How I Invest My Money

Don’t tell me what you think, tell me what you have in your portfolio.

In this post, I want to share how I invest my money, my process and the tax wrappers I use to save on tax. No advice or anything, just what I do.

The How I Invest My Money book by Josh Brown inspired me to write this post. The book is average but the idea is great. They interviewed well-known names in the industry (mainly in the US, as usual) about their holdings, strategy and personal finance.

Of course, my situation might be totally different from yours. For the record, I am 37 years old, living in an expensive city (London) with my young family.

We have a large mortgage on the flat but that’s the only debt we have, other than the Amex platinum card which we pay in full every month. I use it thanks to the 1% – 1.25% free cashback which is basically as if I’m buying everything at a small discount.

I’m also fairly comfortable with taking market risk. In the past 7 years, I have maintained a 80% allocation to risky assets.

A surprising fact about investing is that you never know what’s going to happen. Covid looked like it’ll set our financial plan back but has actually proved to be a big tailwind. Who would have guessed? But such is the nature of the markets. Time in the market > timing the market and all that…

My investing philosophy

Here is my investing philosophy in a few bullet points:

• Invest in income-producing assets, like stocks and property
• Invest globally not just in the UK
• Keep costs low
• Use passive global index funds for stock market exposure
  • Set it and forget it
  • Automate buys via direct debit and salary sacrifice
• Invest every month. Don’t wait to ‘buy the dip’
• Do not chase yield/dividends
• Let currency risk in equities but hedge in bonds (most funds do that anyway)
• Keep taxes low
• Make Investing Boring Again

Returns come and go but principles are what makes the returns possible AND repeatable. Without principles:

a)  You will sell an investment in the first downturn; i.e. it won’t achieve its true potential
b)  A winning strategy may not be repeated

Asset Allocation

Stocks

As you can see, most of my wealth is invested in the stock market. Historically, this has been a very good bet. In the past 50 years, MSCI World had an 8.08% median 10-year annualised rate of return versus S&P 500’s 11.57%. UK shares have lagged behind in the past 20 years, especially compared to their US counterparts.

This is one of the reasons I am investing globally and avoiding home bias.

I want us to benefit from an ever-growing economy and a growing population. Even during times of war, the stock market has bounced back stronger.

Some companies will fail, some will do ok and some will succeed big. Most of the total stock market returns have come from a few big winners like Apple. They compensate for all the losers and then some.

I cannot predict which ones will succeed nor I have the time to do much research. Even Warren Buffet, the ultimate stock picker recommends people own index funds instead of Berkshire Hathaway stock. So the majority of my wealth is in passive global index funds like the Vanguard LifeStrategy 80% equity 20% bonds and the Vanguard FTSE Global All-cap. The last time I checked they had 6,800 stocks in one fund.

I do see China as an emerging dominant player but I no longer over-allocate there. Not until the regime is open to foreign capital and free-market capitalism again.

Overall, I am a true believer that my returns will depend more on the asset allocation I choose rather than which flavour of passive fund I invest in. No need to fight over a 5% vs a 10% small cap allocation.

Risky assets have higher expected returns but short-term the returns are far from expected. These are things like stocks and property.

Riskless assets have predictable performance and give us options. But long-term, they don’t grow as much. Think cash, gold, short-term government bonds and premium bonds.

Since I plan to invest for more than 10 years I can take a risky approach. But there’s another force holding me back. I also plan to live a lifestyle where I work because I want to not because I have to. This means I cannot take excessive risks! Having a bad run early on would be devastating if I also need to take an income from my portfolio at the same time.

It’s for this reason I will seek to add more cash/bonds and perhaps gold as I approach financial independence. I need to protect against sequence of returns risk and compensate for the fact a monthly paycheque might not arrive for some time.

That explains the cash (7.6%) and some bonds as part of the ‘Securities’ category.

Property

Property is an asset I like. I’m still not a big fan of dealing with tenants and doing maintenance. So I skipped the traditional buy-to-let route and I invest mainly through UK REITs. 

My LTD company investments include some UK REITs as a Covid recovery play. This has worked quite well and pays dividends.

I hold a small allocation  in Property Partner (see my interview with them). This has not worked well. I also provide property development loans and earn interest.

Last but not least, I have a decent exposure to UK property thanks to our flat. Most people don’t realise they’re already long property if they own their place. I overpaid for the London zone 2 flat with no garden and Covid strongly reminded me of that! Negative equity? Probably!

Crypto

The crazy crypto ride is partly responsible for my growing crypto allocation. I topped it up since 2017-18. As I mentioned a while ago, I plan to follow Cathie’s Wood suggestion of the optimal crypto allocation range of 2.8% (minimum volatility) to 6% (max returns). The 3 ways I buy crypto are Binance and Coinbase and KR1, a crypto VC fund in my ISA. I also started a tiny allocation to crypto miners (Bitfarms, Hut8, Argo, Digihost) in Feb 2021 which has been painful.

As crazy as it may sound, crypto is my way of having fun and avoid tinkering with my boring stock portfolio too much. Do you think I’m not tempted to overweigh Google, China tech/commerce and trade meme stocks?

On another note, Binance was recently banned from offering regulated products in the UK like futures and options. Although FCA does not regulate cryptocurrencies like Bitcoin and Ethereum, they regulate products such as betting on whether the price will go up or down. I’m only buying cryptocurrencies on Binance and not sure how it will affect me.

Private Equity

Private equity is the most illiquid part of my portfolio. I consider it a very long-term bet. Recently, FreeTrade, one of the companies I’m invested in gave investors the option to sell our shares. My initial investment based on the latest price has grown 400%, what a ride!

I think they’re a great company with room for growth, especially as they expand into Europe and Australia. I didn’t sell. They will announce another crowdfunding round this year. I’m keeping an eye on that one and will probably buy more.

Most of the private equity deals on the Crowdcube platform are illiquid, very risky and overpriced. Thread, for example, the fashion retailer I own for ~4 years, is an investment that has not shown any positive signs yet. Lack of transparency, no comms and growing competition. But the idea is that a few companies will succeed and will compensate for the rest.

Process and Tax Wrapping

Most of my investing happens automatically. It saves me time and mental energy. I have simply selected the funds, the percentage split and the new money is invested without me even knowing about it.

The majority of new contributions happen inside my SIPP pension. I still find pension to be the best vehicle to park my investments followed by my limited company investments and ISA wrapper.

Tax takes a front seat in our investing journey. The UK offers some really good tax incentives that we take for granted. SIPP/SSAS pensions, the ISAs, the EIS and VCT for private equity offering tax breaks and last but not least sheltering my company money from income tax by investing through a limited company. Not everyone owns a limited company but if you do, the company investing course is a great place to start

I think focusing on tax is the best form of ‘investing alpha’. Just don’t put the cart before the horse. Investing principles first, tax 2nd.

My wife works for the NHS so her pension contribution is automatically deducted. From a risk perspective, I like the fact that hers is a Defined Benefit pension. Sometimes she invests in a stocks ISA every now and then.

Personal finance > Investing

Sure investing builds wealth but if I have built some wealth relatively early it’s not because I’m an investing genius.

My total returns have been roughly 9.5% per year. Sorry to spoil it for you but most of my wealth was built thanks to a high income and low spending lifestyle. You won’t see any 100x-baggers here (ok, perhaps a 5x one!).

As Housel says:

The majority of personal finance is

- house
- car
- education
- healthcare
- childcare

The rest is a rounding error for most.

— Morgan Housel (@morganhousel) June 25, 2021

I have been working hard in a growing tech industry and switching jobs to climb up the ladder fast. I traded some job security for interesting short-term projects, tax savings and higher pay. This helped me build a good network. My skills also advanced faster as I had to adapt to different environments.

Being tax-efficient was another source of “extra income” for me. Maxing out my pension contributions (£40k) is something I still do today. Not everything is in pensions, there has to be a balance so that I can bridge the gap until pension age.

Having a financially compatible partner is totally underrated and under-discussed in our community. I think this really helps, especially as bigger responsibilities like kids come up. Not to mention peer pressure and #flexing.

Having aligned incentives is one thing. But also having a partner with similar money habits can save hours of arguing and negotiating.

Money is not in the math department. It’s in the psychology department.

It sounds very boring because building wealth this way is not exciting, sometimes it doesn’t even feel like it’s happening. But it works. It really works.

So many books have been written about portfolios and investing strategies. If you ask me, the most effective and simple strategy is to own one low-cost global index fund. Then just wait.

Thank you for reading 🙂

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