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Kittlebean



Registered: 01/05/17
Posts: 192
Loc: UK
Last seen: 8 days, 12 hours
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General investment advice 1
#26568408 - 03/31/20 03:38 AM (3 years, 9 months ago) |
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Hello everyone. I'm looking to start regularly investing my money for retirement and also to just build up some savings for the future.
I have a reasonable income, no debt and pay the maximum into a pension fund that's matched by my employer. Looking to start investing a regular yearly amount into something like the FTSE 100 or S&P 500.Being in the UK I can invest through an ISA which means no capital gains tax. I plan on keeping £10,000 - £15000 in a savings account at all times for emergencys.
I'm thinking that to begin with, a yearly investment of £4000, so roughly $5000. I'd like to start with something that I don't have to pay constant attention to and being long term don't have to worry too much about the ups and downs of the market. As time goes on then picking individual stocks for shorter term investments could be an option as well.
From what I have read the S&P 500 has out performed the FTSE 100 over the last few decades so seems like the better option, the o ly downside being that I would have to pay 15% tax on divedents if investing in the S&P500. The other option is the FTSE 250 however possibly carries more risk?
What about other options such as bonds, how do they compare generally when it comes to risk and reurn?
So what do those with a lot of experience reccomend?
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Ahab McBathsalts
OTD Windmill Administrator




Registered: 11/25/02
Posts: 35,107
Loc: Wind Turbine, AB
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Re: General investment advice [Re: Kittlebean] 1
#26568774 - 03/31/20 10:25 AM (3 years, 9 months ago) |
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Berkshire, brk-b is basically the S&P and doesn't pay any dividends.
Buffett's airlines and banks will be pretty beaten up over the next 12 months, but he's got acres of cash and can bail out or acquire new businesses as the opportunities present themselves.
-------------------- "Nobody exists on purpose. Nobody belongs anywhere. Everybody's going to die."
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Ahab McBathsalts
OTD Windmill Administrator




Registered: 11/25/02
Posts: 35,107
Loc: Wind Turbine, AB
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We have a similar tax on foreign dividends in a Canadian tax free account, but it really only amounts to 15% of a 2.5ish% dividend on the index. So that is like a third of a percent of taxes paid on like 7 or8% total expected return. You probably pay about the same amount to the ETF as a management fee, so try to not let that overly influence your decision.
-------------------- "Nobody exists on purpose. Nobody belongs anywhere. Everybody's going to die."
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Kittlebean



Registered: 01/05/17
Posts: 192
Loc: UK
Last seen: 8 days, 12 hours
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Quote:
but it really only amounts to 15% of a 2.5ish% dividend on the index. So that is like a third of a percent of taxes paid on like 7 or 8% total expected return
Good to know, I suppose its negligible really.
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Berkshire, brk-b is basically the S&P and doesn't pay any dividends.
Seems brk-b no longer out performs the S&P 500. You think it could however due to the the current situation?
Trying to get an idea of how people diversify when it comes to their portfolio. For example what percentage do you hold in Index funds, individual bonds or stocks, crypto, metals etc? And why?
I'm sure this varies all the time depending on goals etc but if anyone Would care to share?
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Ahab McBathsalts
OTD Windmill Administrator




Registered: 11/25/02
Posts: 35,107
Loc: Wind Turbine, AB
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Re: General investment advice [Re: Kittlebean]
#26571409 - 04/01/20 02:51 PM (3 years, 9 months ago) |
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Brk B underperforms in strong bull markets because buffet holds so much cash, but out performs in bear markets and over the long term because he can buy up assets. If berk is underperforming the SPY it's time to buy it. Mind you all his airlines are pretty fucked.
I don't think brk will meaningfully outperform an index and really the only reason to buy it is for tax optimization. If you hold it in a taxable account, you can just set it and forget it without needing to file annual tax statements for your dividends.
You really can't go wrong with a 60/40 split. Or like 60% stocks, 30 bonds, 10 gold or crypto.
Most of personal finance success is having as much automated as possible. Taking out decisions and the temptation to jump in and out of markets is where the slow consistent gains are made. I try to max out my employer RRSP (401k) with regular deductions into a single diversified fund that is like 25% bonds, 30% domestic equities, 30% USA, and some international. The more you can automate and not touch the better.
The more individual stocks you own the more research you need to do and the more time it will take up of your day. Not everyone wants to spend so much time reading financial reports, news articles and listening to earnings reports. It's a pain in the ass.
That said, I don't really follow that advice for the rest of my portfolio and I like the game of moving into individual names and trying to get an edge whenever I think I might see opportunity. I'm trying to move into more indexes, but I recently liquidated a big chunk of my holdings to buy a house.
-------------------- "Nobody exists on purpose. Nobody belongs anywhere. Everybody's going to die."
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knowmad
Stranger

Registered: 03/24/19
Posts: 30
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Re: General investment advice [Re: Kittlebean]
#26611617 - 04/18/20 09:50 PM (3 years, 9 months ago) |
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Kittlebean said: Hello everyone. I'm looking to start regularly investing my money for retirement and also to just build up some savings for the future.
I have a reasonable income, no debt and pay the maximum into a pension fund that's matched by my employer. Looking to start investing a regular yearly amount into something like the FTSE 100 or S&P 500.Being in the UK I can invest through an ISA which means no capital gains tax. I plan on keeping £10,000 - £15000 in a savings account at all times for emergencys.
I'm thinking that to begin with, a yearly investment of £4000, so roughly $5000. I'd like to start with something that I don't have to pay constant attention to and being long term don't have to worry too much about the ups and downs of the market. As time goes on then picking individual stocks for shorter term investments could be an option as well.
From what I have read the S&P 500 has out performed the FTSE 100 over the last few decades so seems like the better option, the o ly downside being that I would have to pay 15% tax on divedents if investing in the S&P500. The other option is the FTSE 250 however possibly carries more risk?
What about other options such as bonds, how do they compare generally when it comes to risk and reurn?
So what do those with a lot of experience reccomend?
Yes, US broad equities markets have historically outperformed EU equities. If you are just thinking of buying an ETF or index, US is definitely very good to consider. I would expect US equities to continue outperform UK and other european equities markets in the foreseeable future.
For a couple of reasons
1. US has a long entrenched cultural attitude of being bullish on equities. This means individuals generally look towards equities as a source of return and it's often one of the first places where people put their money when they feel confident about their own future prospects and/or prospects of the economy and future. As a result, equities as an asset classes are generally propped up by huge demand. Being the most capitalistic country in the world with the reputation for high finance / rich companies, foreign demand for US equities also can't be ignored. Over the long term... US equities are still one of the if not the best places to be...
2. US just printed a 6 trillion dollar (30% of GDP) stimulus check for its economy. Finance/stock market is king in the US. The government/Trump are very motivated to keep the stock market afloat. This means US equities are in a way "backed by the government" as government support for the US equities has been strong / is strong / will be strong in the future.
3. UK is different... risk aversion is high in EU countries and in UK. people are alot more conservative with risks, bonds or other limited risk financial securities may be more received by the individuals/investors. The opposite is true for the US. equities > Bonds in people's preferences. from hedge funds to mom and pops. This preference is way more prounuced in the US than it is in the UK IMO
4. I can go into macroeconomic reasons on why US economy with its technology hubs / hyper capitalist system / other geopolitical drivers makes it a better place for stock market... but you are probably not interested.
I don't know much about UK bonds, but I wouldn't suggest buying US bonds... interest rates are at all time low and as prolonged as such low rate environment has been, it's rates are bound to rebound. Higher interest rates means bond prices will drop. Not good to invest in bonds. Buy stocks, especially now...
Also consider hedging foreign exchange risks. If you buy US equities/index, make sure they are hedged to the pound. US dollar's value to GBP is likely to drop in the future... (because US is printing shitloads of USD to prop up its own economy... more than other countries are printing. this means inflation and the devaluation of the dollar compared to the gbp). so when you buy US equities, make sure you buy them hedge so that you don't lose value from the drop of USD.
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Kittlebean



Registered: 01/05/17
Posts: 192
Loc: UK
Last seen: 8 days, 12 hours
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Re: General investment advice [Re: knowmad]
#26612045 - 04/19/20 04:13 AM (3 years, 9 months ago) |
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Thank you both for all the information. I feel like I definatley have enough to get started.
I would say you a right when it comes to people's investment choices in the UK. They are definatley more averse to risk. Most people who decide to do something with their money usually go for an ISA account that provides a risk free fixed return, or premium bonds, which again carry no risk.
As for the 6 trillion dollars that has been created to keep the US economy going, how long can this last for. I mean, there is a limit to how much money can be created before its effects cause more damage than good. With Trump wanting to win the next election and being eager to get things back to normal because of this, it seems like he is playing a dangerous game, easing lockdown restrictions too soon could ultimately cause more long term damage to the the economy right?
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so when you buy US equities, make sure you buy them hedge so that you don't lose value from the drop of USD.
Yes, thanks for the advice. I will be buying through a stocks and shares ISA which means buying in GBP up to £20,00 a year and also not having to pay income or capital gains tax.
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knowmad
Stranger

Registered: 03/24/19
Posts: 30
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Re: General investment advice [Re: Kittlebean]
#26612853 - 04/19/20 12:05 PM (3 years, 9 months ago) |
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Quote:
Kittlebean said:
As for the 6 trillion dollars that has been created to keep the US economy going, how long can this last for. I mean, there is a limit to how much money can be created before its effects cause more damage than good. With Trump wanting to win the next election and being eager to get things back to normal because of this, it seems like he is playing a dangerous game, easing lockdown restrictions too soon could ultimately cause more long term damage to the the economy right?
Yeah, easing the lockdown and massive amount of money printing are definitely wreckless... so there are inherent risks there, but the US economy is pretty resistant to chaos and economic stress so in the short term (3-5 years) at least, I don't see hyper inflation or anything.
As for your question on how much USD can be printed before we repeat the outcome of the Roman Empire (at the later stage of Roman Empire, country was in debt and their coins were no longer backed by gold, so in order to keep pumping money into the economy, Romans melted down their coins and diluted the gold per coin. kind of rhyme with the similar money printing measures adopted today by all countries of the world, including the US)... I'm not sure. No one knows... that's the problem. Economics experts to hedge fund managers, even central bankers will not know because we just can't. It's like wondering if a company is overvalued, at what price would the stock collapse and/or recession happens when the underlying signs a re already looming... The final outcome happens spontaneously with a degrees of randomness to it.
Don't want to scare you out of investing though. It's less safe to have your money under the mattress because inflation will erode the value of your wealth without exception. As for when will we suffer from catastrophic rupercussions of money printing.. I wouldn't worry too much about that for now... My guess it would be many many years/decades away. But that's just my take.
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Az88
Stranger
Registered: 05/04/20
Posts: 88
Loc: Texas
Last seen: 3 years, 1 month
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Quote:
Ahab McBathsalts said: Berkshire, brk-b is basically the S&P and doesn't pay any dividends.
Buffett's airlines and banks will be pretty beaten up over the next 12 months, but he's got acres of cash and can bail out or acquire new businesses as the opportunities present themselves.
Too bad he didn’t buy anything and sold his airline stakes!! I couldn’t believe it. I think he’s loosing touch with the new economy and new tech.
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