A big question in life and for those who are considering retiring early. I guess at the end of the day there is no right or wrong answer to this one as it depends on what sort of person you are and what sort of lifestyle you want to lead. Obviously some entrepreneurs are driven and always looking for the next deal or to accumulate more so they can keep up with a Branson or a Jones or whoever it is they aspire to be. If however, you have more modest ambitions and would just like to take it easy and be free to spend you time how you like - how much would you need? As someone who has done this I obviously know what my figure was and what sort of lifestyle I'm comfortable with but everybody will be different.
In deed talking of different there was a programme on Channel 4 in the UK recently called - How to retire at 40. So it seems that this might be a topic which is going mainstream? I did however have some reservations about this programme as some of the participants like the young guy making £23,000 a year from a few hours selling personalised potatoes and the lady turning over millions from selling cakes, didn't seem to have retired and might only have been aspiring to? While some of the others seemed like they were enjoying themselves on the beach or in their camper vans, apart from talking about saving money by budgeting, they were a bit vague on how they were funding their lifestyle. There was however one "expert" they had on there who was an accountant and he quoted the 25 times your required income as the figure - which is the pretty standard 4% "safe" withdrawal rate for retirees so they just run out of money before they die!
Now that may be conventional wisdom for normal retirees, but personally I think it may well be poor advice if you are going to retire in your 40's given increasing life expectancy, the ever receding date for state pension entitlement and therefore the number of years that you would potentially have to fund yourself and your lifestyle for. I also came across a useful website recently thanks to twitter and the always useful the7circles website for UK investors, which put me onto one that is called Early Retirement Now - although it is more US focussed I believe. They have however done some awesome research on the subject of safe withdrawal rates for early retirees. If that is of interest you can see an extract and download a copy for free here.
This raises some interesting points and generally pours cold water on the validity of the safe 4% withdrawal rate generally and in particular for early retirees. Their bottom line if you can't be bothered to read the paper (although I'd recommend it) is that 3.25% to 3.5% is a more suitable safe rate for early retirees depending on how much if any capital you want to have left at the end. Personally I prefer to be more conservative than that but I suggest 3% withdrawal rate might be a safer figure to work with which gives a number of 33 1/3 times the income you require as the sum of money you would need to retire early rather than the 25x quoted by the "expert" on the TV show mentioned earlier. Easy to remember too for older folk like me who like their music and who remember vinyl records which you had to play at 33 1/3, although I gather they are all the rage again now - what goes around comes around - you spin me right round baby right round like a record.... no stop it (see video at the end if you must). So for example if you say wanted or needed an income of £30,000 then you would need to accumulate an investment fund of £1 million.
Now if that disappoints you, don't be discouraged because as I said everyone is different and their circumstances and requirements will vary. Indeed the Joseph Rowntree Foundation have done lots of work on this and define each year how much people need for A Minimum Income Standard (MIS) for the UK with the latest report for 2017 available to download here. They suggest a single person needs just under £18,000 a year for a MIS while a couple with two children would need £20,400 each I think. You can also take a short three question quiz from them here to define what your own requirements might be if that is of interest, but don't forget this is a minimum income standard so you might want to aim for more than the figure it suggests, depending on how you want to live your life.
Any way talking of living life, I've spent too long on this already - so I'm off now to get on with my life. I hope this might help you with setting your number if your are thinking of obtaining financial freedom too. Oh yes and here's some music as threatened 33 1/3 & all that!
This is an update for you on the performance of the Compound Income Scores portfolio, which features on the graph under the Portfolio tab in the navigation bar and in the tables etc. accessible therein. Please see these for more detail on the numbers discussed in this post. By way of reminder or for newer readers - the Compound Income Scores Portfolio is generally made up from top decile ranking stocks from the Compound Income Scores and it is re-screened / re-balanced now on a monthly basis.
In summary, incredibly June 2017 was the first month of negative returns (-1.14%) for the portfolio since June 2016, which compares favourably with the FTSE All Share which suffered negative returns in November, January, April and June 2017 (-2.47%). That makes it 5 months out of 6 that the CIS Portfolio has outperformed this year and 9 out of 12 or 75% of the months over the last year. Thus for the quarter the CIS portfolio was up by 5.11% compared to +1.41% for the FTSE All Share. For the year to date the CIS Portfolio is +18.37% v +5.5% for the FTSE All Share.
For the sake of completeness the comparisons for the CIS Portfolio for 12 months are +41.79% versus 18.12% for the FTSE All Share. Since inception in April 2015 the CIS Portfolio is +43.29% versus +17.73% for the FTSE All Share. Since inception the CIS Portfolio has outperformed in 19 of the 27 months or 70% of the time, which is not a bad hit rate.
I hope you found this interesting and don't forget if you would like to learn more about the Compound Income Scores and how you can gain access them to help you in selecting attractive income stocks then please see the Scores tab in the navigation bar or click here to read more. Finally I don't publish details of the Portfolio, but if you would be interested in following it and gaining access to the Scores at the same time then do get in touch via the contact form and I'll see if I can come up with an offer for you.
So here we are half way through 2017 already and what an eventful year it has been so far. Having said that however, it has been quite a reasonable period for equity markets generally including the UK. As you can see from this table all the main UK indices have produced positive returns over the last quarter, half year and twelve months. Despite all the headlines about FTSE hitting new highs recently and outperforming due to sterling weakness, it is interesting to see it bringing up the rear over the year to date and indeed over most of the periods covered here. Indeed it seems that returns have generally improved as you go down the size scale.
The only negative returns have crept in during the last month, which given the political turmoil after May's unexpected massacre at the polls in June, it is probably not a great surprise to see some profit taking set in. In addition some signs of an economic slowdown on the back of the on going squeeze on real incomes from rising inflation and this political uncertainty has probably also not helped sentiment in the short term.
So that brings me on nicely to update you on the Monthly timing indicators that I follow for the UK Total Return Indices, which are based on comparing them to their moving averages and other economic statistics. Despite the falls last month these are all still in positive / stay invested territory. Given the returns over the last 12 months discussed above, it is no surprise to see the smaller indices furtherest above their averages by around 5 to 7% while the broader headline indices such as the All Share & FTSE 350 are around 4%
above as is the FTSE 100 as shown in the graph at the start of this post.
Economic statistics, despite the recent slow down in the UK, such as IMS indices and the US Unemployment rate all still supportive of a continuation of the bullish trend for now.
That's all for now as it is Saturday and the sun is out, but I'll try and do an update on the CIS Portfolio next week, although the graph and data table link are be up to date if your interested in those.
The corny title refers to one of my long standing holdings which has delivered excellent returns for me over the years. As I have written before it is one of those family run businesses which Lord Lee is fond of backing and indeed I think he has been in this one in the past. Any way I digress, but the stock concerned is S & U Plc which is now a £240 million market cap. car loan company which also has a fledgling bridging loan operation. So why mention it today? Well they have their AGM today and have put out a trading update statement ahead of that.
This confirmed continued strong trading despite what the share price might have been suggesting. If that is of interest you can read the announcement and learn more about S&U at their investor relations website. Here you'll also find links to some Proactive Investor Interviews with Anthony Coombs, chairman of S & U. I thought the last one, which you can view here if your want, was interesting as he seemed to be pretty confident about on going growth as they only take a small proportion of all the loans they are offered by their panel.
Cutting to the chase I think the shares look good value down here on around 10x this years forecast earnings with a 5% yield based on both of these growing in double digits, which seem likely given the latest update and the Chairman's confident comments in the interview after the finals in April.
Looking at the chart you are would not getting in at the top if you were to buy in now as the they have come back from over £25 to their current £20 or so. Looking at the chart below I have drawn on the trading range and what is called a triangle formation by connecting the highs in the recent downtrend and it looks like it might break out of this triangle one way or the other fairly soon. The theory is I believe that it should then move by around the height of the triangle which in this case is roughly 500p. So that would suggest targets on a decisive break, of either £15 or £25 which would be around the old highs which could then act as resistance.
My money is obviously on a breakout to the upside and having top sliced some of mine near the £25 high in 2015, I have been buying some back around the £20 levels recently. As ever you pay your money and take your choice. In the meantime I'll continue to enjoy the 5% yield including the 39p final worth 1.95% which is due to go XD on 15th June.
As some of you may know the former (?) Tory Chancellor was / may be Philip Hammond who was also known as spreadsheet Phil as he apparently has a fondness for spreadsheets. Now regular readers will know that I have a fondness for generating income from my investments and compounding the returns. Now while I try to do this as much as possible in tax free wrappers which are generously provided by the government. Outside of those one is potentially liable for income and capital gains tax on assets held outside of these tax free wrappers.
Now until recently, income on UK Shares benefited from something called the tax credit, which basically accounted for basic rate tax and one therefore only had to pay tax on income if your income in total, after taking account of the personal allowance, exceeded the higher rate threshold. That tax credit was abolished by the previous Chancellor George Osborne, who at the time he introduced a 7.5% basic tax rate on dividends rising to 32.5% and 38.1% for higher rate and additional rate tax payers and also introduced a £5,000 dividend allowance to make up for this loss of the tax credit. This however failed to fully make up for the loss of the tax credit as this change was one of the biggest revenue raisers in his budget at that time. Since then Philip Hammond decided that this allowance was too generous and proposed to cut it to £2,000, although I note that the legislation required to get this change into law was not passed before the election. I have however seen comments to suggest that this will be forthcoming post the election, assuming the Tories are returned.
As the legislation is likely to be passed (as discussed above) the allowances and tax rates for the current tax year are as follows:
Tax Free Allowance £5,000 (going to £2,000) £11,300
Basic Rate 7.5% 10% (18% on residential property - why?)
Higher Rate 32.5% 20% (28% on residential property)
Additional Rate 38.1% 20% (28% on residential property)
My question to Philip Hammond, or whoever is the next Chancellor, is why is investment income on shares treated & taxed differently and unfavourably compared with Capital Gains on share investments?
Supplementary question - I presume the higher capital gains tax on residential property is designed to discourage buy to let landlords? This has in fact encouraged some to register as a business instead, but that's another story.
So in conclusion my suggestion would be why not align these allowances and rates for the sake of simplicity and for equal treatment of capital & income? Now in my mind that would mean giving a £11,300 dividend income (& maybe include residential property income within this) and align the tax rates at 10% & 20%. This might go some way to replacing the loss of the tax credit & greatly simplify the current messy system they have introduced. No doubt they won't like that as it will probably cost them money. Alternatively I guess there would be a risk they could bring the Capital Gains Tax allowance down to the level of the income allowance to raise more money perhaps? Therefore not sure I'll send this idea to Spreadsheet Phil, strong and stable Theresa or my local Tory MP.