Index funds vs Value investing principled stock picking: what I’ve chosen

I’ve been working up to this post for some time. About three years, to be accurate.

I learnt about index fund investing a long time ago. I’d heard of Jack Bogle, the leading light at Vanguard, God bless him. I’d read Warren Buffett’s comments about investing in and his very specific request in his Will.

Index fund investing and financial go hand-in-hand. Or so it seems.

That’s the way I’ve been investing now, for the past couple of years. It’s working for me: my portfolio is up roughly 12% this year.

As of yesterday, I held 100% of my ISA in Vanguard’s LifeStrategy 80/20. But that came to an end in the afternoon.

I ran some calculations, and currently I am at least 22 years away from reaching financial independence. Potentially retiring at 52 years old doesn’t sound too bad. But with that sort of time frame, I figured I could invest in something more aggressive.

That’s why I switched to Vanguard’s LifeStrategy 100% equity fund.

The LifeStrategy accounts are a very lazy way to invest. But with the amounts I’m investing at the moment, rebalancing exercises would be fiddly and the difference in fee is marginal.

Moving away from bonds doesn’t overly concern me. I’m fully expecting to lose half of my ISA in the event of a recession. But I know I will be ploughing more money into it during these dips, and hopefully it will flourish following any recession or serious market correction.

I have comfort that the fund is well diversified.

And yet, something is niggling at my brain.

Part of my job involves analysing stocks (note: this sounds like I’m incredibly well paid. I’m not!).

I read company accounts for hours each day. I keep up-to-date on market commentary and global news. My book shelf is filled with investing books.

My thinking is that maybe I should use this knowledge and put my money where my mouth is.

Could I return more than the market?

That would be a bold claim. But I’m willing to hypothetically try, without handing over cash.

For the average investor, who can only scrape bits of information together here and there, I agree that there probably isn’t much of a better alternative to investing in index funds. They are low cost, easy to manage and, in the past and over the long-term, returned money to investors.

I’m not saying that I’m better than average, which is why I’m keeping my money in index funds. Rather, I thought this would be a fun exercise and a way to test the water.

I’ve already identified several stocks that I would add to my imaginary portfolio. My investing style is focussed on value, where I can find it, and buying quality companies. I’m picking stocks for the long-term, so maybe a year isn’t long enough to evaluate whether this experiment will be a success.

From my analysis, I think the stock market in the UK for the most part is currently overvalued. This seems to run contrary to popular opinion, which states that due to uncertainty surrounding Brexit, the FTSE 100 is undervalued.

If my model portfolio runs well, then perhaps I will change my investing philosophy once more.

And if not, it’s all a bit of fun!

I’ll keep you updated in any case.

What I’m buying this Christmas

For me, financial independence is a dirty secret.

Most people want to retire early and to be financially free, but not many people have an actionable plan in how they are going to achieve this.

Only my wife (and you!) know about my ambitions to retire early.

I’ve turned a couple of very close friends onto the FIRE movement. They are aware of Mr Money Mustache, of F-You money and the 25x withdrawal rate. Do they know that I’m working towards all of this? I’m not sure.

One of my friends is very keen on investing, but has no idea where to start. I mentioned him and his excessive takeaway habit in one of my first posts. I’ve pointed him in the direction of some of my favourite FIRE websites and blogs, and he’s slowly coming round to the idea. But I’ve not mentioned any books about retiring early.

When it comes to buying Christmas presents, I know exactly what I’ll buy him.

JL Collins’ book is the last word on financial independence. It defines it. As a concept, I’m not sure anything really needs to be said about the movement and what it means. You may have heard of Collins through the FIRE movement, and if you haven’t, I suggest you look at his website.

It sets out a strategy and methodology to start and complete the undertaking and to retire early. Its not preachy or judgemental like other personal finance books. You don’t need an economics degree to understand it, either.

JL Collins’s book is easily accessible. His voice is calm and reasoned. Take a look at this post, where he gives the reader a meditation when the stock market is plunging. The book does what it says on the tin: it sets out a simple path to wealth. In my view, it is one of the best personal finance books.

A Simple Path to Wealth is a perfect stocking filler for those interested in financial independence and retiring early.

Follow me on Twitter @swearingmoney

***The information contained herein does not constitute financial or other professional advice and is general in nature.
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How to save money (with a baby)

You look at the plastic stick. Take stock. Look again. Check once more. Definitely. A baby is on its way. 

Congratulations! Life is about to start getting real for you. 

Soak in this moment. Think about all the joy that a baby will bring. 

And then…boom! You think about the financial impact. 

Ok, that isn’t exactly what happened with me. The euphoria lasted a good few days before I thought about money. But as it’s been a year since our first scan, and therefore the first time we saw our little baby on the screen, I thought it was a good idea to write down some tips that I picked up since my son came along. 

It’s true. Becoming a parent is daunting in so many different ways. 

Various thoughts tumbled through my head: will I be a good father? Will I find the time to spend with my child? How will I pay for him/her?

Luckily, we are in a position where my wife can take a year off of work (yes, I’m jealous!). But we had to crunch the numbers first and work out where we could cut back. 

Make no mistake, finances are important, but in my mind are secondary to raising a child. Clearly love is more important. However, this being a personal finance website, I can’t get all hippy with you. Yet….

Throughout the first six months of his life, here are some things that I’ve learnt. I’m sure that everything might not apply to all new parents, but it’s a summary of how we’ve managed to lessen any financial impact:

Accept donations

I was surprised by the amount of stuff people lent us/gave us when they found out we were having a baby. Friends and family whose children were a little older were happy to part with some of their belongings. 

Here’s a quick list of the things I can remember that people passed on to us:

-maternity clothing (for my wife, not needed for me!)

-baby clothing

-car seat (from our best friend. Be very careful about this one!)

-a bouncer

a walker

-a baby bath

Tommee Tippee Perfect Prep Machine

-cabinets

-a breast-feeding chair

If we bought all of this new, we would probably have been a several thousand pounds down. 

Don’t buy many clothes for the first few months 

Everyone will want to buy your baby clothing. Our little one unfortunately didn’t even get a chance to wear everything he was bought. 

Aside from plain vests and sleep suits, we didn’t really need to buy anything.

Buy things using cashback sites/cards

This is a no-brainer and something you should be doing anyway.

Only use it for essential purchases and sit back as each registered transaction earns you money. 

Over the past year, my wife and I have claimed over £200 from TopCashback.

Buy second-hand

We didn’t really do this, although I wish we had. My wife was sceptical about the condition of things. Knowing more than to argue with a pregnant lady, I went along with her. But friends of ours bought everything on Facebook and eBay. 

I can only dream about how much money they would’ve saved

Try to breastfeed

This isn’t right for everyone, and I know some people aren’t able to breastfeed. This is our experience, so if you’re unable to or don’t want to, that’s fine. 

But from a financial perspective, feeding our baby natures goodness saved so much money for us. And it’s convenient, too.

Going through my numbers, putting aside the bills I’m paying now my wife isn’t at work, there isn’t really much of a difference in my savings rate.

It turns out that having a baby doesn’t need to be that expensive. Although when they get older, it might well be…

If you’re anything like me, your finances will adjust. You’ll eat out and meet up with friends less, but you’ll enjoy spending quality (free!) time with your bundle of fun. 

If anything, having a baby has motivated me more to become financially independent. I want to spend my time with my family; not in an office cubicle.

I wouldn’t change anything. There’s probably never a perfect time financially to have children. You have to adapt.

We’re humans. And that’s what we do best. 

Follow me on Twitter @swearingmoney


***The information contained herein does not constitute financial or other professional advice and is general in nature.
This post contains affiliate links.