What to invest in, can ultimately transform your future…and your life. So pick wisely. With interest rates at an all-time low and inflation riding high, it’s never been more important.
What we’re looking for is inflation beating investments. And that is going to carry some sort of risk.
However, you can take a calculated risk by performing due dilligence and investing in robust, mature investments/ businesses.
Also, it’s always wise to diversify. Because someone (government) may change the rules one day. And ultimately you spread the risk.
So, what to invest in? I’m not sure what your risk tolerance is, or how much you have to invest. There’s no exact fund arrangement and I’m not a financial advisor. However, I can show you what I’m invested in. This will provide some clarity on different asset classes, return on investment and any associated fees.
What to Invest In
My core investments are:
1. Investment Trust
2. Dividend Growth Stocks
3. SIPP/ Pension
4. Peer to Peer Lending
These 5 investments give me total diversification.
The investment trust is a high growth fund (Scottish Mortgage Investment Trust – SMT) and I call it my global tech or FAANG fund. Not start up tech, but innovative tech that have been around for at least 10 years.
The fund contains the likes of Amazon, Tesla, Facebook, Alphabet, Alibaba etc., with it’s biggest weighting in the mighty Amazon (8.65%).
Its annual return is currently circa 80% and the 10-year compound annual returns/ annualized returns as of 31 March 2016 for Scottish Mortgage were 8.3%.
The fees are 0.9% (0.45% SMT + 0.45% H&L broker fee) which is fairly cheap.
Dividend Growth Stocks
The dividend growth stocks are my ‘steady eddy’ fund and I’m in it for the long term. In this fund, there are:
- Stocks with a long track record and a shareholder-friendly management
- Spread across various industries (preferably no more than 3 equities in the one industry)
- Companies that continuously aim to increase their dividend, year upon year
The fund contains the likes of Boeing, AT&T, Royal Dutch Shell, Pfizer, Qualcomm etc. All with near equal weighting.
The dividend growth portfolio is now 100% complete and I’ve bought nearly every stock with at least a 20% discount (intrinsic value). Although it’s getting more difficult to find these days in this bull run.
Its annual return is currently circa 9% and on top of that, the dividends average a 3.5% yield. Hence the dividend growth portfolio is giving me a total return of 12.5%.
For more details on these individual stocks, their associated yields and quarterly dividend income read one of my quarterly income reports.
I don’t plan to sell these stocks; hence I won’t be paying any capital gains tax. The only fees incurred (share deal fees) will be for reinvestment of dividends/ cash contributions for existing stock, which takes place every quarter at present.
I’m being paid in dividends and it will eventually cover, part of my cost of living.
Discover more about dividend growth stocks and why they should be part of your passive income portfolio.
The pension (SIPP) is my Index fund. I’m invested in a 60/40 (60% equities/ 40% bonds) Vanguard Index fund.
This is a globally diversified set of equities, coupled with corporate bonds and gilts. You could opt for more growth/ higher risk by selecting the 80/20 fund…or just 100% equities.
The fund contains the likes of FTSE UK All Share 15.0%, US Equity 13.9%, Emerging Markets 4.1%, Europe (ex UK) 4.1%, Japan 2.3% etc. from the equity side.
And the likes of Global 19.3%, UK Gilts 6.3%, UK Corp. Bonds 3.6%, UK Inflation-linked Gilts 3.2% etc. from the bonds side.
Its annual return is circa 30% and the annualized return (over the long term i.e. 5 years) is 7.46%
The Vanguard fund charge is 0.67% (0.22% Vangaurd + 0.45% H&L Broker fee). If not buying through Vanguard direct, you’ll incur another small fee from your broker, as shown above. All in all, fairly cheap to run.
P2P Lending Account
The peer 2 peer lending is my most liquid fund. My emergency fund if you like. I’m down to one p2p account now. This is my least mature investment i.e. P2P lending companies have only been around a few years, hence hold my lowest asset allocation.
This peer to peer account is currently returning 12%+ on my money.
Read about my 6-week experiment with P2P Lending.
Property is a bit of a mixed bag for me. It’s illiquid.
I have one property paid off (short term holiday rental), making a modest passive income.
A second property (long term city let), where the rent just about pays the mortgage (after taxes and management fees). Hence, a set and forget. I’m paying 0.75% above the European base rate for the mortgage (tracker), so I’m in no rush to pay off the mortgage with this one.
And I’m paying off the bridging loan on a third property (family investment). This is interest only and I’ve doubled down on it since 2016 (since paying off the short term rental). There’s plans to pay this off in one year now.
My plan is to sell the short term rental to fund a new place (and country) to live in. At the moment, my rental accommodation is paid by the client on a consulting project I’m on in Europe.
The asset allocation I eventually aim for is:
5% Peer to Peer
What to invest in can be a bit overwhelming. With more options than ever now, it’s super important to spread the risk with diverse, mature investments, with a long track record (the jury could be out with P2P lending).
These 5 above investments are different animals and compliment one another with their diversity. With the relatively cheap costs and healthy returns, that’s the reason I’m invested in them.
And one day soon, they will pay an income. Therfore, no need to wake up to a blaring alarm clock every morning. What’s more, no need to get up and do something the heart doesn’t desire.
Now I would like to hear from you.
What are you invested in?
If all your investments paid you an income, what would you do with your valuable time?
Let us know in the comments…