Weekend reading: Donald Trump is not a Boglehead

TI: “My biggest problem with Trump’s equity portfolio though isn’t where he’s invested it, or how – it’s the puny size.”

Add to that his puny earnings. I heard him on TV or radio recently boasting that he earns $400,000 a year. Only four hundred grand? Given all his lucre-attracting activities and assets of 8 billion ? If that’s not a spectacularly bad return on capital, I’m a banana …..

@Allan Roth “As the holding period increases, the probability that stocks will outperform fixed-income assets increases dramatically. For 10-year horizons, stocks beat bonds about 80 percent of the time; for 20-year horizons, about 90 percent of the time; and over 30-year horizons, NEARLY 100 percent of the time.” “Because of the large drop in government bond yields over the past decade, the 11.03 percent annual return on long-term government bonds just surpassed the 10.98 percent on stocks for the 30-year period from January 1, 1982, through the end of 2011.” See Stocks for the long run 5th by Jeremy Siegel

@Paul – A few years ago Trump said USA should invade Libya and steal all the oil fields, so who knows how many insane eternal occupations he’ll want to try, while maybe getting UK governments to go along with the stupidity, leaving Britain undefended so they can occupy more oil fields in foreign lands. Obama is a beacon of sanity compared to messianic Bushist/Blairite nutjobs.

To answer my own question – there isn’t one. There are various retirement savings vehicles but nothing that doesn’t penalise heavily for “early” withdrawal.

I always love reading your weekly post, it’s the perfect accompaniment to a coffee on a Saturday.

I have to say though after recently having a child and watching my net worth take a bit of a battering, I’m not a big fan of reading any of these people bragging like the business insider link.

Although I guess I should just refocus and say this can be me!

I’m not so sure about the focus on property though, I’m not much of a DIYer.

Its always a happy Monday morning when the FTSE drops 150 points 🙂

Thanks for the links, TI. Quite a few will have the choir nodding sagely, but one or two new thoughts in there.

I rather like the BI article. For me the message was that you get rich by playing with property not working. You also get poor that way. (That’s generally been true over the past 40 years and created a lot of wealthy individuals). But if you do get lucky and make it, then there’s real skill in hanging onto it by switching streams to a classic balanced investing approach. I suspect the frugality side of things was just the icing on the cake compared with moving net worth through big undiversified property bets. Probably essential to keeping it, however.

However, the stand-out message this week is TMFs reminder that we are — to paraphrase The Sting – “not as tough as we look”. I’ve been steadily making mistakes all my life in all spheres of incompetence, and managing my finances is no exception. From the heady days of building my net worth in dot com share to fat finger trades in commodity routs, I’ve done them all. Oh look – I’ve just doubled my holding instead of selling it. I’ll just wait a few more days for the emerging markets price to recover. That Gold looks cheap compared with last year, I’ll have some of that. And then finding that my portfolio is out of shape because of all the bargain chasing, so I can’t take rational decisions when things move.

So I’m increasingly clear in my own mind that I am part of the problem, and also that the only defence against me doing what I want, is me following my set of rules, and quite possibly a small sandpit to play in (to stop me playing in the big one). You can be told this so many times, but there’s nothing like screwing it up yourself for learning a lesson.

Anyway, those equities look cheap, so I’ll tidy everything up once I’ve bought a few more this morning…

This sell off is getting pretty hairy now, the wealth preservation aspect of the Harry Browne permanent portfolio is getting more appealing every day.
Too late to sell stocks now though and crystallise those losses, been there and done that. But it is a reminder that focussing only on yield (why I’m not currently holding gold) can increases risk of capital loss.
On the plus side for those topping up, will see a whopping 5% yield on the FTSE100 soon?

@blackadder — this isn’t a cliff. 😉

@Innovator — what a wonderful position to find yourself in, and with an awareness that you ought to be doing something. The answer in part depends on your income and expenditure and how that is likely to remain stable or change over the next decade. In particular, if you can get your lifestyle into a nose-up position (ie spending less than you earn, you can really go to town on investing the capital you have). You should read every page of Monevator. If I were you, I would get lots of opinions. The following is my plan in your boots:-

ASSET ALLOCATION
First up you need to decide how to invest it, regardless of wrapper, and what rules you are going to follow. If you aren’t a very rulesy person, then pick investments that require less gardening. The monevator pages on asset allocation are brilliant. Bear in mind that picking the right one is less important than sticking with the one you pick. Given your desire for an available deposit, I’d be 60% global equities (VWRL, why try harder?), 10% bonds (SGLO or VGOV) and 30% cashalikes (Santander / Zopa).

TAX WRAPPER
I’d put 100k in a pension straight away as a top-up (you can use previous years allowances). The Govt are going to mess around with pensions, but there are too many people with pensions at around this level for them to annoy (see also: housing, TI). This will take some weeks to set-up usually, so good luck getting “corrected” prices. I’d also put myself on a programme of saving to get 100k+ inside ISAs over the next decade with 50k remaining in some cash or near-cash accounts (Santander for you and your wife/husband gets close: if you don’t have a wife then as a 25 year-old with 1/4 million in cash, you soon will have). In the meantime a naked brokerage account can hold the remaining equities. Perhaps pick a few accrual stocks so that you are dealing with capital gain only — ishares has a few.

TIMING
Once the cash is in there, I’d be looking to get it into the assets gradually. You might be excited by the recent correction but there’s a good chance that:-
i) the market will recover before you get cash into these accounts
ii) the market will get much worse after you buy
You can’t know, so relax about it. Spend a minimum of 6 months to get invested. I’d actually be looking to spend a year on the task. Preferably automatically using our broker’s regular investment function to take you out of the equation.

Good luck. Enjoy being a multi-millionaire retiree at 40.

To add to what @Neverland said, all dividends that my Ltd company earns from its ETF investments are free of corporation tax!

I remember reading in a semi-tabloid, many moons ago, some “sage” investment advice by one Adam Faith (whether or not the former pop star I know not) viz:-

“Buy when others are selling, sell when others are buying, spread your risk and think long term.”

I bought £44k of ISA shares this morning; on croise les doigts!

@Mathmo

Incorporation allows you to just pay corporation tax and basic rate income tax and smooth your income, up to a limit

If you have ample liquidity you just go from paying a lot of higher rate tax to taking your money out more slowly

There is also some ability to use business losses against corporation tax in other years

This works best when:

i) its a family business
ii) you are coming to the end of your working life
iii) you have irregular income

@Topman — I’ve read a study which compares drip-feeding vs lump sums on a back-tested basis and IIRC the conclusion is that an immediate lump sum is better about 95% of the time as you get your exposure earlier to a working asset.

The question is whether you can bear the 5%. In general, I am not a fan of sudden moves in a portfolio since it makes you so obviously exposed to the price when you choose to make the sudden move. I like buying on volatility, and if I were 25, I’d be prepared to take a year or so to get into my asset allocation. Not least as I’d probably have some views about what was expensive and cheap at the time. And — with hindsight, I realise I’d screw up about a dozen times getting in there.

@Neverland — I don’t know this chap(ess)’s tax position, but incorporating free cash doesn’t seem like a good move to me unless it is to engage in a risk venture where the limited liability is useful. It just makes it harder to spend. He’s probably only looking at about 10k of income, most of which could be easily converted to capital gains. If he shuffles a chunk into a pension and some isas then there’s not much left unsheltered and that can be sheltered very rapidly. There’s not enough cash to warrant the cost and inconvenience of incorporation in my view.

Incorporating serious flows of income is a different matter and I am a fan of that.

I’d hedge your bets and buy a house with at least half of it, presumably if you’re in the south east you’ll need a mortgage on the rest. No higher than 60% LTV, for which you’ll get a very low rate. If single maybe let a room out to someone for as long as you can stand.

15k in a Cash ISA, 20k in Santander 3% account, and maybe some more spare cash set aside for crash. If there is any left then bung in a SIPP but only if you can offset against earnings and get 40% tax relief.
Then in subsequent years max out ISAs and SIPP allowances.

On the question of lump sum vs. drip feeding, I’m not sure how helpful it is just to consider whether, in retrospect, lump sum investment generally wins out. Given that markets over time will rise (otherwise why invest in them) then lump sums must win out if we only look at returns. (Drip feeding = less time for assets to earn money.)
I suspect that the 95% outperformance of lump sums quoted above is based on a comparison with pure drip feeding (£100k in one go vs. £100k spread over 20 years), but for most people with a chunk of money to invest the choice is not so much whether to invest it all in one go or to drip feed, but but rather between a single lump sum investment and a collection of smaller lump sum investments spread over a period of a few months or years.
Maybe a better way to think about it is that the returns from a single lump sum investment will be more volatile than from multiple smaller investments – if you happen to invest at the floor, your investment will make more, and conversely if you happen to invest at the peak, you will be harder hit. In other words, lump sum investment should on average give you higher returns but at the expense of higher risk (a bigger range of outcomes: greater gains but also greater losses). So the first question is whether you are prepared to accept that risk (and whether you need to).
But it’s also important to remember that volatility in equity markets is not fixed, so I would ask if there is any reason to think that the market is more volatile than usual at the moment. If there is, then it follows that the lump sump has a higher than average chance of producing both higher returns and higher losses. It seems pretty clear that the markets are indeed more volatile at the moment (I’m not calling whether they’re on the way up or down!) and that might be a reason for extra caution before investing a lump sum just now.