top of page

My FIRE experience of index funds/ETFs


I've received some requests for a post about my journey to index funds. One suggested a dive into ETFs, but as my knowledge is surface rather than dive level, I'll stick to talking about our general experience of low cost index funds.


I've written about my investment journey before, so rather than repeat it all, feel free to head over to that post for some more detail.


This post is in a question and answer format - perhaps a bit odd as I'm both asking the questions and giving the answers. Well, odd or not, here goes:


How do you feel about diving into an explanation about index funds/ETFs?

To be honest, uncomfortable, because I don't know much about them. However, sometimes it can be more relatable to hear from people who don't know everything (and that's definitely me!).


If you've got to FI and then RE, how come you don't know much about index funds/ETFs?

Believe it or not, I didn't even know about the existance of low cost index funds until 2016. It was when I was wondering whether I had enough money to retire early, started reading a few blogs and began to see some of them talking about index funds. Another reason is that I'm probably just not that smart!😉


So, if you hadn't heard of index funds/ETFs until 2016, what were you doing before then?

The below timeline gives an overview of our investment journey.


  1. Our longest duration "investment" has been paying off mortgages on our homes. That might not be the best thing to do now, but interest rates weren't low as they are now. I also have a general dislike of debt, and feel more relaxed when I don't have any. In terms of our homes, we've been mortgage free since 2010.

  2. Our first investment in the financial markets didn't occur until I was 40 years old, once we'd paid off our mortgage. We invested in managed funds recommended by a financial advisor. I think the advisor and the fund providers made a lot of money, the only ones who didn't was us🤦‍♂️. If I knew then what I know now, I would have invested in low cost index funds instead.

  3. Our biggest investment is our rental property portfolio, which accounts for 60% of our total investments.

  4. We only discovered low cost index funds relatively recently, with our first investment in them being in 2017, which was after I had retired.


Once you'd heard of index funds/ETFs, what did you think?

Some different things. First, I kicked myself that I hadn't known about them before, it would have saved a lot of grief and lost money, which I wrote about in my investing nightmares - don't do what I did post.


But on the other hand, seeing the light later is better that not seeing it at all. Once I became aware of low cost index funds/ETFs, the benefits seemed obvious:

  • the opportunity to very simply hold a massively diversified portfolio in terms of industry sectors, geography, developed and emerging markets, large and mid sized companies etc.

  • the low costs, meaning that returns are not diminished by high fees.

  • the plethora of studies that have shown that low cost index funds have historically outperformed actively managed funds.


It also helps to hear the likes of Warren Buffet recommend them. That's some endorsement.


Well, at least since you discovered index funds/ETFs, everything must be sorted now?

Haha, I wish, but that would be too easy! Our index fund journey still has some way to go.


Because we arrived at index funds late in our investment journey, we didn't drip feed monthly or quarterly investments into our ETFs to achieve the benefits of dollar cost averaging i.e. some months you buy cheap, some months a bit more expensive, but you end up with a decent average over time without having to think about it.


Instead, we arrived late to the party with lumps of money, and a worry about whether or not now was the right time to invest. That problem still exists, for example, we liquidated an investment 16 months ago that gave us a chunk of cash - like a fool, I figured the markets couldn't race ahead during Covid and I'd invest it when they dropped🤦‍♂️. It's turned out to be a stupid move, but while it's easy to say don't try to time the market, it's sometimes harder to put this advice into practice. I still have some of that money sitting in cash, and still struggle to make the decision to invest it with the markets feeling high. What would you do?


We also have our index funds split between stocks and bonds, because this is what the Trinity Study/4% withdrawal rate rule is based on. I chose a 70% stocks/30% bonds split, but does this really make sense in our situation? We have 60% of our investments in rental properties that provide a stable income, and we are not currently drawing income from our index funds, so could/should we be 100% in stocks, with the stable property rental income letting us ride out any stock market dips?


Then there's Sally's view - if she had her way, all our money would be invested in rental properties. In contrast, I'd have far less in rental properties, perhaps even none, but certainly no higher than 25% to 30% of our investment portfolio. So, what's the answer when we don't agree on this?



So that's our story on low cost index funds/ETFs. We were late starters, most definitely not experts on the subject, having only discovering them in 2016, and then making our first investments in 2017. We know our journey is not yet finished either. Still to go is to decide if a stocks/bonds split is right for us or whether our index fund holdings should lean more towards stocks, possibly as much as 100% in stocks. We also need to invest the cash lump sum that we have, but have no idea when to do it - is now the right time even though the markets seem high or should we gamble and wait in the belief that they will go down? The fear of getting this wrong is a real challenge. And what about the proportion of rental properties compared to other investments - how do we resolve the different ideas of Sally and myself, and will capital gains tax influence that decision?


There's no doubt that I'm converted to the benefits of low cost index funds, including how they can massively simplify investing, but there are still some questions for Sally and I to work out, which are not so simple. One thing I do know for certain though, I'm definitely not an expert.

10 comments

Recent Posts

See All

10 comentários


David @iRetiredYoung
David @iRetiredYoung
15 de nov. de 2021

Hi Vince Re the two platforms that I closed down, one was in the Isle of Man, and was not good from a tax point of view if I returned to the UK. I suspect it would be similar in France, although I didn't check. The other was a US based platform that was more complex than I wanted - I opened it originally because it was one of the few that would accept UAE residents. I may be interested in the French tax efficient products. I need to look into these. I suspect we need another year or two to see where we see our future before committing though. It's one of the challenges of having a semi nomadic life...when doe…

Curtir

Hi David, like you I discovered index ETFs late and like you I have had trouble investing cash into these lately due to price levels! I previously followed advice to invest into mutual funds a while ago with eye watering fees compared to today's ETF rates including front and back end costs which I suppose that was the accepted way of doing things at that time.


At the risk of being irrelevant to most of your readership, you mention having changed platforms (or at least closed some ). Are these UK based, and would you have been allowed to open them if you were French resident at the time? If so, does this cause you any complications at tax retu…

Curtir

Dorina Gabor
Dorina Gabor
12 de nov. de 2021

I'm with Sally on this one: better invest in something I can see and understand.

As long as someone invests in something (invest, not spend) he's on the right track for he's future.

Curtir
David @iRetiredYoung
David @iRetiredYoung
12 de nov. de 2021
Respondendo a

Hi Dorina

I'll have to hope Sally doesn't see your comment🤣🤣. But you've exactly caputured her thoughts, she like property because she can see it and understand it.

Also as you say, as long as one is investing, that's on the right track.

Curtir

Ryan Gibson
Ryan Gibson
12 de nov. de 2021

Great post as always David. I love your perspective and even with your net worth you are down to earth. What is Sally's rationale behind property? I assume you wouldn't be able to mortgage property given you are retired or would you existing portfolio mean you could? I think that ultimately skews the decision one way or another. Can you not do both instead of having the cash sat around? Buy property & slowly invest monthly in Index funds? This is what I am doing currently having just sold my business. Keep easy,


Ryan

Curtir
David @iRetiredYoung
David @iRetiredYoung
12 de nov. de 2021
Respondendo a

Hi Ryan

As far as Sally and property goes, I think these are the main reasons:

  1. She just likes property, as evidenced by her addiction to Homes Under the Hammer!

  2. She finds property to be understandable. The value doesn't go up or down day by day, she can see it to check it physically exists, and finds the rental income is reasonably predictable.

  3. She doesn't trust other investments. I think this is partly because she doesn't understand them, and partly because we got ripped off my a financial advisor when we started out. He was part incompetant, part criminal, and fully looking after his interests rather than ours, none of which was good for us, and I don't think Sall…


Curtir

Hi David, really interesting and thanks for sharing.


Quick question. For the money you have invested in index stocks/ETF's, what kind of return have you had since inception?


I found reading the JL Collins stock series interesting - https://jlcollinsnh.com/stock-series/ - The index fund he always recommends is the Vanguard VTSAX, or the UK Vanguard equivalent is the "US Equity Index Fund". I see this fund hasn't gone down since inception (average 20% growth per year since 2009), and if you look at the growth of £10,000 if invested in May 2009 it would be worth £73,500 now!

https://www.vanguardinvestor.co.uk/investments/vanguard-us-equity-index-fund-gbp-acc/price-performance?intcmpgn=equityusa_usequityindexfund_fund_link


I also like the quote "The reality is, it's time in the market, not timing the market". We've just started our index…

Curtir
David @iRetiredYoung
David @iRetiredYoung
12 de nov. de 2021
Respondendo a

Hi Ian

I think you mentioned an interest in the return before, so I did try to figure it out ready for this post. Unfortunately, it didn't take me long to hit a wall with my calculations. We 've had 3 different platforms that we've had the low cost index funds on, but have got rid of two of them and I don't have access to the details anymore. I know what I invested and what we ended up with on those platforms, but no way to narrow it down to just the low cost index funds elements. I guess that was the nice part about being resident in the UAE, not having to keep all those records for tax.


Curtir
bottom of page