brilliant and amusing guided meditation on the matter. Invoke your inner Vulcan!

What you should instead be feeling is euphoria, your monthly investments are now buying more shares. You're getting a discount. Sweet.

This is also important for not trying to time selling at the top of the cycle because you need to get it right twice - once to sell and once to buy back in. Throughout the 2010s people sat out of the market for years waiting for a drop that never happened.

My partner Abi is the perfect example of someone who, with very little knowledge or interest in investing, will do incredibly well, a proper Sarah Steady. When I explained all this to her a few years ago she cut me short (lol) and said 'just tell me what to do', which she did:

The green markers are when she has bought in every single month. Notice the big dip in March 2020. That low was lower than any previous buying point so at the time she had a paper loss (or on-screen loss) even after 18 months' worth of investing. But as you can see she kept on investing. FYI the red markers are Vanguard taking their (low) fees, not Abi selling.

Frankly I'm not too sure she knew what was going on with the stock market which is great because she couldn't panic nor sell, and look where she is now. That market crash is becoming a distant memory and will look like a small blip 20 years from now (though there will be other crashes).

Deviating from the plan

So we've learnt that we shouldn't hold on to cash waiting for a market crash that may not happen for 10 years or more but what if one happens and you have cash meant for something that you could put off - like a house extension? Well that was our very position last year. In fact in this video released in March 2020 I casually threw out there 'now seems like a good time to invest'. In truth I had no idea whether stocks would recover the next day, the next month or even that year. I did know that the market would recover eventually though and that stocks were a lot cheaper than they were a month previous. So I deviated from the plan and invested more at that time. The extension can wait.

So yeh, I did 'time the market' on that occasion, I'm naughty. Obviously I enjoy this stuff so I'm more prone to tinker but I don't mess with my monthly direct debits.

If you're brand new to the concepts I've explained here, no doubt it will provide quite enough excitement and it's all you ever need do, but if you want to pick stocks or crypto or NFTs, by all means go for it but maybe keep it under a certain % of your portfolio. My pre-determined level is no more than 10% of net worth (not including home equity) in more exotic things than index funds and property. Admittedly my way is not get rich quick, I won't catch a moon-shot or home run but I won't be left homeless either. Paradoxically once you are wealthier you can take more risky bets because it won't affect you as much and potentially make a lot more. Venture Capitalists do this, most of their investments are lousy but they sometimes catch an Uber or AirBnB in its early stages.

Anyway, here's a loose idea of where I feel different assets/activities sit:

What to do with a lump sum

Let's say you've saved a good pot of money but now understand that it should be invested, not just sit in a savings account, should you put it in all at once? Since markets go up about 70% of the time, the mathematical answer is yes. But how will you feel if it drops the next day? If you feel you can take the drop because you've internalised the facts laid out here, then that's what you should do. Remember, it's just a paper loss, you haven't actually lost anything until you sell and it will almost certainly go back up again, and more, in future.

However there is another method by which you drip feed the lump sum into the markets over a year or so. This is known as Pound Cost Averaging, because you're averaging into the market. Despite writing an entire article on the subject, I'd probably do this too if I had a sudden windfall, because I'm human.

Key Takeaway: You cannot successfully time buying or selling the market. Buy each month as you get paid and invest lump sums over a period of 6-12 months.

12 How Much To Invest

Here's where things get super interesting because we can plan out our freedom!

Let's first ask a different question - when will I have enough?

As we know, past returns are no indication of future returns, but it's all we've got to go on and to be fair the stock market has been going an awful long time so depending on who you ask we can expect an averaged out yearly return of between 7-12%.

The problem with using these % returns is that they don't factor in inflation. What we want to know is how much we will have in today's money in the future. Also known as inflation-adjusted returns or 'in real terms'.

To do this we simply knock off the expected inflation. Since the BOE remit is 2%, let's go with that. That leaves us with 5-10% expected returns.

Once retired we need to weather some market crashes so the rule of thumb is you can withdraw 4% of your initial starting portfolio every year, increasing each year for inflation, without running out of money. It's lower than the than the expected returns to account for withdrawing during market crashes, lower than expected returns etc. (This 4% rule is based on the Trinity Study for a 30 year retirement with a portfolio of stocks and bonds. There's a lot more that could be said but we're not getting into the withdrawal stage here)

100/4 = 25 so you will have enough once you have accumulated 25 x your yearly outgoings. It's that simple.

However, it's not your current yearly outgoings, it's what you will spend in retirement which could be a lot lower because you might not have a mortgage, or much higher because you will be travelling the world/living up your new found freedom.

To provide an anchor I've nicked this graph from Which?

This seems pretty reasonable to me. Let's take the two-person 'comfortable' household income of £26k which includes things like eating out, hobbies and European hols.

25 x £26k = a combined retirement pot of £650k. Let's turn to the compounding calculator to see how this might be achieved:

So there you are, a couple of 30 year olds, with £30k invested, saving £300 a month between them (and going up with 2% wage growth each year) could retire at 60 and draw down £26k a year, increasing with inflation, forevermore. A few years later their state pension will kick in for even more security/luxury.

Now go and play with the calculator changing the length of time before retirement, the interest rate and your monthly investment and see what you need to save to reach your goal; or turn it around and see what goal is feasible with the amount you currently have and what you can save each month.

For us, if things carry on as they are, I'm eyeing up 55 years of age for financial independence (which is why I prioritise the pension over the ISA). Things may change for the better or worse of course, life always throws some curveballs. It also doesn't mean we'll give up all forms of work (though we might) but any work will be in the knowledge that it's not just for the money.

Key Takeaway: You'll be financially free once your invested pot reaches 25 x your yearly outgoings.

13 Saving Vs Earning More

Hopefully the previous section has you feeling hopeful and excited rather than downhearted and dejected. Remember, if you implement any of this you'll be way ahead of where you would have been otherwise.

Either way, you may be thinking about how to increase the amount you can invest each month. There are two ways: you can save more, or earn more.

Saving more

Person A earns 30k and spends 20k, saving 10k. Person B earns 34k and spends 24k, saving 10k as well. Both sets of £10k get invested the same. Which person gets to retire earlier?

If you absorbed the last section, you'll know it's Person A because their expenses are lower so the pot they'd need for retirement would be a full £100k less (assuming spend is the same after retirement as before). This is because their Savings Rate is higher.

This is really powerful. Your savings rate (amount saved divided by your net income x 100) can unlock financial independence as first outlined in The Shockingly Simple Maths (I refuse to say math) Behind Early Retirement.

Makes sense doesn't it? If you never save anything you can never retire (okay, state pension, sure). If you never spend anything - perhaps you live off the land - you can retire right now. A couple that earns the same but live off just one of their incomes can retire in 17 years. Magical. (Even better, these calculations are done off just a 5% inflation adjusted return)

The other thing this shows is it's not down to how much you earn, but rather your savings rate that matters. Some people earn in the millions but throw it all on house keepers, gardeners, country clubs etc. They can't retire.

I could do a whole piece on saving but here are some quick tips:

• Focus on the macro stuff: house, car, wedding etc, rather than the micro.
• You can live the exact same lifestyle for much less if you do a bit of admin on your bills (utilities, internet, insurance), go sim-only and buy your phone outright rather than paying an inflated contract and buy a nearly new car rather than new or on a lease.
• Figure out what things bring you value and spend lavishly on them and be frugal with things you don't value. I spend on: tools, gadgets, the house and travel. I don't spend big on cars, fancy watches or clothes, fine dining, theatres, gigs or events. You might be the total opposite of course. 'You can afford anything, but not everything'.
• Spending rather than investing £1,000 today is like spending £7,612 (7% inflation adjusted returns) or £4,322 (5% inflation adjusted returns) in 30 years' time. (Don't get obsessed with this point, it will drive you crazy)
• Forget keeping up with the Jones' or anyone else. Who cares what others are doing or think. Apparently neighbours of lottery winners are much more likely to go bankrupt as they try to match the lottery winners' spending. Fortunately for us, our neighbour's front garden resembles a junk yard.

Earning more

You can save and scrimp as much you like but there comes a point when it becomes miserable or you can't go any further. Remember, there's no guarantee any of us will make it to retirement so we must enjoy the journey too.

Once you've made your savings optimisations the only way is to earn more. I can't tell you how to do that (I'm trying to figure it out myself) but this is what you should be thinking about.

Okay, this is pretty obvious but I put it out as a warning because many people fall into the trap of underspending and taking frugality too far. Sometimes they reach retirement with a fat pot and just can't bring themselves to spend any of it which is a bit tragic. Perhaps earning and spending a bit more would have been the better option. Of course there are far more people who overspend. Balance is key.

Key Takeaway: By lowering your expenses you bring financial independence forward by saving more AND by needing a smaller pot at the end. Don't take it too far though and once you've made your optimisations, try to earn more instead.

14 Summary

• Inflation needs to be combatted by investing.
• Compounding is your friend, start as early as possible.
• The stock market has always gone up over the long term and will likely continue to do so.
• Don't try to beat the market, match the market with Index Funds
• Time in the market beats timing the market.
• Bonds act to dampen volatility.
• Always use tax-wrappers
• Keep fees low (fund, platform, transaction and advisor)
• Saving more can beat earning more, up to a point.
• Finish line = 25 x yearly expenses

15 Actions To Take

That's it. Now you're an expert and can put all this in place:

1. Choose your platform, probably Vanguard
2. Open an account with that platform with a SIPP, S&S ISA and perhaps a LISA (not all platforms offer a LISA).
3. Consolidate all your previous workplace pensions into your newly opened SIPP. All you have to do is tell the platform which workplace pension provider and account number of those pensions and the platform will do all the work for you. (Only applies to direct contribution workplace pensions, not defined benefit or final salary types, don't mess with those.)
4. Invest it into the Vanguard FTSE Global All-Cap Index Fund- Accumulation or put a % into a bond fund as well.
5. Make sure you are maxing your employer's pension match to get all the free money you can. If your employer runs a Salary Sacrifice scheme which saves you on National Insurance, then make all pension contributions through the workplace pension.
6. Take a look at the platform and funds that your current workplace pension is in. If the fees are high or the fund options are limited, do a partial transfer (leaving a few £hundred in) to your new SIPP. First check there are no or low fees for doing a transfer out. Do this once a year when your workplace pension pot has built up. Once you leave the job, do a full transfer. Again, only applicable to direct contribution pension schemes, not DB or final salary schemes.
7. Any funds you have beyond your emergency fund that you don't plan to use in the next 5 years, either invest right away or pound cost average over 6-12 months. If you have more than the combined ISA and SIPP limit in cash that you want to invest you can either wait until next tax year (April 6th) or open a general investment account and later in a new tax year move money across to the tax advantaged accounts which will likely keep you under the threshold for capital gains tax.
8. Next set up a direct debit to be invested in the funds of your choice on your new platform. Mix SIPP and S&S ISA according to principles laid out under the section 'Tax Wrappers'. You can always adjust later.
9. Check in once a year to see how you are doing and adjust your projections accordingly. Ah, who am I kidding, you'll be looking excitingly/disappointingly every day at first, but soon you'll learn to forget about it and let the market do its thing.
10. Relax. You've now entered the boring middle. Enjoy life safe in the knowledge that your future is secured. There are plenty of benefits to be enjoyed along the way though: If your boss is a bully, tell them where to go; work part-tim; work a more interesting or low pressure job for less; take a mini retirement to travel while you're young etc.
11. Think about what you will do after you retire. Taking it easy might sound grand but ennui can set in.

16 Financial Advisors/Planners/Wealth Managers

A financial advisor is highly unlikely to invest your money for you better than you can if you follow what I've laid out here and the vast majority of people don't need one. I strongly believe this and any financial advisor worth their salt will (and do) openly admit this too. I'm sure there are some reading.

There are however a couple of compelling reasons to have one on your side:

Panic Selling - As discussed, panic selling when the market inevitably drops will undo all your good work so if having a financial advisor who can knock some sense into you and prevent you from panic selling, they are worth their weight in gold (depending on your pot size - a 70kg solid gold financial advisor would be worth £3million). At best this is basically hand-holding but they may well stop you from jumping off a cliff.

A lack of interest - Most people have no interest in learning this stuff, despite how simple it is. And I totally sympathise. It's hard to learn stuff you're not interested in. For instance, I should really learn how to maintain my car - I'm pretty handy, I have a bunch of tools but beyond an oil change or replacing a tyre I don't know what I'm doing - all because I'm not that interested in cars and therefore have never bothered to learn.

I'll talk from personal experience now. For the last decade or so my mum has had a financial advisor looking after her ISA and SIPP. He is everything you could want from a financial advisor: a good listener rather than a talker, goal orientated, pragmatic, cautious yet optimistic.

When my grandmother died, my mum was in no frame of mind to sort all the accounts and figure out IHT. He did all that for her and took a weight off her shoulders - brilliant. A couple of years later this work had transformed into a once a year meeting, which I attended, to look over how her portfolio was doing.

The portfolio was overly complicated, overlapping and also conservative. I imagine it's a lot easier to present a 10% increase when the market has done 20% than it is a large loss; and the complicated nature makes it look too tricky and confusing for the client to do on their own.

A few years ago I suggested shifting to low cost index funds which was met with politeness but some scepticism. A few years later (forgetting who had originally mentioned it to him) he was brimming with confidence about index funds and how all his clients had some exposure to them.

When he announced his fee was doubling from 0.5% to 1%, I showed my mum what that would cost her over the next 30 years and she finally took the plunge and is now looking after her own retirement pot. Her ISA which she'll draw down from first is in the Vanguard Lifestrategy 60% Equity Fund and her SIPP is in Lifestrategy 80% Equity Fund. These have an overweighting to UK equities but are still pretty diversified. The bond element of each (40% and 20% respectively) rebalances by itself as she doesn't want the admin. This means that when the stock market goes down, the bond % automatically increases which is then sold to buy equities at a discount.

Easy peasy.

Far more useful in my opinion is the tax accountant as things can get pretty complicated for some people, especially if you get into setting up trusts or EIS/SEIS investments, avoiding IHT, or trying to decide to buy property in a ltd company vs in your own name. Plus, you can pay by the hour. No need to hand over a % of your portfolio every year forevermore.

Key Takeaway: Most people don't need a financial advisor and the cost often outweighs the benefits as long as you know just a small amount to feel confident doing things yourself. A tax accountant is often far more useful.

17 Investing Ethically

A requested section, I was too heartless to include it initially!

Is this strategy an ethical way of investing? Not really. I don't consider it unethical but there are no doubt companies in this fund that promote unhealthy eating to kids, fast fashion, gambling, money laundering (hello HSBC!), source palm oil from deforested rainforest or lobby governments to ignore climate change and a million other shenanigans that go on in companies around the world every day.

I can't and won't tell you what the moral thing to do is, only my approach which is what I've laid out here. I guess I see it as securing my own oxygen mask first. At the end, I can use the money and time I'll have free on the thing that I happen to care about most: the environment; whether by volunteering to plant trees or giving to charities or NGOs that work in conservation. Along the way I can add insulation to our house or install solar panels (though I'm under no illusion that this offsets the cost of my existence). If you retire earlier you can help out at a homeless shelter, animal rescue centre or whatever area you feel passionate about and want to make a difference in.

The other reason is that for a fund to stay on top of which companies are continuing to be ethical requires active management which as we know, eats into returns. And I guess that even at 'ethical' companies you can have a greedy CEO who treats their employees like crap.

If you do care about this though, I commend you so here are a couple of potential funds that might fit your criteria:

Royal London Sustainable Leaders Fund

Aberdeen UK Ethical Fund

Or perhaps you think the Swedish government (for example) is doing the right things on climate change, employment rights or whatever else then you can buy their government bonds: Nordea 1 in this case.

Or maybe you just want to help the little guy fighting against the behemoths like Amazon. You can invest in your local area.

Note: These are all just examples, I've not looked into them in any depth.

18 FAQ

Is my money safe?

Aside from market volatility, it is very safe in most platforms because you own the underlying stocks, it's not like a bank who may lend out your money. There may be some FSCS protection, but usually on cash held only but everything should be kept in a ring-fenced client account so can't be raided in the event of insolvency. If you're worried, stick with the big ones, like Vanguard.

Aren't we at all time highs in the market?

Yes we are, but that's not unusual. Around 5% of days are at all time highs and you know what usually follows all time highs? More all time highs. I can't say that the market won't crash tomorrow, it might and that's okay, just pound cost average lump sums, invest monthly, and don't get off the ride. Investing at the lows is much harder psychologically so just get going.

What about currency fluctuations?

Because we're investing globally most stocks are not denominated in GBP so if the pound goes down your existing stock portfolio will go up but your monthly direct debit will be buying fewer stocks than you could before. And vice versa. It's not something within our control so I just ignore it. Possibly having more UK stocks nearer retirement can reduce volatility but the FTSE 100 companies that will make up a large % of UK funds tend to make a lot of their profits abroad anyway.

Where did you learn all this?

A bunch of different places - blogs, podcasts, forums, videos (1 book, I'm not much of a reader) but I didn't put it all together by myself. There's a large community of people following this strategy under the umbrella of F.I.R.E (Financial Independence/Retire Early).

What if everyone invested in Index Funds?

They are certainly growing in popularity. If they become too mainstream then stock picking will become easier and actively managed funds will outpace them, which will eventually settle into an equilibrium. While I believe this strategy will be good for my lifetime, I'm open to new approaches.

How do I get my partner on board?

A tricky one, especially if they're a spender. Persistence may work but not everyone wants to live the same way. I guess compromise is the way forward. And so you shop at Waitrose rather than Lidl and retire two years later - a divorce would be way more costly 😉

Hit "reply" if you've got any comments, tips or ideas on this or future newsletters – otherwise I'll see you next time. Have an epic week :)

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