Honestly, could this investing lark be any easier?!?

easyIf you think investing has to be complicated or scary or difficult then you’re looking at it wrong.

It’s as easy to invest in the stock market and manage your own portfolio as it is to manage an online bank account.

So how can you tell if you’re capable of managing your own portfolio?

Ask yourself the following questions:

  1. Do I have an online bank account?
  2. Have I been able to use that without too much trouble?
  3. Have I resisted the temptation to wire all my money to that nice man at the Nigerian Finance Ministry who emailed me?

If the answer to all 3 of these questions is YES then CONGRATULATIONS!…you are capable of investing your own money.  It’s like you’re all grown up now.

But what to buy? With thousands of heavily marketed funds, its easy to get bombarded and over-loaded with information.  If you’re feeling nervous / insecure / over-whelmed, well…that’s just how the financial services industry likes it.  Nervous people are more likely to pay a lot of money to expensive financial advisers and fund managers.

To cut through all the crap, in 2016 I wrote a post with an example portfolio suitable for pretty much anyone investing for the long term.  The idea was that you could choose to copy some, all or none of it on your journey to financial freedom. It’s as valid today as it was 2 years ago. I called it The Simplicity Portfolio and it contained 4 Vanguard Exchange Traded Funds. So yes, its pretty simple.  But could it be made even simpler?

Well, actually yes it could.

The most important bit of that post was included at the end. To save you the effort of looking it up, I’ll repeat it here.

One final word.  If you are struggling to start, by all means keep it simple with a single global equities tracker fund (such as VWRL: the The Vanguard All World ETF or a LifeStrategy Fund in the UK).

Remember, there is no single right answer in investing.  So don’t sweat the small stuff obsessing about micro differences between different Vanguard products.

The most important thing is to get started.

As I may have mentioned before, just investing in a Vanguard global tracker fund is a pretty tough strategy to beat.  Its simple, its low cost, it gives global diversification in a one stop shop. And its managed by a company (Vanguard) that’s owned by its customers (and is therefore NOT out to screw you).

Looking at Vanguard’s UK & European product range, there are at least 3 options when it comes to global tracker funds:

  1. Vanguard LifeStrategy Funds (fees = 0.22%)
  2. VWRL: The Vanguard All World ETF (fees = 0.25%)
  3. The Vanguard Global All-cap Index Fund (fees = 0.24%)

Despite their popularity, my reservation about the Vanguard LifeStrategy funds is that they’re not a true market weighted global tracker fund.

jezza2

When they created it, Vanguard decided to overweight UK shares in the Lifestrategy funds.  So LS100 has about 25% of the fund in UK equities versus only about 6% based on market cap weightings.

Hhmmmm….25% of your money in UK shares. What could possibly go wrong??

So let’s keep going.

We then come to the Vanguard All World ETF (VWRL). This exchange traded fund does the job of one stop shop nicely.  Its a fund that owns ~3,100 of the biggest companies in the world from all countries. UK shares make up only ~6% of the fund. That’s real diversification for you.

Or, if you want more dividend income paid to you every quarter, you could swap it for the Vanguard All World High Dividend Yield ETF (VHYL) which currently yields about 4.1%.  So a 4% withdrawal rate means you don’t have to sell any units. Take that sequence of returns risk!

Vanguard’s product range includes both exchange traded funds and traditional open ended mutual funds.  Both do the job nicely and both are physically backed : they hold the underlying shares in all the companies in the fund.  And even if Vanguard or your platform goes bust, that doesn’t mean you will lose your assets.

So for most people it doesn’t really matter that much whether you choose an Exchange Traded Fund or a traditional mutual fund (an open ended investment company). But if you happen to have just won the lottery or sold your business recently, there is an advantage in investing via a traditional open ended mutual fund.

Let’s say you wanted to put £10 million(!) to work in one trade without moving the price against you, you could use an open ended fund rather than an ETF. And if you haven’t just won £10 million on the lottery, then I share your pain.  For the rest of us though, I reckon the Vanguard Global All Cap Index Fund is a pretty decent “one stop shop”.

“All Cap” means it includes smaller companies as well as global giants.  The number of companies held by the fund at last count was ~6,000 (compared to ~3,100 in VWRL). The inclusion of mid caps means you get an even more broadly based fund. Its inexpensive. And so if we get better diversification at the same low cost, then what’s not to like?

Some will say that you shouldn’t have all your eggs in one basket.  And in many situations in life that’s true.  This is why traditional full time employment (+ debt) can be so dangerous…you have all your eggs in one basket.

But when you invest in a fund like The Global All Cap Index, you benefit from broad diversification.  You don’t care how individual companies are doing because, thanks to the magic of competitive capitalism, if one company is losing, others will be winning. Once you own a global index tracker, the entire system is working for you.

There is no such thing as 100% safety in life but you should be OK with this fund even if Vanguard gets nuked.  Obviously it will go down as well as up. But over the long run it should go a lot more up than down. And if it doesn’t, then something like the Zombie Apocalypse has happened, we’re all fucked and none of this investing lark matters anyway. So don’t sweat the small stuff.

If you are still procrastinating, here’s a way to break the deadlock…you open a PRACTICE account with an online stockbroker like The Share Centre. Its free and there’s no risk.  They give you £10,000 of monopoly money to play with so you can get used to what it feels like to “buy” a slice of the world economy via an index fund.

Practice1

Once you’ve got comfortable with your practice account, its super-easy to open an account and start investing real money. And the beauty of The Share Centre is that the costs are simple, clear and fixed. I avoid % fees where possible…that’s one reason I don’t use Vanguard’s own platform.

How to buy an index fund

Well first you gotta put your order in to your online broker.

Index funds are priced and traded at the end of the day after the stockmarket has closed. The price is based on the value of their assets using a set formula which ensures that you get treated fairly and equally to other investors buying into the fund.

Below I’ve illustrated placing an order on the Hargreaves Lansdown platform.

We can find the fund by typing in “Vanguard Global All Cap” into the search bar on your portfolio page (once you have an account set up):

HL2

You can see that the fund comes up at the bottom of the screen either as accumulation units (dividends automatically re-invested) or income units (dividends paid in cash).  When you’re retired, those income units will pay you cash for your groceries.

All we have to do is click on the green “deal” arrow which takes us to the “deal now” page.

We then enter an amount to invest: £10,000,000 in this example. I then click Continue…only to be cruelly thwarted by having just £26.16 of cash available to invest. There’s no such thing as a free lunch.

HL1

When you do this, you’ll want to have enough money in your account to fulfil the order size. Then, when you’re happy with your order, you click continue to send the order through, sit back and wait it to be completed.

So, that’s it, we’re done.  All you have to remember now is never panic sell during a bear market. A mutual fund is for life, not just for Christmas.

People will tell you its more complicated than this.  And you could make things more complicated…but would it justify the time, cost and effort involved?  Head space is a scarce and valuable resource.

Remember, the most fun things in life are not about money.


This is provided for information and is not regulated investment advice. The Escape Artist is (thankfully) not an Independent Financial Adviser and will not be handing out personal recommendations for Capricorns vs Sagitariuses vs Taurus’  etc etc.

Image credit: The Star


Further reading:

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  1. What if You Know Nothing About Investing?
  2. Financial Coaching

18 comments

  1. I have a sizeable chunk of my money in vwrl and it’s almost too simple to invest like that.
    Much of the investment advice of “but this and that and diversify ” ends up with people having money in dozens of actively managed funds all of which hold maybe thw same shares in more Or less the same proportions. And they charge you for the privilege.
    It’s an industry that aims to bamboozle you out of your money and I for one say “no more”.

    Thanks TEA for the article!

  2. Nice one Barney,

    I am with HL as well, who are more expensive, I should probably move it across to Vanguard directly to save a bit on fees!

    I have been slightly worried about having most of my private S&S ISA investments in Vanguard Life Strategy 80% for a number of years. Do you think I should switch them all into a more globally diversified Vanguard fund (like Vanguard FTSE Global All Cap Index Accumulation), if you were me? 25% tilt to UK is a considerable amount, I do agree.

  3. Good advice as always TEA, personally I invest a good percentage of my SIPP in VWRL and a smaller percentage in VHYL as I am with H&L the 0.45% fee is capped at £200 a year if you invest in ETF, IT & Shares which can make a big difference over time, I do have some funds Fundsmith, Lindsell Train at present my fee’s are about 0.11%.

  4. mmm i like that all cap index fund. didnt know about that one! still its heavy with US at 60 %

  5. arcyallen · · Reply

    I think the caveat here is people need to be “capable” of staying the course when the tides turn rough. Many people think they have the right demeanor, but haven’t ridden through a financial storm. It’s been my experience that most people get very uneasy when their investments plummet, especially when it’s paired with the news blaring that it’s only going to get worse. Even those with a complete understanding of what they’re invested in often pull the trigger and cash out, often near the bottom.

    1. Yes, agreed…just added this

  6. Orlando Costa · · Reply

    Hi, for ETF’s that distribute dividends, you have to pay taxes twice I guess. I am not UK-based (Portugal) and for funds that are domiciled in Ireland, I have to pay 15% (the funds does it) and then an additional 28% when I actually receive them in my bank account. Plus, there is the currency risk since that base fund currency is USD (even if it sold in GBP or Euro) and for Euro or GBP based people, that is not optimal. Do yo take in account these 2 issues of taxes and currency risk?

    1. I, as a seeking-FIRE investor form Poland, invest in VWRL via Euronext Amsterdam and the only tax I pay on received dividends is 19% capital gains tax payed once a year here, in Poland.

      As for the currency risk – there is always one, since the companies you invest in are global companies, trading in many currencies. The ETF base currency doesn’t matter.

      “Note that it’s the currency in which the underlying assets are ultimately priced that determines your currency risk.”
      You can read more here:
      https://www.justetf.com/uk/news/etf/the-effect-of-currencies-on-etfs.html

  7. ladyaurora · · Reply

    mmmm Ive never lived through a stock market crash,. my portfolio is 43 % in equities. I have a rental property solely for diversification. so ill live off cash and rental income . im hoping that will keep me to stay the course and not sell my equities . i think sites like these will be invaluable when that time comes too. all encouraging one another. Also, my equity portfolio is 40 % UK rightly or wrongly. if it wasnt in the UK it would have to be in US which i dont fancy due to its high valuation.i missed getting in early on the US bull run so entered the US market quite high so dont think i would be happy with 60 % in there at this moment in time.

  8. One point you don’t make which is worth noting is quite how easy it is to set all of the above up to happen automatically. The knowledge that every month I’m going to be putting another slug of a Vanguard fund into my ISA without having to lift a finger gives me immense satisfaction. I had to spend a hour or two in total getting that set up and now it will happen until I retire (hopefully early…).

    On simplicity, I also think that we forget quite how easy things are in an online world compared to the past. I can remember my father filling in piles of paper application forms when the public were allowed to buy BT shares. Frankly that’s the sort of barrier to entry that would still put many people off. By contrast, as you rightly point out, if you can do online banking you have the skills you need to open an investing portfolio.

  9. Very simple to invest online now. ETFs are extremely popular in Australia as they have a lower management fee then the same mutal fund. A lot of Aussie’s over weight Australia because of how well over recent years it has performed and high dividend rate. But seeing as we are only 2% of world economy that is missing out on a big share of the rest of the world.

  10. John of Hampton · · Reply

    Once again, very timely advice. I have watched my investments lose a lot lately. But (a) I am still ahead of where I was when I started, (b) I am beating anything a “high-interest” account at a bank would have brought, (c) having read you and Mr Money Mustache, I was expecting a downturn, and have the patience to sit it out until the good times return. So, thank you for your blog, and keep up the good work!

  11. SurreyBoy · · Reply

    The Bogleheads forum from 2014 has interesting reflections on the 2008 crash

    https://www.bogleheads.org/forum/viewtopic.php?t=168261

    From memory there are posts on there from 2008 and 2009 where people report reaching the end of their tether and selling out. I guess what this tells you is invest to your risk tolerance and if all else fails just grin and bear it – though easier said than done

  12. Ok so numpty question incoming…
    Current SIPP consists of around 200k invested in Lifestrategy 60 via HL.
    If one were to wish to reallocate to a similar portfolio to the Simplicity Portfolio, would this incur actual sales of stocks or (being as everything is moving around within the realm of Vanguard) would the units merely be transferred?
    And if so, would there likely be a large transactional fee? I suspect that the transfer of units would also be dependent upon market timing as well i.e. if LS60 was down (currently returned -0.7% over the last 12 months!) and the other funds were priced higher?

    1. Noviss, you will need to sell, wait for the money to appear,and then buy.
      There is no transaction fee to sell funds in HL.
      Note that if you buy ETFs then there is a 0.5% stamp duty fee, however here’s the big win with HL. HL have a 0.45% annual fee on funds and shares in a SIPP. However the charge on shares (which includes ETFs) is capped at £200 a year. So after one year you will be significantly better off to the tune of £700 a year (£900 – £200). S breakeven in about a year and a bit as far as fee s are concerned.
      Re your market timing, if LS60 is down so will VWRL or similar be, because they are still large diverse funds. So I wouldnt worry about that.

      1. Jon, that is an excellent reply, very helpful thank you!

        1. Joe sorry ☺️

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