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What caught my eye this week.

A new survey claiming that one-in-four six-figure earners ‘lives paycheque to paycheque’ is bound to rile three-quarters of those who read about it.

The Telegraph reports (via Yahoo Finance) that:

[Survey] respondents primarily blamed cost of living increases (90%), as well as rising mortgage payments (38%) and debt repayments (29%).

In London, 28% of the 1,700 high earners polled said they were struggling to live within their means.

That the study was conducted by RBC Brewin Dolphin – a wealth manager, rather than a poverty campaigner – might raise further hackles.

But according to Carla Morris, a financial planner at the firm:

“The findings of our survey underline just how much the cost-of-living crisis has affected every section of society in the UK.

“Even people who are among the highest earners in the country are living pay cheque to pay cheque, with almost all of them citing the rising cost of living as one of the main reasons for being in that position.”

Now, the obvious – and entirely accurate – response is that higher earners have many more options for cutting costs than those within sniffing distance of the breadline. To put downshifting from Waitrose to M&S or from London to Reading in the same bracket as getting familiar with a food bank is at the least delusional.

Generally that would be my response, too.

I’ve been collating Weekend Reading links for 17 years now. There have been tiny violins playing for the wealthy somewhere in the media in most of them.

However I do think it’s a bit different this time.

Higher and higher

The middle-class cost of living crisis is very real for starters, as I wrote a few weeks ago. Everything costs more. Particularly rents and mortgages – both soaring.

But the woes of the wealthier are being massively exacerbated by stealth taxes.

The Resolution Foundation recently calculated that the freezing of tax thresholds will see £40bn a year more paid in taxes by workers by 2028 – the biggest tax grab in 50 years.

Taxpayers in the higher bracket will by then be paying an extra £3,700 a year in taxes, following a six-year freeze.

And rather than the personal tax allowance rising to £16,200 as inflation – booked and forecast – would imply, we’ll still only be allowed to keep the first £12,570 of what we earn unmolested.

The Accumulator drafted an article last summer on all this that ultimately we didn’t publish. TA’s angle was to frame the stealth tax increases as outright hikes in the income tax rate.

I felt his workings were too convoluted to share. Possibly my mistake, in retrospect, as the direction of travel he identified was bang on.

It’s since been estimated that freezing tax brackets and allowances will have the same impact as a 6% hike in income taxes!

Harder and harder

Just on a household basis, having six-figures coming in apparently puts a family into the rarefied air of the top 5%.

Yet an analysis by Chase Bank in March showed that – with kids – it’s pretty easy to spend the lot each month without going hog wild at lap dancing bars or in a Hermes showroom.

Savings can be made. Monevator regularly features case studies from people who achieved financial success by spending and saving differently.

Fill your ISAs. Sacrifice your salary to boost pension contributions (especially around cliff edge numbers, such as where child benefit and personal tax allowances get taken away). Hope that tax rates come back down by the time you retire. Cut costs and consider moving somewhere cheaper.

It’s all getting more difficult, however.

Britain is a poorer country than it would have been absent certain terrible political choices – and a global pandemic of course. Public services are creaking, and the cost of government debt is ballooning.

Chancellor Jeremy Hunt may find the world’s tiniest rabbit to pull out of his threadbare hat in next week’s Autumn Statement, but I wouldn’t hold your breath. Ideally any tax bungs would target boosting business anyway, especially our stagnant productivity.

I wouldn’t want to start from here if I were him.

Have a great weekend.

[continue reading…]


FIRE-side chat: high-rolling down under

FIRE-side chat: high-rolling down under post image

I’m pleased to welcome one of Monevator’s many silent female readers into the Den this month! Using a pseudonym, Financial Dragon becomes the first woman in our regular series to talk about FIRE. Together with her husband, she’s aiming for a pretty FatFIRE, with homes in London and Australia and the pleasure of seeing an extended family make good use of them.

A place by the FIRE

Hello! Why did you agree to take stock of your financial life today?

Part of my motivation is the stigma around talking about money. Perhaps it’s seen as gloating if you’ve found a path that brings financial security. But I feel sharing failures, successes, and the path might help others.

Also, my story is a bit different as I’m not a ‘still got the first pound I earned’ saver. In fact, money burns a hole in my pocket. Frankly I’ve amazed myself that I have some!

Oh and I’m female, and we do seem to be less commonly found in the comments of Monevator and other Financial Independence (FI) blogs and communities than the blokes.

How old are you?

I’m 45. My partner turns 50 this year. We’ve been together for seven years, married for three.

Do you have any dependents?

I don’t have any of my own kids. My husband has two kids from his first marriage, who are in their late teens – both girls – of whom we have shared custody. Kids typically live at home where we live at least until they have finished further education. So we expect to have the girls for at least another five years.

Whereabouts do you live?

Perth, in Western Australia. I’m originally from the UK and spent time working in Asia.

Perth is one of the most remote cities on earth, in terms of proximity to other major conurbations. Western Australia as a state could comfortably fit France, Spain, Germany, and all the Nordic countries within it. Huge and mainly empty! 

It’s cold and rainy in the winter, and hot and dry in the summer – 40-degree days are not unusual. We’ve invested in solar panels for economic and environmental reasons, taking advantage of Perth being the sunniest of the Australian state capitals.

It’s been interesting learning about the differences of managing finances since moving to Australia.

Have you learned anything specifically in terms of a differing investment perspectives?

Property is the big move here from an investment perspective. People with spare capital are heavily tax-incentivised to invest in property.

Most people I know in Australia have an investment property somewhere. Admittedly my circle is professional workers and business owners with decent earnings, but still – very few invest in the markets outside of Super.

When do you consider you achieved Financial Independence and why?

We could stop work and live a ‘lean FI’ life today. But we don’t want to do that, from an intellectual stimulation perspective as much as a financial one.

Also our aim isn’t ‘lean’ FI, in terms of our goals for travel, housing, and so on.

So you’re still working?

Yes, I have a senior role in a financial services organisation.

I’ve always worked in financial services and started this role two and a half years ago. To begin with the job was extremely full-on. However, having now got things in good shape I’m really starting to enjoy it. I’m fortunate to work hybrid currently, with a couple of days a week at home.

I see this as my last ‘big job’. My ambitious nature has tempered a bit as I have got older, and I don’t have the energy left for another big gig.

My husband is keen to stop work soon. His current job is very stressful, and it takes a lot out of him. I’m hoping he pulls the pin early next year. I think he sees this as a chance to take a ‘retirement tester’. I do worry though that he will need to find social meaning and hobbies, as he is a real introvert.

I keep telling my husband, he is expendable at work, but he is not expendable to us at home. I worry about the impact of work on his health, both physically and mentally. His dad passed away young, and my mum has had cancer three times since her 50s, though I’m very lucky that she is still here in her 70s.

These events weigh on us and likely contribute to our FIRE ‘why’ story. Life is precious and short.

Assets: over here, over there

What is your current net worth?

In GBP1: £2.5m. 

I track our net worth on The Spreadsheet. Anyone with a basic level of accounting or Excel would be horrified at the jumble of calculations and lack of structure. It works for me though!

I track in both GBP and Aussie Dollars and we hold assets in both currencies. We are exposed to FX fluctuations, but because one of our ideas is to return to the UK to spend some time living and working there, we don’t want to consolidate everything to Australia yet. 

What makes up your net worth?

Our net worth includes our home in Australia and the flat I have in London. It takes account of the outstanding mortgages remaining on both properties.

Other assets include:

  • Pensions – both UK and Australian for me, invested in global equities trackers and a small fixed income allocation
  • A legacy ISA invested in a small cap equities tracker. (I’m not allowed to invest in new ISAs as a non-tax resident of the UK)
  • Two individual stocks: the first from my previous organisation, as a portion of my bonus was paid in stock that took several years to vest. The second is a very small amount of Qantas stock, bought as a bit of ‘fun’ in the depths of the first weeks of Covid when my husband said we should buy when it was in the toilet. In fairness it is worth multiples of what we paid, making it my only single stock success story!
  • Global 100% equity trackers held in unsheltered brokerage accounts (all Vanguard). 
  • My husband’s Defined Benefit scheme from his previous public sector job. The existence of this scheme is why we hold few fixed income assets elsewhere. It is in effect a government-backed fixed income asset with no volatility risk. These schemes are vanishingly rare these days, so we’re very lucky to have it.

What’s your plan with the mortgages?

We’re aiming to pay off the mortgage on our house in Perth at the end of this year. We are very focused on being mortgage-free, as we feel this will be psychologically important to helping to ‘give permission’ to dial back on work. We’ll also have more flexibility without a monthly mortgage payment to find. 

Do you consider your home an asset, an investment, or something else?

We don’t see our family home as an asset. Most of my more detailed net worth calculations discount it. 

We count the London flat as an asset. It’s rented out. We want to keep hold of it so we have a foothold in London that we can potentially live in if we want to spend time in the UK. I also like the idea of our girls or my brothers’ kids being able to experience London with an element of housing cost subsidisation. 

Earning: flying high to FIRE

Whats your job?

I’m in a senior role of a medium-sized financial services organisation. My husband works for an engineering firm, also in a senior management role. I’ve worked in financial services my whole career, starting in London in 2000, mainly in investment and wholesale banking.

I’ve always been in back office type roles, but I benefitted from the generous pay and bonuses on offer in this industry. For instance, it only took five years or so to get into the higher-rate tax bracket. 

What’s your annual income?

Between us we earn a total of around £300,000 a year.

How did your career and salary progress over the years?

Even on a decent salary in London, it’s a very expensive place to live. So a big ‘why’ of FI for me was the credit card debt I racked up in my first few ‘party years’ in London.

Buying nice clothes, designer handbags, and rounds of drinks in fancy bars. Going on holiday. Generally being young and foolish! I think at its worst my debt was close to £10,000, which in 2002 was a lot of money for someone earning £20,000 a year. I scared myself with how quickly my debt built up and my calculations of how long it would take to pay off.

I asked for a pay rise, having taken on a new role, and when my then-employer said no, I moved companies. In hindsight that was a good thing, fast-tracking my earnings and skills build.

I consolidated all my debts into a personal loan to help manage them, and paid them all off, helped in part by the company move as well as pushing for multiple promotions. Those brought lump sum bonuses – finally enabling me to save, including for a deposit for a house. 

When you read FI blogs, they often talk about the two ways to FI being to either save more or earn more. I took the ‘earn more’ route. I was always looking for roles to build my career and climb the ladder, while avoiding having to be super-frugal.

My parents instilled a strong work ethic in me, and I was always prepared to put in the extra time and go the extra mile so I’d be considered for the next promotion.

Not having kids, I was always on hand to do the next level up full-time job, the work trip, to work weekends and to stay in the office as late as I needed to. And this has probably led to work becoming part of my identity – to a relatively unhealthy level.

I also know though that it will have contributed to my financial stability. Aside from the ability to focus on work and always work full-time, no kids means I’ve not had nursery fees or school fees to cover.

Did you learn anything that you wished you’d known earlier?

Perhaps not so much my own learning, but a broader observation – I am surrounded by many financially successful women, often the higher-earner in their relationship, many of whom have juggled this with raising children.

I’ve reflected that it feels as though my generation of women were told we could ‘have it all’ – the high-flying career, successful relationship, and super-mum status. While many of my friends have ostensibly achieved this, I think some might say it has been at a cost to them in terms of burn-out and mental and physical health. I observe that child and home responsibilities still fall predominantly on their shoulders.

My successful friends have so many ‘tabs open’ in their heads in their attempt to do a fantastic job across every aspect of their lives, I worry there’s no time left for them as people. 

Do you have any sources of income besides your main job?

I make some money from dividends on my investments, the majority of which I reinvest. The London flat washes its face but no more.

Did pursuing FIRE get in the way of your career?

No – if anything it drove and continues to drive it.

I discovered the FIRE movement in early 2017. I heard Mr Money Mustache being interviewed on the Tim Ferris Show. It truly was an epiphany. I listened again for a second time as soon as the episode ended.

Looking back, it sounds ridiculous; I give myself credit for having a modicum of intelligence, but “the shockingly simple math to early retirement” eloquently explained by Pete (the blogger behind Mr Money Mustache) really was a shocking revelation to me!

I understand now I am one of the fortunate few who can come to this realisation relatively late in life and yet was able to do something about it quickly, in terms of a financial turnaround.

That said, I feel it’s never too late to have your eyes opened to the power of FIRE. Even if you don’t reach FIRE, or that was never your intention, you will be in a better place for embracing its principles.

Your story has taken you from debt to multiple millions in net worth. Did you have any ‘gulp!’ moments along the way – perhaps as you hit seven-figures?

I think the reason for the ‘one more year’ is that I still remember the debt, and have a lingering fear, despite the numbers on the screen, that I could head back there one day.

I create milestones in my mind for when I will feel ‘financially free’ and then head past them, creating a new goal that it is critical that I meet. A therapist I am sure would have a field day with this!

Saving: better late than never

What’s your annual spending? How has this changed?

I don’t track my spending, but FIRE opened my eyes to the pointlessness of the continued acquisition of stuff.

That had been my default for years – get paid, pop to town to wander round the shops, buy new clothes because I could, repeat monthly.

I won’t say I stopped buying anything after discovering FIRE, but without effort or any feelings of deprivation I drastically reduced my consumerism.

I just didn’t see the point anymore. 

Do you stick to a budget or otherwise structure your spending?

The only thing we do from a budget perspective is ‘pay ourselves first’. All the savings, investment, and mortgage payments are covered first. What is left for discretionary spending is limited.

What percentage of your gross income did you save?

From 2017 onwards I went from probably saving around 15% of my income – into pension and mortgage overpayments, with a small amount of cash as an emergency fund – to saving over 50% across cash savings – initially saving for a deposit for the house we now live in – as well as passive ETF investments and increased pension contributions.

Whats the secret to saving more money?

I reckon I’ve spent thousands of hours absorbing content, listening to stories, and digging into the dusty corners of the personal finance internet. It became, for a while, my main hobby.

I believe this rewired my brain to think saving and investing first, not spending.

Do you have any hints about spending less?

Not really. I don’t think I’m that disciplined. Perhaps I have just reached ‘peak stuff’ as I have gotten older and want fewer material possessions.

I’ve also got a lot of stuff from my pre-FI days that I still enjoy.

Do you have any passions, hobbies, or vices that eat up your income?

Travel has always been a passion that I feel justified spending on. My dad in particular always encouraged me to go and see the world. I’ve taken this to heart.

I’ve been much more frugal about how I manage these trips than I would have been pre-FIRE. But I still had the means to enjoy mid-range hotels and decent airlines, and to tick-off bucket list items, like seeing Ankor Wat at sunrise, walking among Komodo Dragons, moped-ing round the temples of Bagan, betting on horse racing at Happy Valley, walking The Great Wall of China, and admiring the blossoms in Kyoto.

I wonder what Financial Dragon sees in sun-drenched, surf-kissed Western Australia?

Investing: no edge as an edge

What kind of investor are you?

Since discovering FIRE I’ve been a passionate advocate for passive investing. I know I have no edge nor any great analytical ability, so I look for cheap trackers and feel fortunate to benefit from any market movements in my favour.

I pound-cost average in the main, and we buy monthly in our joint brokerage account. At the start of my journey I was putting larger lump sums into the market to get invested though. 

What was your best investment?

My London flat will probably end up being a good investment, but more from the point of view of not having to roll the dice on the rental market if we go back to the UK for a bit.

We may sell it one day, perhaps to fund building our dream retirement home. But for now it’s just a number on a screen that I deliberately under-value, because I don’t know where the London market will end up.

Did you make any big mistakes on your investing journey?

I’ve never taken any professional advice. I have and will continue to make mistakes, like buying slightly left-field ETFs at the start of my FI journey. But I still feel overall if I keep things fairly plain and vanilla, as I’ve increasingly done, then things will be ok. 

Given when we started we were very heavily weighted towards property in our portfolio, I’ve worked to diversify – and to ensure we’re not going to completely beholden to governments moving the goal posts on things like the retirement age for pensions.

Of course the biggest mistake was not finding FIRE or investing when I was 21.

What has been your overall return, as best you can tell?

Because I’ve not been a long-term tracker of our net worth and I don’t really think about returns, I don’t know. I just hope when I sell one day that our ETFs will have at least kept us on a par with inflation. No small ask these days!

I can say our net worth has increased by 70% since I started tracking in 2017.

A nice line graph in my spreadsheet shows our net worth gently tracking up over time. There’s a rollercoaster style dip from Covid in March 2020; this now looks insignificant. It’s nice to have my own personal proof point that you shouldn’t stress about market movements.

How much have you been able to fill your ISA and pension contributions?

Given where I was living when I discovered FIRE and my current country of residence, I’ve not been able to benefit from the tax shelter of ISAs. But I tell myself it’s a nice problem to have to be paying tax when we move to de-accumulation.

We both take full advantage of the tax benefits of Super – Australia’s word for pensions – and max our contributions, and I’m continuing to investigate self-managed Super Funds (SMSFs). These are somewhat similar to SIPPs and enable you to buy investment property.

There is no ISA equivalent in Australia, unfortunately – all the tax breaks are in investment property.

To what extent did tax incentives and shelters influence your strategy?

My strategy is to have control of our future, and not to be at the mercy of changes in, for example, pension or Super access ages. That has a cost, given we cannot invest in the markets in a tax-efficient way as you can in the UK. I feel it’s worth paying to be in control.

How often do you check or tweak your portfolio?

I jump into The Spreadsheet at least a couple of times a week. There are several tabs, and I’m always updating something, whether it’s with the latest value of investments, a new buy, information for my tax return, or tracking spending on a house project.

We’ve not really changed tack for the last couple of years in terms of portfolio planning. Paying off the mortgage and pound cost averaging into the market are the key activities.

Wealth management: death to the mortgages

We know how you made your money, but how did you keep it?

The plan, once I had discovered FI, was to try to get myself into as good a position as possible, as quickly as possible. That initially translated to much more proactively managing spending, cutting unnecessary costs, getting myself invested in the market outside of pensions, and putting my head down at work.

A big focus has been paying off our mortgage ASAP. We built a ‘mortgage pay-off tracker’ so we could predict when we’d hit this goal and to keep focused on it.

Investing contributions will probably pick up when the mortgage is paid off. I’ll also probably shift my attention to paying off the London flat. If we do decide to spend some time in the UK in the future, it would be nice to know we could live there without any monthly payments.

Which is more important, saving or investing, and why?

Investing, even with interest rates on cash looking healthier these days, because of the inflation hedge.

When did you think you’d achieve financial freedom?

I was originally aiming for 2025, but currently its looking more like 2028. I will be 50, and my husband 55, though he might finish work before then.

Has anything unexpected got in your way?

I didn’t expect to find a job in Australia that was similar to my previous roles in terms of seniority. This has helped our FI journey, but probably also contributed to a bit of a hedonic treadmill.

Why are you still growing your pot?

We’re the classic One More Year couple. As I said, we could be lean FI now. But given we want to travel and spend time with loved ones while we can, I’ll probably keep working at least for the next five years on a full-time basis. It would be wonderful if my husband stopped as soon as possible, even if this is more of a mini-retirement or sabbatical, to recharge his batteries and build resilience.

Perhaps when the kids are both independent of us, we might head to the UK for a couple of years and maybe pick up contracting work to pay for our adventures. 

Any further financial goals?

The key for me to the whole FI journey is having the comfort to know that if we did need a big pivot – for example if one of us was forced out of work due to health or other issues – we could fall back on the savings we have accumulated. While we would not enjoy the comfortable lifestyle we currently do – or might aspire to in the future – we would be more than able to meet our obligations, keep our current home, and so on.

I know that if something unexpected happens we should be able to roll with the financial punches. This is the ‘gold’ of FI.

What would you say to Monevator readers pursuing financial freedom?

Knowing that freedom could be accessed might be all you need to feel free. You may not need or want to pull the pin when you get there. The American FI bloggers call this having ‘F-You money’…

Any other business?

When did you first start thinking seriously about money and investing?

I’ve always had it in the back of my mind that I needed to get myself to a good place financially. But that FIRE epiphany was in 2017 as mentioned.

Did any particular individuals inspire you?

When I discovered FIRE I went deep. I read every Mr Money Mustache blog post. I followed his links and discovered other bloggers like JL Collins, and books like Millionaire Expat. I found yet more bloggers, like The Mad FIentist, The Escape Artist, Of Dollars and Data, podcasts like Choose FI (US), Financial Autonomy (Australian), and Pete Matthews’ Meaningful Money (UK).

And of course, I found Monevator, as my golden source for all things personal finance, delivered free – though I now happily pay for membership – to my inbox. 

Can you recommend your favourite resources for anyone chasing the FIRE dream?

Starting at the beginning with Pete Matthews’ podcasts gives you such a great base level of understanding.

Morgan Housel has such brilliant flashes of insight. I loved his book The Psychology of Money.

Oh, and Excel!

Any advice for any Monevator readers thinking of following you to Australia?

Work out what visa allows you the greatest freedom to pursue your dreams. There are some good ones for shortage skills or non-capital city living. Think about the cost of the visa, the paperwork, and the qualifications you will need to produce and the cost of getting your loved possessions and ones here.

I’m on a partner visa. This cost over £4,000, required the submission of over 70 pieces of documentary evidence of my relationship, and took nearly 18 months to be approved! (Things have got a bit simpler since I arrived though.)

Once here, shop around for a cheap Superannuation (pension) provider. Sign-up, and move that fund around with you from job to job, as you can now do in the UK, to keep all your money in one place.

If you do leave Australia permanently, you can get it back. That’s my understanding.

The Australian Taxation Office (ATO) website is pretty easy to navigate. Read up on topics that are relevant to you. If you have assets in the UK, you’ll need to keep submitting a tax return there as well as for Australia, but the tax you pay in the UK is deductible from what you pay in Australia.

The tax year for Australia runs from July to June. Keep good records to make multiple submissions on different timescales easier.

Finally, it’s very tricky to invest in Australia property if you are not tax resident here. So buying a house ahead of arrival is probably a no go.

Charity and legacy

What is your attitude towards charity and inheritance?

I don’t aspire to leave money to anyone – if that happened it would be a bonus (for them!) I am more interested in gifting what I can in life. For example to help with weddings, house purchases, and so on.

I’ve already gifted a decent amount to my nieces, asking for it to be invested to support the costs of their education. I also want to be there for my parents. I don’t think they will need my financial support, but given the complexities of funding old-age and social care – as expertly articulated in a series of Monevator articles on the topic, which I fully expect to refer to eventually – that may also be required.

As well as always wanting to support charities ad hoc, like those where friends are fundraising, we make regular donations to Give Directly. It is part of a suite of charities recommended by Give Well, an organisation dedicated to evaluating the effectiveness of charities and recommending those with the greatest impact. 

Give Directly sends no strings attached cash transfers to some of the poorest people in developing countries. The principle is that cash enables individuals to invest in what they need, rather than relying on aid organisations and donors thousands of miles away to decide for them.

This charity really resonates with me from the perspective of my personal finance journey. I don’t want to be told what I should be doing. I want to feel I have the agency to decide for myself. I’d like to think we will continue to give to this charity, potentially increasing the amount over time.

From an inheritance perspective, I really like the idea of my step-girls or nieces being able to take advantage of our flat in London to experience living in what I continue to consider to be such a fantastically diverse and culturally rich global city, despite our best efforts to hamstring it via Brexit.

I feel happy, whenever I return, to note that stories of its demise do seem to be somewhat over-blown.

What will your finances ideally look like towards the end of your life?

Our finances are complicated somewhat because they cross two countries and currencies. While this gives us the optionality we want, it will certainly be part of my longer-term plan to try to simplify as much as possible. We won’t want to manage complex tax affairs in our 80s. I’m also expecting that by then we will have picked the place we want to be, so we can consolidate to a single currency.

Simplification will likely focus on those investments outside of tax wrappers. I might break my own rules and take some pay-per-hour advice on our drawdown and decumulation strategy. I’m sure there will be some areas where we can optimise that I won’t be aware of, particularly around tax.

When it comes to starting to drawdown our accumulated retirement assets, I can see us taking a couple of mini-retirements where we perhaps take some time off to travel and then pick up work again, before we actually stop working all together. 

I’m not ruling out buying an annuity at some point, depending on where rates are. I want to find the sweet spot where we are no longer of a mind (or of sound mind…) to manage complexity, are probably not doing anything flash or that requires large lump sum spending (like travel), and we just need an amount to land every month.

I’ve continued my National Insurance contributions in the UK since leaving, which will mean I will be entitled to the state pension. If it’s still around!

Given there is no inheritance tax in Australia, it makes sense for us to be considered as resident here when we die. 

I know life can be unpredictable. All I can hope for is that we and our loved ones are healthy and that we will have the means to make the most of the time we have. Whatever that might be for us.

Thanks Financial Dragon! Of course a £2.5m pot would put many of us well into FIRE territory already. But remember our recent poll showing more than one in five Monevator readers is an additional-rate taxpayer? We’re a broad church, and I’m sure this chat will strike a chord with our many millionaires next door. Questions and reflections welcome, but please remember Financial Dragon is just a reader, sharing her story. Constructive feedback is welcome. Personal attacks will be deleted. See all our FIRE studies.

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The cheapest stocks and shares ISA on the market

A champions cup representing that this is the ultimate, cheapest stocks and shares ISA cost hack

What is the cheapest stocks and shares ISA available? The answer to that question is as simple as it gets. The cheapest stocks and shares ISA is the DIY option from InvestEngine.

Currently that’s the lowest cost stocks and shares ISA on the market because it costs nothing.

Zip. Nada.

Now that’s my kind of price range!

Read on for more about InvestEngine’s share ISA.

Cheap stocks and shares ISA hack news! If you’re interested in our investment ISA hack then there’s good news: iWeb Share Dealing has a special offer on. It has waived its usual £100 account opening charge until 31 December 2023. So you can sign-up for free, and take advantage of its zero platform charge thereafter. More on this below.

Cheapest stocks and shares ISA: good to knows

InvestEngine’s ISA costs zero for annual fees, dealing charges, FX fees, entry/exit levies and most of the other multi-headed investment costs that snap at our wallets like a financially-incentivised Hydra. (It’s little known that the Ancient Greek polycephalic snake-beast was on a bonus scheme. Fifty drachma per hero slain.)

The only costs you will pay are the usual Total Expense Ratio / Ongoing Charge management fees that must be borne when investing in any fund, plus trading spreads. So far, so standard.

The platform’s downside is that its range of ETFs is more restricted than costlier platforms, and you can only trade at fixed times per day.

Frankly though, I think that’s a reasonable trade-off. Especially because you can easily create a good investment portfolio from the ETFs available.

Read our full InvestEngine review. We like it. Just make sure you choose the DIY ISA, not the managed one.

Our only concern is how long can the service remain free?

We’ve previously investigated how zero commission brokers make their money. In InvestEngine’s case, it’s mostly hoping you’ll opt for its paid managed offering.

Cheapest stocks and shares ISA: alternative

The cheapest stocks and shares ISA runner-up is Trading 212. They also charge a big, fat zero for platform fees and trading commission. However, they levy a FX fee of 0.15% on transactions that involve foreign currency. (InvestEngine do not).

This piece explains how you can avoid FX fees using ETFs.

Some Trading 212 users also report paying higher bid-offer spreads on their trades than may be the case on other platforms. It’s very hard for us to know if they’re right, but no platform can afford to offer its services for free. They have to make money somehow.

Cheap stocks and shares ISA hack

What if InvestEngine’s prices creep up, or you don’t like its limited pool of ETFs, or want an alternative because you’re concerned about the FSCS investor compensation limit of £85,000?

In that event let’s recap our cheap stocks and shares ISA hack. It still delivers tax shelter satisfaction for an exceptionally low cost.

Here’s how the hack works:

  • You begin by drip-feeding into your stocks and shares ISA with the best-value percentage-fee broker on the market.
  • Once your ISA is full you transfer it to the cheapest flat-fee broker.
  • You don’t buy and sell your investments at the flat-fee broker. You only trade (for zero commission) on your percentage-fee platform.
  • In the new tax year, you open a fresh stocks and shares ISA with the percentage-fee broker.
  • Rinse and repeat.

You now enjoy a best-of-both worlds deal that takes advantage of the brokerage industry’s niche marketing strategies.

Percentage-fee platforms offer the best terms to small investors. They tend to rake it in once your account swells beyond £25,000 to £50,000. They’re relying on your inertia.

Flat-fee brokers offer good rates to large investors. They hope to make it up in trading fees. They’re relying on high rollers who treat their portfolios like a night at the casino.

You can arbitrage these cost models, provided you’re active in transferring your ISA and then near-comatose once you’ve parked it at your long-stay platform.

Cheap stocks and shares ISA hack in action

Vanguard Investor offers the cheapest percentage fee stocks and shares ISA.

It charges 0.15% on the value of your assets and zero for trading fees.1

Were you to drip-feed your ISA allowance in evenly (£1,666 every month), you’d pay approximately £16 in platform fees for the year.

Leave your assets with Vanguard forever though and it’d keep charging 0.15% until you hit its £375 cap – the point where your account has accumulated £250,000.

But you’re not going to hang around.

Instead, you transfer your ISA to the most convenient flat-fee platform for long-term stashing. There’s a few choices but the cheapest is X-O.co.uk when iWeb doesn’t have a special offer on.

X-O charges a quite reasonable £0 for platform fees.

Dealing commission is a much less competitive £5.95 a throw. But we’re not trading there so we plan to pay pretty much zero pounds to X-O.

Total cost of your stocks and shares ISA per year = £16. 

Not bad!

Just transfer your ISA from Vanguard when it’s full, or after you’ve paid in your last contribution during the current tax year.

Open a fresh stocks and shares ISA with Vanguard on new tax year day (6 April) while your old one is lodged with X-O, gratis.

Note that X-O doesn’t do funds. It does do ETFs though, so make sure your Vanguard portfolio only contains ETFs tradable at X-O before you transfer.

You don’t want to have to sell out of the market and then buy your portfolio again when it arrives at X-O.

Cheapest stocks and shares ISA comparisons

What are the cheapest stocks and shares ISA alternatives to X-O?

Next comes iWeb Share Dealing. It normally charges a one-off £100 to open an account. But your ISA platform fees are zero after that.

iWeb also charges £5 per trade, so its a little cheaper than X-O if it wasn’t for the signing-on fee. 

So it makes sense to pounce on iWeb’s current special offer: open a stocks and shares ISA (or a standard dealing account) and it will forget all about charging £100, so long as you are onboard by 31 December 2023.

There’s no apparent obligation to fund or trade in your new account. See the offer T&Cs. So even if you’ve opened a stocks and shares ISA elsewhere in the current tax year, you can still open an iWeb dealing account.

Once you’ve got your foot in the door, you can put the cheap stocks and shares ISA hack into action without having to pay £100.

Even if you’ve opened another type of ISA elsewhere this tax year (e.g. cash ISA or LISA), you can still activate a new stocks and shares ISA with iWeb.

Arguably, you can do so even if you’ve maxed out your annual ISA allowance, as iWeb don’t require you to fund your stocks and shares ISA with them.

But you can just as easily make this work with a dealing account. There’s no need to open a stocks and shares ISA if you don’t want to. (Remember, the hack entails transferring existing ISA holdings.)

If you miss the iWeb special offer then you could think about its account opening cost as £33.33 for three years and then nothing from year four on.

Any other options?

You’d expect to pay £36 a year for your investment ISA at Halifax Share Dealing.

Lloyds Share Dealing costs £40 for your ISA platform fee.

Trades cost extra at these brokers – but you do your buying and selling at Vanguard.

Sitting on a £20,000 investment ISA at Vanguard costs you £30 a year alone. Plus another £16 on top as you build up your current tax year’s ISA.

Still, the bottom line is that InvestEngine is the cheapest stocks and shares ISA. The Vanguard-X-O or iWeb combo places second in most scenarios if you make monthly trades.

The other downside with Vanguard is you’re restricted solely to its funds and ETFs. That’s okay though because it runs excellent, cost-competitive index trackers.

The other main compromise with X-O is its website is medieval (as is iWeb’s). Reviews on the likes of Trustpilot are distinctly average.

X-O and iWeb are bare bones offerings so don’t rock up expecting five-star customer service.

I’ve personally dealt with iWeb for many years and found it to be perfectly acceptable. Plenty of Monevator readers also get on fine with X-O.

Note: accounts held with Halifax / Bank Of Scotland, Lloyds Bank, and iWeb count as one for the purposes of the FSCS investment protection scheme.

Low-cost stocks and shares ISA: alternatives to Vanguard

You could replace the Vanguard leg of the hack with Dodl. That’s AJ Bell’s spin-off app-only brand.

Like Vanguard, Dodl charges 0.15% per annum in platform fees and nowt for trading.

However, your fees would be higher because Dodl charges a £12 minimum fee no matter how empty your account is.

It also features a restricted fund and ETF range, though it’s not Vanguard only.

Wombat is slightly cheaper again (0.1%, plus £12 acount minimum) but its ETF list is extremely limited.

Close Brothers is your next stop among the percentage-fee brokers. It charges a 0.25% platform fee and zero commission for funds. ETF trades are £9 a pop, with no mercy for regular investors.

If you hate the idea of filling in transfer forms then you can make the entire hack work at a slightly higher cost at Fidelity:

  • Buy funds monthly for zero trading fees while racking up platform fees at 0.35% per annum.
  • Once you hit the breakeven point, sell your funds and buy as few ETFs as possible to reconstitute your portfolio at £10 a trade.
  • Fidelity caps ETF fees at £90 per year.

Using this scheme, there’s no need to worry about which year’s ISA you’re transferring. The entire dosey-doe happens within your Fidelity stocks and shares ISAs.

It works because Fidelity act as a percentage-fee/zero commission broker with funds, and a flat-fee broker with ETFs.

Check out our comparison of ETFs vs index funds.

Tidying up the loose ends

All the cheap stocks and shares ISA options laid out above handle ISA transfers free of charge. Though X-O levies an exit fee should you decide to leave. (iWeb does not).

You need to transfer your investments in specie (so they’re not sold to cash) to avoid paying dealing fees to your flat fee broker at the other end.

In Specie or re-registration transfers mean you don’t have to worry about being out of the market either.

Check your new broker offers the same funds and ETFs as your old one.

Invest in accumulation funds and ETFs from the beginning. This will save you paying to reinvest dividends at the flat-rate broker.

I’ve ignored rebalancing costs once you’re all parked up at your cheap platform. A small investor should be able to rebalance with new money. Anyone with an embarrassment of riches can set their rebalancing alarm to once every two or three years. That gives you just as good a chance of being up on the deal as any other rebalancing method.

Or you could invest everything in a Vanguard LifeStrategy fund if you’re not at X-O (which is ETF only). LifeStrategy is a multi-asset fund that takes care of rebalancing for you.

Either way, rest assured this manoeuvre does not contravene the stocks and shares ISA rules:

  • You can have as many stocks and shares ISAs as you like, so long as you don’t put new money into more than one per tax year.
  • Transferring old ISA money or assets does not use up your ISA allowance for the current tax year or break the one-type-of-ISA-a-tax-year rule. 
  • So every tax year, you can open a new ISA at the percentage-fee broker, and ship last year’s ISA to the flat-free broker.
  • You can transfer any amount of your previous years’ ISA’s value. You can transfer the whole lot into one ISA, or transfer a portion of it into several ISAs, or any other combo you desire.

For more on stocks and shares ISA transfers.

To calculate your cheapest platform option.

Our broker comparison table tracks the UK’s best platforms.

Cost shavings

If you truly want the cheapest stocks and shares ISA possible then you’ll need to factor in the cost of the low-cost index funds and ETFs available on any platform versus those available through Vanguard.

Paying slightly higher OCFs than necessary could overwhelm your platform fee / dealing fee savings. Be especially vigilant if you have a very large portfolio.

None of this takes into account the value of your time spent filling in forms. Although when you’re getting this anal then maybe that’s a net positive. (A person’s gotta have a hobby!)

Take it steady,

The Accumulator

Note: Links to platforms may be affiliate ones, where we may get a paid a small fee if you sign-up. This doesn’t alter the price you pay.

  1. You pay zero for trading ETFs as long as you accept the fixed daily trading times. []

Weekend reading: out-of-office notification

Our Weekend Reading logo

What caught my eye this week.

The Financial Times has a piece about a Morgan Stanley piece (still with me?) about where we’re at in the three-year old tussle between working from home and returning to the office.

Its most striking graph shows that of the four major economies surveyed, the UK’s employees worked the fewest days at home pre-Covid – and yet now they work at home the most:

They’d do even more if they could, too. (Dark green bar.) It’s such a striking turnaround.

Did UK workers not appreciate how miserable their remorseless schlep to the office was before the pandemic showed them another way?

Did UK employers not trust them?

Or is something else going on in the UK economy as a result of the pandemic that has enabled this transition? (Or is this some artefact of data sampling clashing with local cultural practices?)

My gut says it’s probably in part a London thing, given its dominance. The City is still dead on a Friday.

That’s reinforced by a graph showing how the wealthier the worker, the more days they tend to work from home – and we know more wealthy people work in London.:

Indeed, the lowest income workers are now working fewer days from home. (As if they didn’t have enough to deal with already.)

When we last checked in on this issue in March, big employers seemed resigned to a more remote workforce. This despite a lot of rhetoric about how things had to go back to normal soon.

Yet here in November it does seem like all the hot air urging a five-day commute was exactly that.

At some point politicians and planners will have to do more with this shift than simply use it as an excuse to scrap HS2.

Hurrah! More Monevator members

A quick thanks to everyone who just signed up to our Mavens member subscriptions on the back of The Accumulator’s new decumulation model portfolio.

Sure, the company I talked about last week in Moguls went up more than 30% on Thursday. (Something that won’t happen again in the next five years – so please don’t join up expecting a repeat performance!)

But @TA’s passive mantra is the heart of this site. So I’m thrilled to see so many more of you helping to ensure Monevator’s long-term future – whilst booking a ringside seat on @TA’s new adventure.

Some housekeeping notes for new members:

Allow third-party cookies and no ad-blockers. Now and then a member reports they cannot log into Monevator as a member, to read member articles. In all but one case, cookies were the issue. You have to allow them for the software to know you’re logged in. (There are no ads for members anyway. 🙂 )

Make sure you’re subscribed to get our emails. A couple of dozen members are not getting member emails. In some cases they may not want emails and are reading on the site. But I bet a few are confused. Basically you have to get all our emails to get any – both the free site articles and your member articles. You can’t just get the latter. If you ever unsubscribed from our emails – or failed to confirm you wanted them when prompted by an email – then the system won’t send you member emails, either. This is best practice, because we’re not spammers. But please do re-subscribe if you want to read member articles over email.1

Change your nickname before you post a comment when logged-in. Otherwise you may accidentally reveal your real name. Please see the FAQ.

We are now about 80% of the way towards the rough target I set for us as a sustainable membership base. (Albeit that’s ignoring inflation, and assuming not everyone signs up for the cheaper Mavens).

So we’re nearly there – but not quite there yet.

Please do consider joining if you’ve not yet done so. You’re in good company these days!

And thanks yet again to everyone who has already become a member.

Have a great weekend!

[continue reading…]

  1. And confirm when sent a link to do so. []