Consumer Duty has been hailed by some as the biggest overhaul of financial services in 30 years. But to this jaded inexpert outsider – and skim-reader – it has mostly come across as either stuff you’d think a regulator would be regulating already, or else an open-ended mandate to change the playing field as it goes along.
However this story in the Financial Times this week was pretty notable:
The UK Financial Conduct Authority has ordered asset managers to justify the fees charged on their funds, adding to the pressure firms are already facing from the rising popularity of cheap passive trackers.
The regulator on Thursday said a review of authorised fund managers showed that tensions between profitability concerns and assessments of funds’ value for money were influencing how much to charge clients.
The rise of passive investing in recent years has spurred competition within the industry, forcing some funds to reduce their fees and sparking a wave of consolidations as asset managers battle to cut costs to maintain their margins.
However, despite the reduction, the regulator has sought to reform the way fees are calculated, arguing that some asset managers are still failing to provide good value for clients facing high charges.
Active fund managers having to prove their funds are worth the money?
I imagine the industry has already drafted its initial reaction:
Given that all but the most incurious investors know there’s now abundant evidence that the majority of retail funds underperform their benchmarks, you almost wonder what the FCA is thinking here.
Does it want to blow up the golden goose that funds it?
If the regulator was just going after fund marketing, then perhaps the active fund industry would have a chance.
A start-up index fund manager used to tell me it was hard to compete with actives via advertising because he wasn’t allowed to cite positive performance comparisons in marketing. I have no idea if it was that simple. But certainly I noticed afterwards that active fund adverts focussed more on ships sailing over choppy waters or cartoons of Victorian-style adventurers hunting profits in the jungle than on citing any market-beating statistics. For obvious reasons, in the majority of cases, you’d have to think.
In any event, the FT headline reads: “FCA tells UK asset managers to prove they offer value for money”.
And this, frankly, seems an insurmountable challenge, on an industry-wide basis.
Cruise whiner
I’m not saying fund managers are evil or that beating the market at a portfolio level is all-important for every investor or that no active fund has ever outperformed for decades.
None of that is true.
But it’s a stone-cold fact that most active funds lag their passive equivalents, over the long-term.
So on the face of it, fund managers are just not going to be able to prove that most funds ‘offer value for money’. At least not whenever there’s a cheaper index fund equivalent available.
Hence, as characters used to say in 1990s sitcoms to make sure you noticed a plot twist …
…this should be interesting.
It’d be good to hear from any readers – or industry insiders – who’ve delved deeply into the Consumer Duty standard in the comments below.
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Hurrah! We’ve persuaded another Monevator reader to pull up a pew and tell us their strategy for financial independence (FIRE). Learn how 42-year old Geoff – FatBritAbroad in the Monevator comments – is on-track to retire comfortably at 50, even if he stopped saving tomorrow.
A place by the FIRE
Hello! How do you feel about taking stock of your financial life today?
Very honoured to be asked – but a little nervous!
How old are you?
I’m 42 and I live with my fiancee who’s 40. We’ve been together for nine years and will get married next year.
Do you have any dependents?
One daughter, aged three. And a dog – does he count?
I would have previously considered my mother as a dependent, but she passed away at the end of 2021. My father is in his early 70s and my stepmother is late-60s. Both are far fitter than me!
Where do you live?
A suburb of Reading on a quiet side road.
I was born in Stockport but moved down at a very young age with my dad’s job. My mum had long-term health issues, so when I moved out of the family home I wanted to stay close.
Location-wise it’s very convenient – you can walk to the shops, doctor, café, children’s nursery and so on. It also has a 24-hour bus service which saves on taxi fares. London is just a short hop on the train.
But both my partner – who’s Cornish – and I would love to be in the countryside. We’re wrestling with when to make that move.
When do you consider you achieved Financial Independence (FI)?
That’s the million dollar question!
I’d class myself as ‘LeanFI’ ((The low-budget take on Financial Independence Retire Early.)) or possibly ‘CoastFI’ ((Standard Financial Independence Retire Early, but it’s still a few years away. They key is you coast there on investment growth, without needing to save any more.)) in that my essential bills are covered and I could live a semi-frugal life (by my standards) without working.
I probably don’t have assets in the right places to fully retire yet to the life I want. However even if I don’t save another penny, the growth on my assets should easily get me there.
Will I ever decide I’ve got enough? Or will the goalposts will always move?
Assets: a cool million (and a bit)
What’s your net worth?
£1.1 million.
How’s it comprised?
I own my house worth around £600,000, with an interest-only mortgage of £270,000 – fixed until 2027 at just 0.99%, thankfully. (Yes, I am that insufferably smug person at parties.)
There’s £270,000 in ISAs and other investment accounts and £450,000 in pensions, as well as about £45,000 in cash.
This is between me and my partner. But the vast majority is in my name.
I also have – on paper – a stake in my employer. If it works out that should net mid six-figures. But I don’t count that yet. I also don’t count jewellery or cars in my net worth. If I did there’s about £50,000 of assets there.
I’ve thought about a buy-to-let. But property terrifies me. It’s so illiquid!
Can you explain how these assets will let you coast to FIRE ?
The 4% rule is my guide. So: £750,000 at age 42. Let’s say I retire at 65 like normal people. A 5% real return gives me £2.3m in today’s money. Plenty.
That’s not taking into account our two state pensions or my house equity or future inheritances. So I’m okay should the worst happen and I can’t continue to put savings aside. It’s just a question of when.
What’s your main residence like?
It’s a four-bed one-bathroom semi built in the 1930s, but extended. There’s a large kitchen, decent-sized rooms, and so on. It was my house originally and when I got divorced a few years ago I was fortunate to be able to keep it, then my now-partner moved in.
I would like a larger house with a second bathroom. Emotionally I love the idea of choosing a property with my partner, which she can really call hers. But having just become effectively mortgage-free, I’m struggling with the idea of taking on extra debt again.
Do you consider your home as an asset?
It’s an asset in that I could sell it and realise the cash. But it’s definitely not an investment.
My opinion on property has changed. If I had my time again I’d have stayed in a much smaller property and built up other assets before upsizing. But they don’t teach you these things in school.
This was why I went interest-only on my mortgage a few years ago. I realised tying up a load of money in a property wasn’t very smart and that you could be ‘mortgage free’ by holding equivalent assets elsewhere, while hopefully generating higher returns – as well as having access if needed – and so be far more secure overall.
My opinion is most people in this country own far too much house – by necessity, given house prices – and not enough of everything else.
Earning: by the book
What’s your job?
I’m a broker dealing with business insurance. I advise businesses on risk and have my own roster of clients.
The industry has changed in the last few years and I don’t enjoy it as much as I did. I find the stress difficult, which is what led me to explore FIRE.
My partner works in marketing.
What’s your annual income?
£100,000 exactly! Plus 6% pension contributions. I also earn bonuses for referring clients to other parts of the business, and a theoretical earn-out if the company does well.
My partner works four days a week and earns £32,000 plus an annual bonus – usually around £3,000.
How did your career financial plans progress over the years?
I was interested in money from an early age. I think this stemmed from my background, which is upper middle-class.
My dad was a CEO of various mid-sized companies so he earned good money and was self-made, having come from a very poor background. So I had a very privileged upbringing. I went to private school and always felt I needed to prove myself.
After finishing A-levels, I took a year out before university. I worked in an insurance call centre dealing with personal lines insurance. My first salary was around £10,500 a year.
I decided not to go to uni. Instead I got a job with a small family broker and learned the ropes on commercial insurance. I quickly realised that’s where the money could be made.
Starting salary was around £14,500 in personal lines. During that time I studied and got my insurance diploma. I then went into commercial and worked there for a seven or eight years, with various small increases in salary, before that company was bought out.
I stayed on for two years but I really wanted an advisory role. The business was willing to let me do the job – but didn’t want to pay me!
So I left, but then returned within six months in an advisory role. By now my pay was around £29,000 and I was aged about 30.
The turning point for me was aged around 32 and earning around £32,000, when our company offered us a new contract. We’d be paid as a percentage of our book value. I was good at my job and had a decent-sized book – and I was vastly underpaid. I realised the new contract would result in a 50% hike in my salary year one!
Unsurprisingly I jumped at it. This was life-changing, as I’ve been lucky enough to grow my account by 5% to as much as 20% every year since.
It’s an unusual path to a six-figure income…
Yes, I’m unusual possibly in that I’ve only changed companies three times. And one of those was to go back to my old firm after four months!
The last time was at the end of 2021 when the company I’d worked at for 15 years was bought by a large international brokerage.
My old CEO left, set up a new business, and invited me to join. I was burnt out in my old job – I was already struggling when the pandemic tipped me over the edge – so I decided for once to take the ‘risky’ option.
It’s been a tough first year – particularly losing my mum at the same time – but I’m glad I did it. It’s been a massive confidence boost, which I needed.
What did you learn on this path that you wished you’d known earlier?
That careers aren’t linear and to not put so much pressure on myself to earn a certain amount by a certain age.
The decisions I took were purely financial, whereas I wish I’d got more varied experience. That would have stood me in better stead now. I’d like to change careers but have no idea what else I’d do!
I guess it’s natural when you’re a low-earner to focus on the salary. But when I hit my target of £100,000 a couple of years ago, I was surprised it didn’t make me any happier.
Do you have any other sources of income?
I regard my investments as my alternative sources of income. But that’s it.
Did pursuing FIRE get in the way of your career?
That’s an interesting question. One downside of FIRE is as I’ve become more financially secure, the drive to progress has diminished. To the point where I’m considering going the other way – to a lower-paid, less stressful job.
A lot of my self worth is wrapped up in what I do and what I earn though, and I have felt like this would be going ‘backwards’.
The reality is I’m bloody lucky to have the choice.
Saving: dealing with temptation
What is your annual spending?
It’s changed recently as I’m trying to enjoy the money more.
My annual spending has been around £40,000 in recent years. That includes nursery fees, which are extortionate!
I now keep my fixed costs as low as possible but splurge on one-offs. My basic bills are less than £2,000 per month.
Do you stick to a budget?
I used to, ruthlessly. But there’s such a decent margin between our earnings and our fixed costs now that I don’t really budget anymore.
I do use an app to track spending and investments. The latter is mostly automated, and I also top-up with extra spare money.
What percentage of your gross income did you save over the years?
I’ve always been a saver, even on much lower wages – at least 15% into a pension. I had around £100,000 by 30, despite not earning a high wage.
When I found FIRE and with my earnings increases, my savings rate rose to as much as 50%, particularly during the pandemic.
What’s the secret to saving more money?
Paying yourself first and earning more.
Do you have any hints about spending less?
Focus on what you can control and shop around for fixed bills where you can. Allocate time to this or it will drift.
Do you have any passions or hobbies or vices that eat up your income?
Yes! I often describe myself as a FIRE groupie. I love the philosophy of intentional spending and high savings rates – but I am a product of my upbringing and I struggle sometimes with wanting the finer things in life.
I do indoor rock climbing as a hobby and for fitness. We enjoy travel – harder with a child now – and we like short breaks and nice hotels and restaurants. I’m more about spending on experiences than things, though I did buy myself a nice watch with part of an inheritance as a keepsake.
I limit myself to maybe once a year going to top restaurants and five-star spas. Otherwise it’s free holidays to Cornwall, staying with parents, and playing on the beach.
I’m slowly realising that I enjoy these simple holidays as much as swanky hotels. Part of my journey is deciding whether I really enjoy those fancier things enough to continue to work for them.
I’m definitely a work in progress. Is SchizophrenicFIRE a thing?
Family in Cornwall is perfect for FIRE-friendly getaways.
Why are you still saving if you believe you’re on-track to hit FIRE?
A multitude of reasons – starting with anxiety, which I’ve had counselling for this year and which led to me to try to enjoy spending more now.
I’ve found it helps to consider purchases as a percentage of my net assets. If I’m making a fairly big purchase and it’s less than 1-2% of my net assets, I spend more spend freely now.
And 1-2% of £750,000 is a lot! I think this is the biggest difference in your attitude to money when you’re wealthy versus just having a high income. Though I don’t really feel well-off yet – I was shocked to read statistically I’m probably in the top couple of percent in the UK for my age. Saving into accessible ISAs and keeping more in cash has helped.
I’d like to bring my retirement date forward, but having prioritised pensions for so long I don’t have assets in the right place yet.
My aim is ‘FatFIRE’ ((The luxury higher-income version of Financial Independence Retire Early.)), but with the option to retire earlier on less. It’s a moveable feast as I’m trying to work out what makes me happy instead of living up to my father. The important thing is flexibility.
I do want a feeling of security whatever happens, and I’d like to be able to help my daughter without it impacting our own living standards.
Finally, there’s a certain amount of making hay while the sun shines. I feel very lucky to end up on this salary, and I want to make the most of it.
Investing: passive, with small lapses
What kind of investor are you?
I’m boringly passive but aggressive – 100% equities at the moment. Almost everything is in a Vanguard global ETF. But I also have a nominal amount in Fundsmith because I like Terry Smith’s targeted approach.
I need to bring some bonds in. But I can’t get my head round why I wouldn’t just hold say three years cash and the rest in shares when I retire. More reading required!
I have a few thousand in a share called Pantheon International too. That’s about as far from a tracker as you can get.
What was your best investment?
Definitely my pension. Given I only really started earning good money ten years ago, I’m living proof of the power of starting early and compounding.
Did you make any big mistakes on your investing journey?
Probably not keeping my first house as a buy-to-let – and divorce. While it was amicable, it cost me £150,000.
The biggest other mistake was falling into the leasing trap for cars. I did this for six years. I rationalised the monthly payment wasn’t much more than the loan I had for my old car, for which I could drive a nice new BMW. A car allowance covered most of the cost.
It was only after reading blogs like Monevator that I realised that between the payments and the opportunity cost this cost me probably around £60,000!
What has been your overall return, as best you can tell?
Being a passive investor I don’t track returns – I wouldn’t know how! I know my money will do better in investments than cash and that’s all that matters.
How much have you maxed out your ISA and pension contributions?
I’ve filled my pension several times – including making use of previous years allowances when I’ve had lump sums from SAYE ((Save As You Earn.)).
I usually fill one ISA. I haven’t made much of a dent in my partner’s.
When my mum passed I received an inheritance of around £150,000. I’ve kept a lump sum from that in cash as I’ve never held much before.
To what extent did tax incentives and shelters influence your strategy?
More than it should. I’ve had a weird mortal fear since I was young of being poor in old age so I prioritised my pension, especially when I became a higher-rate tax payer.
I’m now dialing back as of this year, despite the tax hit, which may have been the wrong way round to do it. But I’m still contributing 16% with my employers’ match.
How often do you check your investments?
Daily but only because I find it interesting how the market movements affect it. As your assets grow you’re supposed to become more risk averse but to me it’s been the opposite. The numbers don’t feel real anymore.
When the pandemic hit and the market tanked I upped my pension to the max and did the same with my ISAs.
Wealth management: wealth is health
We know how you made your money, but how did you keep it?
I’m fortunate I’ve always been a saver so I’ve always saved the maximum I can each month. Any lump sums like bonuses or inheritances I regard as just that – a bonus. I invest those as they come.
I suspect I’ve topped out, salary-wise. I’m probably paid 25-50% more than is standard for my job role, and I’m not confident if my new job doesn’t work out that I would get anything like this elsewhere.
My plan is to continue to save 20% of my net salary, but prioritising ISAs for flexibility. This hopefully has me retiring at 50 – or at least gives the option.
I was aiming for a million and a paid-off house but now think I will need more like £2m for the lifestyle I want.
One more year, anyone?
Which is more important, saving or investing?
The savings habit is crucial to build some assets, but then learning about investing is how you make real wealth as a normal person. I wish I’d known this in my 20s.
We’re conditioned by social media with a perception of what a millionaire is – private jets and flash cars. When you get there you realise a million is very attainable. Also – it sounds stupid to say so – but it’s not that much!
Was financial independence a goal with a timeline?
It’s been a goal since I was young though I didn’t have a word for it.
My early goal was to have the option to retire at 50, as I’d seen a lot of people lose their jobs and struggle to get a new one.
Did anything unexpected get in your way?
My divorce was a big shock. We’d been together since we were teenagers. I had a life plan laid out and suddenly it was ashes.
I think a lot of my stress and burn-out stemmed from that.
A lot of people fear divorce will derail their finances for life…
Yes it’s normally a catastrophe. It wasn’t in my case for a few reasons.
We were both high-earners, yet we were young so we had few assets. Also there were was no kids.
Once I realised it was over I became very practical on the finance side. We agreed to a 50-50 split and not to touch pensions.
We had only bought the house a year before so there wasn’t that emotional baggage. I thought about moving and looked at apartments but they weren’t much cheaper. I realised I could keep the house, just about, with a mortgage of nearly six-times my then-salary. I rented two rooms to friends on mate’s rates and that basically covered it.
I was single for about a year before I met my partner, who moved in after 12 months. She was renting the flat she’d had with her ex and couldn’t afford it anymore. I paid my mortgage down aggressively and thanks to salary increases and price rises after five years I could remortgage at 60% LTV.
So divorce was more of a blip for me, as I continued to save aggressively into my pension. A high saving rate is a superpower!
Does money cause friction with you guys, given the wealth disparity?
Great question. Having seen parents in this exact situation tear themselves apart in a divorce I’ve chosen a different approach.
We had the money conversation very early. My partner is very independent and – quite rightly – insisted on paying for every other date.
After a couple of months I sat her down and said: “I want to ask you a personal question. How much do you earn?”
She was earning less than a third what I did, on which she was supporting herself and paying rent. She had less than £50 spare a month after essential bills. I said I didn’t want to be a meal ticket but I’d like to do things she may not be able to afford and it would suck the enjoyment out if I worried about her. I get pleasure from spending on others – more than I do on myself.
I suggested that if I took her out I would assume I was paying and then she could contribute what she was able to, so she didn’t feel she was taking advantage. It worked well. We’d go to the theatre and she’d pay for the train tickets and I’d pay for the seats and dinner, for example.
When she moved in she paid me rent to begin with – her choice, not mine. I kept it in a separate account and made sure she knew it was there and that if we broke up she’d have it back as an asset. She’d had nothing from her ex.
She’s still fiercely independent but she trusts me completely. She knows I’m good with money. She’s frugal but doesn’t understand investing. There are no secrets and I involve her as much as I can. She pays the nursery fees, enabling me to invest more and I made her up her pension contributions as she had very little when we met. She pays a bit into our ISAs (in her name) and the balance of £600 or so of her income she spends on her mobile and as she sees fit, so she doesn’t feel beholden to me.
It’s a struggle to even get her to put non-frivolous spending like petrol for her car on our joint credit card, instead of taking it from her ‘fun money’.
I’ve continued to contribute to her pension periodically. The house is still in my name – one reason I want to remarry. We’ve been together nine years and the vast majority of our assets were built as a couple. She’s been instrumental in supporting me. If we broke up she’d have a home bought and I’d support her and our child until the latter was 18.
It’s what you sign up to. When I left my job she knew it might not work and when I said I might end up on a lower salary and I was the main breadwinner she responded: “being the breadwinner involves keeping some kind of roof over our heads and food and clothing for your daughter. It does not involve business class flights and luxury hotels”.
She’s a good egg. It works because we’re both empathetic of the other’s position.
Do you have any further financial goals?
I would love to be in a position to buy my daughter her first small property. Despite my wealthy background I received almost no help from family and it was only my financial weirdness from a young age that meant I started early.
There’s a balance with these things as I don’t want her to grow up with no struggles. But it’s even harder now than it was when I was young.
At least she already has an ISA and pension!
We’d like to move to Cornwall in the next few years but the salaries aren’t what they are here. And although I work from home most of the time I’d also worry about commuting.
We’ll move when money isn’t an issue anymore.
What would you say to Monevator readers pursuing financial freedom?
Even if you don’t want to retire early, having financial security is life-changing. You never know how you will feel a few years from now.
I always thrived on high-pressure jobs but the last few years are the closest I’ve come to knowing what mental illness feels like. The knowledge I could walk away and be okay has helped me cope.
Wrapping up
When did you first start thinking seriously about money and investing?
I’ve been interested since I was a teenager. From some counselling I’ve had recently, I think it stems from the fact that although I was privileged financially, my childhood was very chaotic – a parent with mental health issues, several breakdowns in my parents’ marriage culminating in a very acrimonious divorce – and I think that instability meant I craved security.
From starting work my process was basically invest a lot in my pension, save a big chunk in cash for things like houses and cars and a safety net, then spend the rest like most people. It was only in the last ten years that I began to think more seriously. Particularly with the big jump in salary.
I began by dabbling with individual stocks and shares. I thought the way you invested was to keep most of your money in cash and then gamble on the market with the small amount you were willing to lose.
It will sound ridiculous to readers given I work in financial services but I suddenly had a light bulb moment: I was already entrusting my financial future to the market with my pension. Through all its ups and downs I’d continued to invest. So why wouldn’t I invest that way in my ISA?
This led me John Bogle’s book and finally to Monevator. My eyes were opened, and at last I understood how the market worked and felt comfortable putting nearly all my money into it.
On a personal note, I also lost a close family member aged 53 suddenly who was a classic high-earner, high-spender. This coincided with me getting towards where I wanted to be salary-wise, and realising I wasn’t any happier than when I earned less. Together with my divorce it all had a profound effect on me – almost a mid-life crisis, in my mid-30s.
All my goals were financial and they felt quite hollow to be honest. A Pyrrhic victory. But then I discovered the FIRE movement. The philosophy resonated with me as a way out. I haven’t looked back since.
Did any particular individuals inspire you to become financially free?
In terms of people in the movement, The Escape Artist and Monevator were the first blogs I’d read.
My grandfather retired at 53. Seeing him have a number of very happy years before Alzheimer’s took him in his 80s – with a cruel decline from his late-70s – brought home that life is too short.
What resources would you suggest?
Monevator is hands down the best blog I’ve read both in terms of simple and complex topics. (I’m not on commission, honestly!)
I’m generous on an ad hoc basis when something resonates with me but I need to do better at giving more regularly. I guess it’s part of my financial anxiety that I don’t feel able to yet.
I’m more on the ‘charity begins at home’ side. Our extended family don’t have much, so we treat them to experiences they wouldn’t otherwise have.
Inheritance wise I’ve been called a champagne socialist… Set the limit to a decent amount – what I’m not sure, a million does feel low in today’s world – and then tax based on the income of the recipient, that’s my feeling.
If the money could be ring-fenced for social mobility plays I would be very pro that. It’s easy to say I did everything myself but the reality is with a private education and the ability to live at home and save I was streets ahead of friends who are successful now, but who struggled early on.
What will your finances look like towards the end of your life?
I’m mindful of the trap of holding on to assets too long on the off-chance I might need a golden bedpan when I’m 80. I’d like to pass them down earlier and teach my child to manage money to build a legacy for her.
On-track for FIRE on-demand, and with a fair wind any remaining challenges look mostly mental to me. We love to see it! Questions and reflections welcome but please remember Geoff (/FatBritAbroad) is a reader sharing his story, not a hardened trench warrior like moi. Constructive feedback is fine. Personal attacks will be deleted. See our other FIRE case studies.
According to the BBC, the Great Resignation in the US is ‘over’:
Since the Covid-19 pandemic took hold in 2020, millions of workers have left their jobs.
In the US, 47 million people quit in 2021, and 50 million more in 2022, according to data from the US Bureau of Labor Statistics.
The continued exodus was so significant that in May 2021, Anthony Klotz, then-associate professor of management at Texas A&M University, coined the term ‘Great Resignation’ to put a name to the trend.
The Great Resignation was unprecedented – and particularly striking against a backdrop of incredible global uncertainty. Now, however, economists say it’s over.
Something similar happened in the UK to a lesser extent too. Employment has remained surprisingly resilient. And in a strong jobs market it’s obviously easier to switch jobs.
I’d also suggest inflation is an incentive and a driver. A company constitutionally equipped to give maximum pay rises of 5%, say, can quickly find most of its workforce disgruntled and playing job Frogger when inflation is nudging 10% and salaries at rivals have been re-calibrated accordingly.
Scrabble
What has apparently been distinctive with the UK’s post-Covid workforce – or otherwise – though is the rise in people too sick to work.
In November the ONS said 2.5m people cited long-term sickness as the reason for their economic inactivity. Before Covid that number was two million. Both the half-a-million increase and the total look pretty chunky, even in the context of the nearly nine million economically inactive overall.
Nobody seems quite sure what’s going on. Long Covid was blamed a lot at first, but a House of Lords committee recently concluded that early retirement among older workers was a bigger driver.
Either way, it’s interesting how the narrative has developed in the US versus the UK.
While older workers certainly left the workforce at an increased pace in the US too, the bigger spin was “Covid made me reevaluate my career and switch up” rather than the “Covid made me realise life is too short for more work so I quit” pieces that I’ve read many times in UK coverage.
A political take could be even our stretched welfare state better supports quitters than North America’s. There, poor, unhappy, and/or underpaid workers maybe have to job hop rather than drop out. Many of those who do want to quit can’t afford to – not without a generous state at their back.
A seductive theory, but there are plenty of ways to push back. Not least that many over-50s in the UK who did quit work early due to Covid now seem to be much poorer as a result.
Game of Life
I’ve a hunch that a deep dive into the statistics might reveal the bigger difference lies in the kinds of stories our two countries prefer to tell to and about ourselves.
Interestingly, some pundits believe US workers have stopped resigning because jobs have actually got better, thanks to a combination of working from home flexibility and the one-time job switches.
From the BBC article again:
Job satisfaction is now higher than it’s been in nearly four decades, according to survey data from the Conference Board, a non-profit think tank that has tracked job satisfaction since 1987.
In a late 2022 survey of nearly 2,000 US workers, more than 60% reported being content with their jobs, and some of the most satisfied are those who quit one job for a better one during the pandemic.
That would be an awfully happy outcome from a pretty terrible period. And a bit of a shame that the reluctant quitters amongst those over-50-year-olds in the UK couldn’t find a happier last hurrah. One that left them better able to retire eventually in more comfort.
But what do you reckon? Did you quit work outside of your goals or expectations over the past few years – or know others closely who did? Please share your thoughts in the comments below!
Sometimes you just need a little bit of inspiration. A template that you can adapt and make your own. That’s what these investment portfolio examples provide.
I’ve chosen them because each offers a different perspective on asset allocation that you can customise to suit your personal financial objectives, circumstances, and temperament.
The truth is there is no one portfolio to rule them all. Whichever load-out ‘won’ the last decade or three is unlikely to top the podium in the future.
Instead of dwelling on yesterday’s winners, this selection of model investment portfolios enables you to answer the question: “what does a rational, diversified asset allocation look like?”
The trick is to pick one that chimes with your attitude to risk, time horizon, and tolerance for complexity. From there, you can mould it around your situation as you gain in confidence and experience.
We’ve also included shortcuts with each to a comparable portfolio on the low-cost InvestEngine platform, as an illustration. ((Equivalent index trackers are chosen when InvestEngine doesn’t stock the article’s suggested fund.))
Note these are affiliate links. InvestEngine is currently offering a £25 welcome bonus when you sign up using our link. Also, if you set up a savings plan to regularly autoinvest with InvestEngine before 31 August, you’ll be in with a chance of winning £1,000 (Ts&Cs apply). You don’t have to sign up to see the investment portfolio examples. Remember that when investing, your capital is at risk.
Okay, let’s get stuck in!
Harry Markowitz Portfolio
Asset class
Index tracker
OCF
50% Developed world
Amundi Prime Global ETF (PRWU)
0.05%
50% Medium bonds
Invesco UK Gilts (GLTA)
0.06%
This easy-as-it-gets portfolio is based on the tale of how the father of Modern Portfolio Theory solved his own asset allocation dilemma. Unable to decide, Harry Markowitz simply split his money 50/50 between the two most important asset classes: equities and government bonds.
The Markowitz portfolio is particular suitable for first-timers who don’t know how they’ll react to market volatility. A 50% equity allocation is conservative enough that you’re unlikely to be frightened off shares for life if you’re whacked by a big crash early on.
Later, you can adjust your allocation in line with your risk tolerance when you know better how well you cope with turbulence.
From here, you can easily move up the gears to a classic 60/40 portfolio, or even more gung-ho allocations if you discover you’d sell your grandmother to buy more shares in a market meltdown.
Whatever you decide, investing doesn’t have to be more complicated than this. Developed World equities offer ample stock market diversification and growth potential, while government bonds are the keystone defensive asset class.
See the Harry Markowitz portfolio at InvestEngine.
Lost in translation
Stateside writers typically recommend US stocks and government bonds. For UK investors this better translates to Developed World equities and gilts. For even greater diversification you can substitute global equities and global government bonds hedged to the pound. You’ll find trackers that fulfill that brief below. Finally, when we say bonds, we always mean government bonds with one exception: the total bond fund in the Income Investing Portfolio includes some corporate debt.
David Swensen’s Ivy League Portfolio
Asset class
Index tracker
OCF
30% Developed world
Amundi Prime Global ETF (PRWU)
0.05%
15% UK equities
Vanguard FTSE UK All Share ((GB00B3X7QG63))
0.6%
5% Emerging markets
Amundi Prime Emerging Markets ETF (PRAM)
0.1%
20% Global property
Amundi ETF FTSE EPRA/NAREIT Global ETF (EPRA)
0.24%
15% Medium bonds
Invesco UK Gilts (GLTA)
0.06%
15% Short global index-linked bonds
Lyxor Core Global Inflation-Linked 1-10Y Bond ETF (GISG)
0.22%
The famed Yale endowment fund manager came up with this portfolio for passive investors in his superb investing book Unconventional Success. ((Swensen’s original US version featured 30% domestic equities and 15% developed world. That makes sense if you’re American because the US stock market is well-diversified. UK investors should flip these allocations around.))
Swensen’s model investment portfolio is much better diversified than Markowitz’s but that doesn’t always work to your advantage. UK equities, emerging markets, and property have endured a tough 15 years or so versus the developed world.
Perhaps that trend will mean revert – but there are no guarantees.
Also notice the common portfolio trope of splitting your bond allocation 50/50 between nominal bonds and their index-linked cousins. The nominals typically do better in a recession but get battered by soaring inflation. Meanwhile index-linked bonds have anti-inflation features built in.
Finally, 15% in UK equities looks chunky now our home stock market represents less than 5% of global market capitalisation. You could just as well decide to reallocate an extra 10% to developed world equities, and keep just 5% in Blighty.
Lyxor Core Global Inflation-Linked 1-10Y Bond ETF (GISG)
0.22%
This portfolio is adapted from the British wealth manager’s excellent UK-focussed investment book, Smarter Investing.
The standout feature is the global multi-factor allocation, which nods to Hale’s belief in the value and small cap risk factors. These amount to informed bets on particular types of high-risk stocks that have historically outperformed the broader market over the long-run.
Hale’s tilt to the risk factors is grounded in strong evidence but it also comes with an advisory health warning. That’s because they’ve underperformed a straightforward developed world tracker for well over a decade now.
Perhaps patience will prove a virtue. But it’s worth remembering that the market can make a mockery of the best ideas. Moreover, the supposed benefits of complexity often prove illusory and there is nothing wrong with keeping things simple.
See the Tim Hale Global Portfolio at InvestEngine.
Harry Browne’s Permanent Portfolio
Asset class
Index tracker
OCF
25% Developed world
Amundi Prime Global ETF (PRWU)
0.05%
25% Long bonds
Vanguard UK Long-Duration Gilt ((GB00B4M89245))
0.12%
25% Gold
Amundi Physical Gold (GLDA)
0.11%
25% Cash
Lyxor Smart Overnight Return (CSH2)
0.07%
The Permanent Portfolio does something very different from the other investment portfolio examples. It deliberately underweights equities and focuses on suppressing the volatility that makes conventional portfolios such a rollercoaster.
That’s achieved via the large allocations to long bonds, gold, and cash. They guard your flanks against a panoply of economic threats:
Long bonds and cash ward off deflation and recessions.
Gold is meant to withstand high and unexpected inflation (although its record in this respect is patchy).
Equities are your growth engine as usual.
The Permanent Portfolio has a well-established track record and historically it has protected investors from the worst slumps (relative to conventional asset allocations).
That’s because the assets enjoy low correlations – they tend to behave quite differently from each other, so can cover for each other’s weaknesses – and also because the portfolio allocates an uncommonly small percentage to equities.
But the price you pay is lower expected long-term returns because the portfolio’s growth engine is under-powered.
That makes the Permanent Portfolio best suited to wealth preservers and the acutely risk-averse.
Note, we’ve used a money market fund in place of cash, but high-interest savings accounts will do just as nicely.
The All Weather portfolio is another of the investment portfolio examples that prioritises stability over booming returns.
Conceived by the Bridgewater hedge fund founder, Ray Dalio, it’s an evolution of Harry Browne’s insight: choose a carefully balanced set of uncorrelated assets so that something should always be working in your portfolio, regardless of the economic conditions.
The inclusion of commodities is the most notable difference.
Commodities are a strong diversifier that offer decent long-term returns and act as a partial inflation hedge. But they can also spend years underwater, so don’t invest in them without doing your research.
Long bonds are similarly a great equity diversifier and not for the faint-hearted. They’re particularly vulnerable when inflation and rising interest rates bite. Dig into these pieces on bond durations, yields, and prices for the lowdown.
Inflation-repelling index-linked bonds are an obvious All Weather addition, but they’re not officially featured. Personally I’d add a slug by paring back the long bond allocation.
Overall, this is another wealth-preservation portfolio, but only if you can see past the individual performances of its components.
The All Weather combines an extremely volatile mix of asset classes that gel because they should counterbalance each other over time.
The obverse is something in this portfolio will almost always be causing you pain. So you have to be able to view the portfolio holistically, or else you’ll resent it like carrying around a big umbrella on a sunny day.
See the Ray Dalio All Weather Portfolio at InvestEngine.
A decumulator’s ‘Ready For Anything’ Portfolio
Asset class
Index tracker
OCF
60% Global equities
HSBC FTSE All-World Index Fund C ((GB00BMJJJF91))
0.13%
10% Medium bonds
Invesco UK Gilts (GLTA)
0.06%
10% Short global index-linked bonds
Lyxor Core Global Inflation-Linked 1-10Y Bond ETF (GISG)
The medium-term bonds defend against downturns, without the eye-bleed inflation risk of their longer-dated cousins.
Broad commodities and index-linked bonds do their best to deal with the inflation monster. We’ve previously explained why we’d plump for global inflation-linked bond trackers over their UK equivalents.
Cash is there as an all-round workhorse providing for immediate liquidity and moderate recession protection. It’s also less vulnerable to inflation than medium bonds.
Potential tweaks? If you’re a fan of gold then you could swap it in for half or all of the portfolio’s broad commodities exposure.
Income investing is a popular retirement strategy that swerves the risk of running out of money by leaving your capital untouched. Living expenses are funded purely from dividends and interest.
It sounds wonderful but the downside is you need a very large portfolio to generate enough income, even if you choose high-yielding dividend funds – as we’ve done for this load-out.
See the Income Investing Portfolio at InvestEngine.
The SUV Portfolio
Asset class
Index tracker
OCF
15% UK equities
Vanguard FTSE UK All Share ((GB00B3X7QG63))
0.06%
15% Developed world ex UK
Vanguard FTSE Dev World ex-UK Equity ((GB00B59G4Q73))
0.14%
10% Property
iShares UK Property ETF (IUKP)
0.4%
30% Short global index-linked bonds
Lyxor Core Global Inflation-Linked 1-10Y Bond ETF (GISG)
0.22%
30% Short bonds
L&G UK Gilt 0-5 Year ETF (UKG5)
0.06%
Another of my creations, this 60% bond-weighted portfolio downgrades volatile equities in favour of the greater crash protection of fixed income.
Your portfolio could sensibly look something like this if you’re at or near-retirement. Essentially, you’ve hit your number, won the game, and don’t need to take big risks with your wealth anymore.
A solid slug in equities still offers some growth however, while the enlarged UK position reduces currency risk.
Also notice the short bond selection that acts more like cash and limits the portfolio’s susceptibility to inflation and rising interest rates.
The trade-off is short bonds don’t bounce as high as medium- or long-term bonds when stocks cave in.
An important principle underlying the investment portfolio examples is that there’s more than one way to cut the cake.
A retiree relying on their portfolio to pay the bills for the rest of their life has very different needs to a 20-something investor who can make good capital losses with pay rises to come.
Even then, while it’s commonly assumed young people can afford to take big and hairy investing risks, that entirely depends on an individual’s ability to remain calm when their stocks are being shredded by the market wood-chipper. In reality, not everyone sees that as the buying opportunity of a lifetime.
Meanwhile the investment psychology of a retiree living off a chunky defined benefits pension who’s managing an investment portfolio for fun money and legacy may have more in common with 100% equity flyboys than a normal decumulator.
So take the time to think about who you are and what you’re trying to achieve. If you don’t know yet, then the Markowitz portfolio is a great place to start.
Beyond that, we’ve tried to keep our investment portfolio example’s manageable. No more than six funds max. But note that the miracle of capitalism means you can actually diversify perfectly well with a single product, if you choose a multi-asset fund.
Please note that these investment portfolio examples are not investment advice, a recommendation, or an inducement to buy or sell financial instruments. If you’re unsure of the risk or suitability of an investment, seek advice from an independent financial adviser.
Build upon the basics
When considering your plan, remember that each asset class should play a strategic role in your portfolio.
In the broadest terms that means:
Global equities for growth grunt
Nominal government bonds protect against recessions and crashes
Index-linked bonds step in when unexpected inflation runs riot
Commodities and gold provide some inflation protection, but are really held to guard against scenarios when equities and bonds face-plant simultaneously
I wish you the very best of luck. I well remember the flutters of excitement and nerves that accompanied my first jump off the investing diving board.
Investing has changed my life for the better and I sincerely hope it does the same for you.
Finally if you’re a Monevator veteran for whom these investment portfolio examples have been more a familiar ramble than wide-eyed adventure, then why not forward this article to a friend or family member who needs to get started?
Take it steady,
The Accumulator
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