Thursday 29 October 2015

Final Destination


Every now and then you need to take a step back and look at the big picture. Of course, this applies to everything in life, not just investing - but if you have a family, how you manage your money in the longer term does cover a lot of other considerations.

We all need to think carefully about why we are nvesting and what our objectives are. Here's how mine developed.

As Ralph Waldo Emerson said: "Life is a journey, not a destination".

When you are young, the journey seems to stretch out endlessly in front of you. As you get older, the remaining part of the journey gets shorter and shorter - as the final destination begins to loom, darkly.

Savings and Debt

In retrospect, one advantage I had growing up was not having a lot of money. I was given a Post Office savings account very early on. It paid a ridiculously small amount of interest but it introduced me to the concept of saving. That said, I've never had much money (or debt) until my mid-30s. I was a late starter and up to then I probably spent more than I needed to.

Bricks and Mortar

My first long-term strategy on investment was not terribly clearly thought out but was basically:
  • get married (for the tax advantages, obviously)
  • get a mortgage and buy a house (at that time there was a tax benefit on mortgage interest)
  • save, mainly in high-interest savings 'bonds'  (which are now replaced by Ratesetter)
  • cuts costs even more (it is surprising how little you can live on...)
  • pay off the mortgage

Of course, this is much more difficult to do these days, as the relationship between house prices and average incomes has changed dramatically.


As time went on, I began to think even longer-term (as a married man), thinking about my eventual retirement (and beyond), This involved:
  • paying to make up 'missing' years for my State pension (one of the best 'investments' you can make, by the way)
  • signing up to my company's pension scheme (initially a 'final salary' one, but later watered down by the employer to something much less generous)
  • paying Additional Voluntary Contributions to boost my pension
  • using the company's 'Salary Sacrifice' scheme to pay even more into the pension


The next step in the strategy development was a bit more sophisticated, brought about by circumstances. The company I worked in was a large but privately-owned. Shares in it were traded periodically internally. Fortunately I bought some for pence - they were worth pounds after the company floated. I sold them in annual Capital-Gains-Tax-avoiding tranches after floatation - but learned quite soon that I sold too early and cheaply.

This experience with shares led me to dip my toe into the wider waters of the London Stock Exchange. The first shares I bought came via the High Street bank, with actual share certificates (and a ridiculously high commission). Before long I was emboldened enough to open an Internet Self-Select Share ISA. The rest is, as they say, history - and is documented elsewhere in this blog.

Early Retirement

However, after a few years the strategy had evolved somewhat: I had more specific goals:
  • develop an income stream independent of my salary
  • retire early
  • enjoy the last third of my life
For years (mainly at work!) I managed my portfolio daily, gradually building it up. After several abortive attempts, I hit on the idea of the DIY Income Investor approach (which is essentially about developing an income stream by investing in high-yield shares and bonds).

When my company offered me redundancy (in some ways, not a pleasant experience), I said 'Thank you very much' and banked the fairly chunky redundancy cheque.

I was now a happily 'retired' DIY Income Investor. Huge satisfaction - but a couple of years of not knowing what to do with myself sometimes. As a sideline I was able to turn shopping for grocery bargains into an art form (nearly everything in our fridge/freezer has been reduced) - an extension of 'looking for bargains' in investment.

Family Matters

But it doesn't end there, does it. Life's final 'destination' is - after all - not that attractive, and it has significant financial implications for the family.

So, the last phase of the financial strategy involves planning how to pass on as much as possible of the modest wealth and knowledge that I have gained. This involves:
  • setting up my wife's own pension (including the provision for widow's pension)
  • opening pensions for the kids - which might seem premature but at least they can't get their hands on that money for a while
  • writing a clear and simple will to minimise Inheritance Tax
  • researching other estate planning steps to pass on money 
The pensions for family members have the benefit of being clearly outside the family estate and also benefit from a little-known tax break: contributions up to £2880 get (effectively) a 25% top-up.

Perhaps the biggest challenge in this last part of this financial journey is trying to pass on financial knowledge and tools that I have found useful. One success, so far, is that one of my kids now enjoys the challenge of running a Ratesetter account.

The journey continues, with the challenge now being to find a simpler version of the DIY Income Investor approach that can be passed on (I have tried - not too successfully - to use ETFs). This task has become harder as the current year has not been pleasant for my investments. However, looking back I can see peaks and troughs - the lesson being that you need to take the long view. But keep in mind the Final Destination.

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. I see from April 2016 Ratesetters will be offering an ISA.

    1. Well spotted!

      "From April 2016 it will be possible to include your RateSetter investment in an Innovative Finance ISA. Interest earned on investments held in the new ISA will be tax free. This is great news as investment in a RateSetter ISA will be the perfect middle ground between the pitiful returns from cash ISAs and the high risk and volatility of stocks and shares ISAs.

      The details of how the new ISAs will work are currently being drawn up by the Treasury and will be announced soon. Rest assured that we will share relevant information with you as soon as we have it."

  2. Will the change to allow interest free savings apply to P2P also?

  3. I see a mainstream media organisation has cautioned against the peer-to-peer model citing that borrowers will tend to take on far too much debt.

    They comment that the P2P platforms have a financial incentive to expand while leaving the lenders (us!) to take on the risk. For example Zopa holds £11m to cover loses with £550m of loans outstanding.

    1. --"I see a mainstream media organisation has cautioned against the peer-to-peer model citing that borrowers will tend to take on far too much debt." --
      Which organisation? It's a 'media', so I guess it's a business, NOT an organisation. Who wrote the article, and what did they say?
      Having just read on the Motley Fool forums the reports about the scandalous treatment of customers by Lloyds and Barclays, I'm all in favour of more competition!