Why do I find investing spare cash so difficult?
This is perhaps a bit of a dry post, but one that I think is relevant to people who have or want to retire early and also to anyone looking to invest some cash. On the brighter side, I have trips to London, Prague, Berlin and Eisenach coming up over the next four weeks, so they should give a chance for some more lighthearted blogs.
Back to the more boring stuff though...we have some cash sitting in the bank earning next to nothing and I'm really struggling to figure out what to do with it. As I said in an earlier blog (http://www.iretiredyoung.net/single-post/2017/03/22/The-income-side), the majority of our money is invested in rental properties that provide us with a reliable monthly income, and we also have some money invested in mutual funds via a financial advisor. But deciding what to do with this other cash has been giving me a headache - although I was an accountant by trade, finance within a large corporate is completely different from our personal investments.
There are loads of investment websites, articles and blogs written by people much smarter than me, but the advice isn't always consistent and, of course, they don't know my retired early circumstances, nor do they take my existing investments into account. As is often the case, the internet advice can be as confusing as it is helpful.
So I end up sitting here trying to figure it out myself, worried that I'm going to make the wrong choices, and wondering whether I should be doing what some other smart person recommends. But I think you have to put that aside - for what it's worth, my advice is that, yes, it makes sense to research the articles and websites to give you ideas, but in the end it probably isn't helpful to overly-complicate the thinking. Having previously got to the point of confusion, I have now made a conscious effort to simplify my thinking, and this is what I have come up with as my investment plan for this cash:
First of all, I did a quick look ahead cash flow to calculate how much cash we have to invest, and figured out that we have £155,000 ($191,000) for which we have no plans for at least the next two years (Sally has plans to buy a renovation property, but not for a few years).
I've first decided to ring-fence £25,000 ($31,000) as an emergency fund which is equivalent to around 6 months of our budgeted living cost (our cost to retire). That's probably too conservative, firstly because our monthly property rental income is pretty safe and, secondly, because we could always liquidate part of a mutual fund if we really needed to free up some cash. However, to satisfy my cautious side, I'll stick with this figure, put it in a bank account and accept that I will only get about 1% interest.
Because I see our rental properties as low risk investment and for our mutual fund investments we are in a position where we can ride out dips in the market, I feel we can take on board some higher risk investments for the rest of the cash.
I'm therefore going to invest £50,000 ($62,000) in some Peer 2 Peer lending schemes. The rates are still not great, but I hope to earn a minimum of 5% a year (I think it should be quite a bit more, but I can't access some of the UK P2P schemes that I'm interested in as I'm not currently UK resident).
I was going to put the balance of the cash into a main index tracker fund. Reading various blogs and articles, the Vanguard funds get a good write up due to their low charges. I'm going to do this, but with just half of the remaining cash, so £40,000 ($49,000) is to be invested in a Vanguard FTSE 250 ETF. I am a bit worried that markets are at a high point now, but I don't see a crash coming (hopefully not famous last words!), and feel that I can ride out any interim market dips.
That leaves £40,000 ($49,000). From this amount, I want to earn some income, and I have decided to invest in some stocks/shares that have a reasonable dividend yield. I will stick to blue chip companies, perhaps £4,000 ($4,900) invested in ten different companies. I am looking for dividend yields of above 5%.
I should have done this a year ago, and I could have, but worrying about what could go wrong stymied me into taking no action, which has been the worst thing - I've missed out on great returns in that period. Yes, I have spent some time reading articles and blog views etc, but in the end, I have just forced myself to sit down today to write this blog, and figured out these investment choices within a morning.
My blog isn't about me having some special expertise to share - there are plenty of other bloggers who are much smarter than me on these things. But what I hope blog posts like this do show, is how a reasonably normal guy thinks through things to get to conclusions and actions - mostly on topics about how to retire early, retiring early or the cost to retire, although they may equally be of interest to others as well.
So while my circumstances, and therefore choices, are likely to be different from yours, perhaps this blog is an example of how we shouldn't be bamboozled by all of the information on the internet, and that some of the decisions that we have to take needn't be as complicated as we make them out to be.
I hope that a year from now, I can write an update blog about my best investments of 2017, and not about a series of investments that I wish I'd never made!