This article exploring dogs and financial independence is by The Mr & Mrs from Team Monevator. Check back every Monday for more fresh perspectives on personal finance and investing from the Team.

When The Mr & Mrs moved out of London, top of my – The Mrs – agenda was getting a dog. My husband and the youngest child were less keen.

My childhood memories centred on rural adventures accompanied by various dogs – all long gone now to the Great Kennel in the Sky.

The Mr grew up in a pet-free house on a busy city road.

The Mr: Actually we had cats for a time, but I don’t talk about them. They weren’t as much part of our childhood. Cats aren’t part of the family like dogs. And we got fed up with them being injured or worse on the road.

“Dogs are like toddlers,” I tell The Mr, setting back Project Dog by 18 months. (Both of us had endured our kids’ pre-school years in a blur of exhaustion.)

Dogs are also more expensive than back when I paid £35 for my first dog, aided and abetted by my mother.

I’d washed cars, weeded gardens, and sold homemade biscuits. I’d diligently coloured in each pound I earned on a ‘sweat’ chart. And, for every £5 I raised, my parents pledged to buy a piece of essential kit starting with the feeding bowl and culminating in a dog bed.

Enter Show Dog

My first dog – hereafter called ‘Show Dog’ – set a high standard. I chose her from a squealing litter of pups and, unwittingly, picked a champion.

This is roughly akin to a rookie investor picking Tesla shares in mid-2019 on the basis that they liked the company name.

It didn’t take long for my mother to realise my pedigree pooch was a perfect specimen of her breed – or that serious money could be won at dog shows.

Our weekend routine changed as I learned some simple cost-benefit analysis featuring:

1. The type of show, number of classes for which Show Dog was eligible, and total entry fees payable.
2. The unit price of petrol, a guesstimate of mileage and travelling time, and the allocations of prize money.
3. The random element – the judge. Show Dog was the blackest black and was unlikely to be highly-placed by a judge known to prefer blondes…

There were highs – seven rosettes in one show!

And there were lows, such as the time Show Dog refused all instruction at a Very Important Event, careered around the ring, and leapt up to kiss the judge’s nose.

We drove home in silence, brooding on the financial hit.

Positive financial returns

Training, showing, and breeding dogs was not my family’s livelihood.

(If you are interested in showing your dog or other competitive activities like agility or flyball, then Crufts’ resources are a good place to start.)

No, Show Dog’s success was unusual; she was a child’s pet. Show Dog was fuss-free (no clipping required) and barely saw the vet.

Her winnings paid for her keep. Her two litters of pups covered their costs with extra to spare. One puppy even had a lucrative turn as a ‘moveable prop’ in a big-budget Hollywood film.

Overall verdict: Over her lifetime, Show Dog made a small net financial contribution of approximately £200 to the family income.

Beware of the Diva Dog

Not every dog is as cost-effective as Show Dog turned out to be. In contrast, the dog I chose as The Mr and Mrs’ first family pet – Diva Dog – has been a constant drain on the family coffers.

Diva Dog confirmed all The Mr’s misgivings about mixing dogs and financial independence.

From her puppyhood, Diva Dog was charged with three strategic objectives:

1. Train the whole family in handling dogs. Specifically, cure the youngest child of a crippling fear of dogs. (A drastic solution, I know. There’s good advice at Dogs Trust.)
2. Create positive family memories and act as a canine counsellor for the children at stressful points in their lives, like exams or friendship fall-outs.
3. Assist in the family’s fitness regime. Model good health, and rarely trouble the vet.

In fairness, Diva Dog excelled in the first two tasks.

However, my Midas touch deserted me when choosing Diva Dog from her siblings. Instead of spotting championship potential, this time I paid £850 for what was probably the runt of the litter (and during lockdown prices have risen substantially since then, too).  

The Mr: We paid how much?!

Diva Dog is much smaller than her breed standard. She has long fur and panics at any loud noise, despite coming from working gundog stock (though she does love a karaoke party).

Diva Dog is an expert counter-surfer and pavement-snacker. No food is safe from her snout.

And here’s the rub: Diva Dog is hyper-allergic to almost everything, especially commercial dog foods. So Diva Dog’s endless scavenging means she is on first name terms with all the vets and nurses at our local practice.

Start-up costs: purchase, vaccines, essential dog kit, micro-chipping and basic obedience classes – around £1,400 (in 2013 money)

Ongoing costs: specialist food, standard (wormers, flea and tick) and prescribed medicines for ear/skin flare ups; kennels or holiday pet insurance; general pet insurance, replacement toys, and so on. In 2020, Diva Dog cost almost £1,700.

Overall verdict: Diva Dog is a financial liability!

Owning a dog is a lottery

Show Dog and Diva Dog are financial outliers. Most pet dogs will fall somewhere in the middle. Lifetime costs can vary wildly, even between dogs of a similar age, size, and breed.

You might re-home a rescue puppy that needs behavioural help. You might choose a retired working dog that arrives fully trained but gets increasingly expensive to insure. Or you might experience a change in your circumstances and need to pay for daily dog walking for your pet.

But the real cost of dog ownership lies not in money. It’s measured in time.

The time factor

When people say they’d love a dog but can’t afford one, what they usually mean is they don’t have the time.

And, if you lack time, then owning a dog – with or without a quest for financial independence – is not for you.

Dogs are social creatures. While some dogs may be shy introverts, most want to be with you, at the centre of things. No dog wants to be left in solitary confinement all day, every day. The general consensus is that four hours during the daytime is the maximum length of time to leave a dog on its own.

The Mr: For me, the key is that they are part of the family. Consider your dogs in all decisions, just like you would any other family member.

For most people on the path to FI, it’s less a question of having enough money for a dog, and more about existing and future time commitments.  

Perhaps you work from home and choose to slow down? You sacrifice a year or two to reaching your FI number in exchange for canine companionship on the path to financial freedom.

Or maybe your FI strategy is to work long hours, create a dog-budgeted savings goal, and then to look forward to early retirement.

Either way, know there are ways to get a dog-fix without the need for potentially expensive ownership. For ideas, take a look at Walk My Dog, Cinnamon Trust, or guide dog fostering.

In praise of dogs

If dogs are expensive and eat into all your available time, then why own one?

It’s certainly a mystery to friends who are happily dog-free.

As I type this blog, Diva Dog is snortling in her basket – a reassuring sound – and The Young ‘Un is keeping my feet warm.

My dogs will get restless if I sit still for too long so I have no need of a Fitbit, Apple Watch, or timer.

There’s less need to pay for exercise classes. Every day in all weathers I’m out with the dogs. And dog walkers are a sociable crowd, even at 6am.

Whenever somebody or something is outside of our house I have an early warning system.

I am no longer susceptible to fast fashion. There’s no point wasting money on strappy shoes or silk dresses when I’m mostly wading through puddles.

Finally, I have canine companions who are quick to tune into emotional moods. They snuggle up when they sense you are sad and become playful when they can tell you are happy.

The Mr: This last one is literally priceless!

Dogs and financial independence

Here are a few top tips if you’re still interested in owning a dog.

Research, research, research

Assess your lifestyle honestly and choose a dog breed that’s a good fit. Even if you want a rescue dog of uncertain parentage, different breeds have different behavioural traits. Check out the Kennel Club’s databases. Also try Crufts Meet the Breed, once this sort of thing restarts.

Shun the puppy farm

Always get your dog from a reputable source, whether it’s a friend whose dog has puppies, a rescue centre, or a Kennel Club Assured Breeder. This will also minimise your risk of buying a stolen dog. Ideally you will see the mother, if buying a pup. Expect the breeder or rescue centre to ask you searching questions about your ability to keep a dog!

Dogs are valuable

Make sure your garden boundaries are escape-proof. Periodically recheck them. Crawl around your rooms to discover what a dog – especially a teething puppy – might find interesting. Microchip your dog, and attach a collar tag with just your mobile or landline details. Don’t skimp on vaccinations.

Invest in training

Basic training at village halls can be crowded, noisy, and confusing for you and your dog. It can pay dividends to have a trainer come to your home, especially if you have never owned a dog before or several family members are giving the dog different commands. Classes can bore clever dogs. Taking them to flyball, agility, or similar sessions will be fun, while sneakily improving overall obedience.

Don’t shop around on insurance

If you have pet insurance and have made any claims, resist the temptation to shop around for a cheaper renewal. Insurers will not cover preexisting conditions, so you may end up paying for any ongoing ones on top of your insurance. It’s galling to see the premiums mount up each year, but there it is. And of course as your dog gets older they will be more expensive to cover. You can self-insure if you are very disciplined. Set aside what you would have paid on insurance each month and use that to cover vet bills.

Be patient

It takes time to gain a dog’s trust and loyalty. Be kind. Be consistent. Look forward to seeing a happy wagging tail each morning!

Owning a dog may prolong your journey to financial independence. But what matters most is being judicious about what you sacrifice, rather than giving up everything you want along the way.

In The Mr & Mrs’ household, our dogs and financial independence have – on balance – been reconciled. The dogs help us stay on the path to financial independence. Because we are all in it together.

In time you will be able to see all The Mr & Mrs’ articles in their dedicated archive.

What caught my eye this week.

The sky above the port was the color of television, tuned to a dead channel.

So runs the first sentence of William Gibson’s Neuromancer, a book I first read as an 11-year-old and have judged technology against ever since.

As one of the first few thousand people in the UK to encounter the ‘World Wide Web’ in the very early 1990s, I half-saw Neuromancer becoming half-true.

Admittedly I wasn’t sliding through coloured shards of anti-viral software in a 3D manifestation of hyperspace.

But I was chatting to equally astonished kids in faraway Hyderabad. And I had an alternate life as a Dwarven catburgler in a multiplayer text-based MUD.

It was the shape of things to come.

All together now

To be honest, I’ve not re-read Neuromancer for 20 years. Which is probably why reality seems to be catching up, regardless of what Gibson actually wrote.

For example, I remember a scene in which a flash mob is summoned as some kind of tactical distraction, and the attendant street punks and ne’er-do-wells cause mass chaos both on the ground (or in ‘meatspace’, as the cyberpunks called it) and across various digital venues.

I’m not sure this scene takes place. Thinking about it now, I suspect it might have been in one of the sequels.

But it certainly should have been in an early Gibson novel, because the man was a visionary about the unintended consequences of hooking humanity up to – and together with – technology, and those consequences are running amok in the stock market today.

Now showing

How else to explain the loony activity we now routinely see in the stock market each week?

The latest was a re-run of the Gamestop drama from earlier this year, only the meme stock in the spotlight this time was US cinema chain AMC.

Shares in the hitherto struggling operator doubled in a day. At one point it was up around 30-fold for the year. A giant push by retail traders from Reddit (and piling-in professionals) took the market cap to $30 billion.

Showing a commendable nimbleness at getting with the program, AMC management first wooed its new small owners with free popcorn. It then (rightly) dumped a load of new shares on the market to raise hundreds of millions of dollars the next day.

So AMC’s future (though not its sky-high valuation) looks assured for now. All without a corporate restructuring or a tense boardroom meeting with bankers on Wall Street in sight.

In some corners of the market, this is how the game is played these days.

It’s fake it until you make it on a corporate scale.

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It makes me feel old, if I’m honest. As Ben Carlson writes on his blog:

The strange thing about this meme stock saga is we have and have not seen this movie before.

Yes, speculation is as old as the hills and that part of the markets will never go away.

But this is also very different from past excess.

This isn’t some hot new innovation people are bidding up in hopes it becomes the next big thing. This is a company people know is not worth its current value. No one is even pretending that’s true.

This is the internet bleeding into the markets in a big way. It’s a coordinated viral meme working its way through the stock market.

Ben nails it here. Like him, I believe the frictionless physics of the Internet has found its real-world proxy in the shadow theater of the financial markets, and the Internet-raised youngsters are having a field day.

And so, increasingly, are the professionals. Hedge funds struggling to gain alpha in the mostly-efficient market must see excess irrationality to be gorged upon in these recurring bouts of zania.

As Michael Batnick puts it:

Small money might have lit the match, but big money is pouring gasoline on the fire.

Indeed while it’s still tempting to dismiss the meme stock pops and flops as an short-term consequence of bored lockdown trading, we can also see the outlines of how history will remember this era in wider market trends.

For another incarnation of the zeitgeist, see the SPAC boom in the US. That’s seen hundreds of companies raise many, many billions for what are euphemistically called ‘blank cheque companies’.

You might argue there’s a legitimate case to take companies public this way, especially if you’re one of the key promoters who got unfathomably wealthy from mad fad.

But that doesn’t explain SPAC’s sudden explosion in popularity. Cheap money and this Fake It ‘Til The Market Makes It mindset does.

Then of course there’s crypto, and Elon Musk sending Bitcoin hither and thither with a Tweet. Once an outlandish outsider, Musk’s antics over the past few years are starting to seem like they were the shape of things to come, like a Shane Warne or John McEnroe of the markets.

Retire to a quiet room

Some old hands see a return to normality with crypto recently crashing, SPAC enthusiasm dying down, and the price of the frothier tech shares also falling.

Well maybe.

Short of the punchbowl suddenly getting yanked by either the markets or by Central Banks, I suspect Josh Brown may be more on the money in a brilliant essay for Fortune:

Jerry’s not on Twitter. He’s tired of hearing about all the rhetorical twists and turns on the app that are constantly pushing his stocks around.

Sports commentators and actors turned venture capitalists are causing gyrations in the value of his retirement portfolio with their online antics.

Remember when stocks traded on fundamentals? Or at least they traded based on people’s perceptions of the fundamentals. What do they trade on today? It was always a popularity contest. Now it’s a three-ring circus.

It makes no sense. Jerry is tired.

Upstairs there’s a burst of excitement, the sound of a young man cheering. It’s Jerry’s kid, Aiden.

Aiden’s been out of school for years. He’s making as much as Jerry did 30 years ago.

[continue reading…]

This post is for anyone who wants to manage their own investment portfolio and needs to know how to keep it running smoothly. I’m going to explain how to perform an annual check-up using industry best practice and ideas from some of the best investment educators in the business.

Maintaining your portfolio is easy once you know how. It shouldn’t take more than a few hours, once a year.

This advice also applies if you’ve chosen the default options in a workplace pension scheme and want to know if it’s on track.

Like servicing your car, a little investment maintenance goes a long way.

Here’s a brief summary of the topics we’ll cover on our portfolio management checklist:

• Risk control – straightforward techniques to help you manage risk.
• Performance check – are you on target?
• Inflation adjustment – keeping up with the cost of living.
• Value for money check – are your funds and investment platform competitive?
• Major life changes review – how a bolt-from-the-blue might change the plan.

Risk control

Before we can control risk, we need to know what risks are really worth worrying about. The main investing risks people fear are:

• Being wiped out. That is, losing all your money.
• Not having enough to live on in the future.
• Selling for a large loss.

Losing all your money is a disaster. But it’s a low probability if you invest in a global tracker fund and a high-quality government bond fund.

With a portfolio this diversified, the only thing that’ll wipe you out is a global end-of-capitalism catastrophe. This type of portfolio is not dependent on the fate of a single firm, industry, or even country. Rest easy on that score.

Not having enough to live on is dealt with by investing in growth assets like equities and making sure you put enough money into your pot. This risk is covered in the performance check section of this article.

Selling at a large loss is the main risk that lies in wait – like piano-wire strung across your future. This risk is harder to control and widely underestimated. It can overwhelm you with little warning.

There are two versions of this nightmare scenario:

Failure to recover

The failure to recover scenario happens when a large pension portfolio is heavily invested in risky assets like equities – and then a stock market crash strikes on the eve of retirement.

The portfolio suffers a major loss. The market bumps along the bottom for years. You’re forced to live on less because anemic equity returns fail to resurrect the portfolio.

The investment portfolio management techniques laid out below can help you to guard against this risk.

Panic sell

The stock market drops violently. The fear of losing everything swamps your mind. You panic and sell. The red line continues as you sit in cash, too frightened to buy back in the face of bad economic news.

The green line shows that the market decline did continue after you sold. But a rally began shortly after, and eventually traced a U-shaped recovery. Equities recovered their losses and more, given enough time. But the red path shows how your loss was locked in.

These calamities befall unwary investors around the world during every stock market crash. Nobody thinks it will happen to them, like that Twilight Zone episode about the box.

Three risk control techniques enable you to tame these risks without hobbling the equity growth you need:

• Monitoring your risk tolerance in a downturn
• Rebalancing
• Lifestyling

Monitoring your risk tolerance

How much stock market risk can you handle? No-one knows until they’ve watched a crash vaporise pounds from their portfolio.

Your portfolio may have defaulted into an industry-standard mix of 60% equities, 40% bonds. This is the Goldilocks zone – neither too hot, nor too cold.

Or, perhaps you chose your allocation to risky equities using a classic rule-of-thumb like:

110 minus your age = your equities allocation (the rest is in bonds)

Both are reasonable starting points, but the gut test is a bear market. Your response to a mauling tells you whether your asset allocation is too risky for you.

The wealth manager and investing educator William Bernstein offers a way to readjust using this table in his superb book The Investor’s Manifesto:

Risk tolerance	Equity allocation adjustment
Very high	+20%
High	+10%
Moderate	0%
Low	-10%
Very low	-20%

Choose a government bond fund for the non-equity part of your portfolio.

Your risk tolerance is:

Very low if during the last bear market you suffered sleepless nights, felt sick, or panicked. Subtract 20% from your equity allocation. Now you’ll hold more in bonds for extra crash protection, but must expect lower growth.

Low if the downturn caused you mental pain. Subtract 10% from your equity allocation.

Moderate if you felt worried but held your nerve without losing sleep. No change to your allocation.

High if you rebalanced into tumbling equities during the bear market. Add 10% to your equity allocation.

Very high if you’re frustrated the market didn’t slide further, enabling you to scoop up more equities on the cheap. Add 20% to your equity allocation.

Beware, this table is a rule-of-thumb only. I find it helps to use market tremors to re-calibrate my risk levels before I’m hit by something seismic.

Use it at your own risk.

Rebalancing

Rebalancing is a portfolio management technique to prevent your asset allocation from drifting into dangerous territory. This might happen when equity markets go on a tear – soaring to the sound of popping champagne corks in the City.

The dark cloud in the silver lining is that rising valuations can silently shift your equity allocation. You might easily go from, say, a desired 60% in equities to an actual allocation of 70% or more.

Rising equities sounds fine until the market crashes back to Earth with terrifying speed and savagery. The nosedive takes your portfolio with it, because you hold proportionally less bond protection than you used to.

Annual rebalancing counters this risk by nudging your allocation back into line. It’s like when you touch the steering wheel of your car to prevent it veering out of its lane.

By selling some of your outperforming assets once a year and buying laggards you:

• Realign your asset allocation with your chosen risk level.

• ‘Sell high and buy low’ – looking to profit from the tendency of underperformers to bounce back. (Or mean-revert, in the jargon).

We’ve explained before how annual rebalancing is done. It’s simple.

Easier still if you rebalance with new money.

If you’re invested in a multi-asset fund like Vanguard LifeStrategy then your portfolio is automatically rebalanced for you.

Auto-rebalancing only applies to such multi-asset funds. For example, a fund that holds equities and bonds in the same investing vehicle.

You can email your fund provider to find out how they rebalance.

It’s fine to rebalance once a year.

Lifestyling

Lifestyling is a brilliant way to head off the failure-to-recover scenario, wherein a portfolio is poleaxed by a crash just as you’re on the home straight to retirement.

You can also use the same principle to manage an investment portfolio earmarked for a non-retirement objective, such as a uni fund for your kids.

Retirement lifestyling

The standard advice for young investors is to choose an aggressive equity allocation, perhaps as high as 80%.

That’s a pro-growth strategy. It’s predicated on the idea that as a young person you can shrug off a market meltdown because:

• You don’t have much skin in the game. If a small portfolio halves in value, you’re unlikely to panic. The loss is dwarfed by your future investment contributions.

• The bulk of your working life is ahead of you. You can afford to wait for the market to recover and buy equities cheap in the meantime.

This is the theory of human capital underpinning that ‘110 minus your age’ rule-of-thumb.1

The logical consequence is you should be in 45% equities, 55% bonds as you turn 65.

Lifestyling using this rule means you sell 1% of your equities and buy 1% extra in bonds, every year, to manage the transition.

You can do it at the same time as you rebalance. This way all of your portfolio maintenance is done in a one-er.

This subtle drip-drip of wealth from equity stalactite to bond stalagmite transforms your portfolio. Instead of a petrifying dagger ready to drop from the ceiling, your portfolio de-risks into a mighty tower of wealth anchored by a floor of shock resistant assets.

However, the ‘110 minus your age’ wisdom was devised when bond return prospects were better than today.

Stay on target

A more modern incarnation of this idea is a Target Date fund. Like the lifestyling heuristic, Target Date funds gradually shift your asset allocation from equities to bonds as you age.

Vanguard’s version – a Target Retirement fund – keeps investors 80% in equities until age 43. The fund then automatically descalates your risk by lifestyling down over time to 50% in bonds by age 68.

If you mimicked this path by lifestyling equities to bonds at 1% per year from age 40, you’d be 60% equities by age 60.

This pattern acknowledges the muted growth prospects of a low interest rate world.

(It also assumes a classic retirement age of around 65 to 68. You’d de-risk earlier if you’re on track for Financial Independence Retire Early.)

Don’t ignore your own risk tolerance if you’re young yet 80% equities makes you uncomfortable.

Go lower if you need to, or aren’t sure how much you can handle.

That said, people who choose Target Retirement funds typically leave them on auto-pilot.

Blissful unawareness of market quakes makes it much easier for Vanguard to hold people at 80%.

I believe Target Date funds are a brilliant idea. If you don’t fancy managing an investment portfolio at all, they’re a godsend.

But personally I think Vanguard’s Target Retirement fund weights bonds too heavily later in life. Its equity allocation is only 30% by age 75. That’s a decision for another decade, though.

You can always weight your portfolio differently nearer the time.

Lifestyling for non-retirement objectives

You’ve seen those industry warnings about equities being unsuitable for objectives fewer than five years away.

Equity volatility means you never know how much your shares will be worth tomorrow. So if you want to save for a specific amount on a specific date, equities are not reliable.

Retirements can be delayed – or you can live on less. But perhaps you’re investing to send the kids to college in 18 years time, or to pay off the mortgage in 25 years? (Ballsy!)

Holding 50% – or arguably even 20% – in equities is madness as you glide into land, if you haven’t got any other way of avoiding an undershoot.

Larry Swedroe is another renowned wealth manager dedicated to educating investors. He came up with a rule-of-thumb for managing this risk in his book The Only Guide You’ll Ever Need for the Right Financial Plan:

Investment horizon (years)	Max equity allocation
0-3	0%
4	10%
5	20%
6	30%
7	40%
8	50%
9	60%
10	70%
11-14	80%
15-19	90%
20+	100%

Notice how Swedroe puts the portfolio on a steep descent out of risky equities inside ten years from the target date. This speaks to the unpredictability of equities.

Over the long-term, equities are the best asset for growth. But anything can happen in the space of a few years.

Remember this is an informed rule-of-thumb. Treat those equity allocations as a maximum. Dial them back more if you can, and keep the rest in bonds and cash.

Performance check

How do you know if your investments are doing well? Should you switch funds that haven’t performed well in the last year? What about that co-worker who keeps banging on about the killing he’s making in crypto?

First things first: your portfolio is likely heavily exposed to the stock market. So your annual performance will turn on the fortune of the market that year, for better or worse.

The evidence shows you can’t avoid that truth but you can turn it to your advantage.

It’s a myth that you can identify a brilliant fund manager or stocks to beat the market over the long-term. What looks like over-performance is often a lucky streak. Or it costs so much in fees that you end up worse off.

The antidote is a passive investing strategy that uses a diversified portfolio of low-cost index tracker funds to cream off the profit from the market.

Global stock markets rise over the long-term so you should do very well as your profits compound.

The counter-intuitive truth is that you don’t need to worry about your portfolio’s performance day-to-day – or even annually.

But the short-term is a crapshoot.

The market has a roughly 50:50 chance of a loss on any single day. It’s likely to be down one year in three. But it recovers, and over 20 years equities are favourite to outperform every other asset class.

So for the best peace of mind don’t check your portfolio more than annually. Don’t download a mobile portfolio app. The longer you leave it alone, the better your chance of seeing good news when you check-in.

Ignore short-term fluctuations, because you can no more control the market than King Canute can command the sea.

As for that annoying co-worker, he’ll slink back under his rock next time his dogecoin is slaughtered by a careless Elon Musk Tweet.

Factors you can control

The factors that decide your fate and that lie within your control are:

• How much you invest
• For how many years you invest
• Your target income
• Investing costs

The magic formula is:

• Invest more to enjoy a bigger income in retirement and/or shorten your timeframe.
• Invest longer to enjoy a bigger income and/or lower your investment contributions.
• Lower your target income to invest less and/or shorten your timeframe.
• Lower your costs to improve every outcome.

You can see how this works by playing with the excellent retirement calculator at Hargreaves Lansdown. It enables you to feed in your personal numbers and check whether you’re on track to retire.

Think the income you’re headed for is tight? Then watch how your fortunes change if you increase your contributions or delay your retirement.

Perform this check annually and you’ll have a firm grip on whether your pot and contributions are big enough, based on current projections.

Don’t mess with the calculator’s 5% estimated annual growth rate. But you can lower the annual management charge to 0.5% (via ‘advanced options’, tucked down bottom right on the results page) if you choose keenly-priced tracker funds and a competitive platform.

• Find out more about using a pension calculator to stay on track.
• Our financial independence plan article will help you work out how much retirement income and pot you’ll need.

Inflation adjustment

Just as inflation nibbles away at your wages, it also gnaws away at your pension.

Up-weight your investment contributions in line with inflation every year to help your portfolio keep up with prices.

You can find the UK’s official inflation figures at the ONS.

• CPI-H is the headline rate. It takes housing costs into account.
• RPI is almost always higher. Using this may put you ahead of the game.

Some Monevator mavens use their personal inflation rate or average UK earnings as potentially better gauges of the cost-of-living.

Calculate your inflation-adjusted contribution as per this example:

Current monthly contribution: £500

Annual inflation rate: 3%

£500 x 1.03 = £515 new monthly contribution adjusted for the past 12 months of inflation.

You should increase your target income and target retirement pot number in exactly the same way.

Value for money check

As long as you’ve chosen a price competitive portfolio of index trackers then you don’t need to worry about switching investment funds. Switching for performance-related reasons is like changing toothpaste brand in the hope of better results on the dating scene.

But it’s worth checking that your trackers still offer good value versus their rivals every few years.

Check using our comparison of:

• The best global equity trackers
• The best bond trackers
• Other asset classes

Investing platforms/brokers also charge fees. Make sure they’re not milking you, either. Our broker comparison table shows your options.

We’ve previously outlined how to find the best value platform for you.

There’s no need to perform this check annually. Every three years is enough to stay in touch with the price league-leaders.

Don’t sweat tiny changes in cost, either.

A fee differential of 0.1% on £10,000 is just £10. That would cost you £50 a year on a £50,000 portfolio if, for example, your fund’s Ongoing Charge Figure (OCF) is 0.25% instead of 0.15%.

Tax loss harvesting

If you own investments outside of your ISA or SIPP then you can reduce your capital gains tax bill by offsetting trading losses before the April 5th deadline.

Major life changes review

Marriage, children, career change, redundancy, divorce, ill-health, death, inheritance…Such milestones of life may trigger a reassessment of your investment portfolio and your risk tolerance.

For example, an inheritance may transform your fortunes. Perhaps you can reduce your equity exposure. You need less growth, so you can take less risk.

On the other hand, an even bigger windfall can catapult you so far ahead that you can take even more risk! If you’ve already got more money than you can spend, it doesn’t matter how your equities perform.

It’s nice to dream but major life changes could be the perfect time to seek financial advice.

Managing an investment portfolio checklist

Here’s a run through of the techniques we’ve explored in this article:

Monitoring risk tolerance
Frequency: After every major downturn of 20%+

Rebalancing
Frequency: Annually

Lifestyling
Frequency: Annually

Performance check
Frequency: Annually

Inflation adjustment
Frequency: Annually

Value for money check
Frequency: Every three years

Tax loss harvesting (not possible within ISA/SIPP)
Frequency: Annually

Major life changes review
Frequency: As and when

I wish you good fortune in managing your investment portfolio. It’s entirely doable to go the DIY route provided you stick to the investing essentials and ignore the get rich quick sirens of YouTube. You don’t need specialist knowledge, skills, or a huge amount of time.

I’ve never regretted managing my own portfolio.

Let us know how you get on.

Take it steady,

The Accumulator

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