Do you know why results have declined since the glory days?
When were the glory days of VCT investing?
Do you think that going forward VCT investing including the Tax breaks until 2035 is a better bet on average than putting money into a global large cap stock index fund like Vanguard without tax breaks?
How long do you spend researching each company before investing in it?
Do you do it on mainly quantitative basis or also using narratives about the people and businesses involved?
May I ask - were you a finance professional in your working life?
A feeling that often finance professionals tend to stay out of trouble more easily than non-finance professionals in their own personal investments.
(A bit like how architects and builders on average tend to stay out of trouble more often than other people when doing self build house projects.)
Last question first. Trained as cost accountant so more used to nuts and bolts than financial instruments! VCT’s started in 1995. In the early days there were less restrictions on investment managers and many of the VCT’s had large returns and of course they could pick the better new company start-ups. Returns were still very good until about 2021 as inflation started to increase and GDP growth really slow down. As VCT’s are all investments in British companies they will be affected by the strength of the UK economy.
How would it compare to the Vanguard fund? Well impossible for me to say but the dividends would have to be 2/3 more with Vanguard allowing for a tax rate of 40%. But with VCT’ s you have to keep them for 5 years to keep the tax free status so they are not a fluid investment. Also after you have had your 30% offset against your other income tax liabilities the value of the VCT is worth a lot less to a new buyer. On the other hand if the VCT does very well there is no CGT liability in any gain.
I initially just looked at the Hargreaves Lansdown available VCT’s and read about the three investment managers. The VCT’s were Octopus Titan which seemed the safest but lower returns. Baronsmead which gave higher returns and 4 Mobeus investments which seemed in the middle. Subsequently, Mobeus did brilliantly and in one year I got a 20% dividend which was surprising. The others performed to par but in the last two years dividends have fallen but still not bad as a tax free return. All the companies say they hope to pick up in the next few years. Of course if you buy now they will be cheaper!
I haven’t done much research as I have just added more investment in the three VCT’s after very good performance since my initial 2017 investment. Overall, VCT’s are tax efficient and most of the investment managers seem to have good track records but you really need to invest for at least 5 years and probably for 10.
Interesting as a tax efficient punt at the more risky end of a portfolio alongside pensions, Share Index ISAs, AVCs and FSAVCs.
It’s also interesting that you were a finance professional as I suspected.
It would be fairly easy for someone who didn’t know what they were doing to get into some trouble and make mistakes on the Tax front and on the investment front doing this type of thing.
I dare say most will not have the inclination to dabble in VC and the like with their retirement pot, especially as they approach the time when they want to draw it, when the consequences of a sharp drop are harder to live with.
My approach during my last few years of work was simply to use pensions to ensure that I stayed out of higher rate tax altogether. With my wife and I both working full time, the mortgage paid off, and no kids still requiring support, I simply made enough additional payments into a pension to keep my taxable income below the 40% threshold.
I needed to boost my pension pot a bit anyway, so doing this ensured that we would both pay only standard rate tax, which is all we will be liable to pay when we draw from that pot.
@JimDog I have watched a few of James Shack’s videos and find them pretty decent, but James does come across a bit intense and has that ‘salesman edge’ I am not 100% sure about. A YT guy I prefer and chimes more with my way of thinking is Pete Matthew and his channel ‘Meaningful Money’. Pete is really down to earth, is also a Chartered Financial Planner, but adopts a KISS approach to investing, based around low cost platform global diversified funds, starting early and staying invested for the long term and is a proponent of good tax planning strategies including pension funds and ISAs amongst others. As he is not an IFA, he does not advocate any particular investments, however his friendly and straightforward approach to money matters is to me very refreshing particularly as there is a lot of BS in this industry. My search is not exhaustive as I too am on a similar ‘journey’, but his channel is worth a look if you’ve not come across Pete as yet.
I agree - Pete Matthew’s ‘Meaningful Money’ channel is outstanding. He’s an impressive communicator with a long track record, and is able to explain both ‘the basics’ and more complex investment strategies. He also produces a really good podcast each Wednesday.
James Shack and Ramin Nakisa have been mentioned in the thread above and are excellent, the latter producing a free e-newsletter each Friday, which is worth signing up for.
One other chap to look out for on YouTube @JimDog is Chris Bourne. He is a financial planner and his perspectives on tax (pre- and post-retirement) are superb - really clear. Latest vid below:
@JimDog, the Sharia Fund in USS has witnessed impressive performance since the inception of the Scheme’s DC platform, in part due to avoidance of banks/finance and its focus on tech. The similarly-labelled ‘high risk’ USS Global Equity Fund has produced some impressive returns too, albeit not in the same league as the Sharia Fund. Slightly more diversified though.
What follows is in no way ‘advice’, it’s more observation:
Unquestionably the uber-large ‘tech’ names have done very well, helped in £-terms by the stronger US$, and tech (or at least some names) may now be market stalwarts, but things evolve in markets and corporates. I suspect the strong market capitalisation of the financial sector in the UK will never return as it did, thanks to much stronger regulatory control and the simpler, less risk-borne, business models in operation. As you rightly point out, a ‘Sharia’ approach has fitted the recent market very well (in the same way that Fundsmith’s approach paid handsomely post the GFC, when corporate robustness and sustainable cashflows became far more important).
BUT – and, this thread has covered much ground, when the R-word rears its head, unless you are handsomely wealthy with your stock market investments effectively ‘play money’, I’m sure any adviser worth their salt is going to guide an investor towards some ‘capital protection’, which means not heavily exposed to equities alone, and not trying to shadow the major indices. In my eyes there’s an oxymoron here in that you need growth ([long term equity growth), especially if your pension is in a SIPP (under drawdown), but you don’t want to be exposed to a market reverse, especially in the short term, as your capital could be greatly impacted.
Truly, there are no ‘right decisions’ in all this – and this is way before we get to the bell-curve need for income post retirement, unless health issues are to be seen to pull hard on capital in later years, which is an increasing possibility IMV.
And it is interesting just how much ‘tech’ is included in all sorts of diversified index funds. Microsoft makes up 4% of holdings within Vanguard’s Global All Cap Index, for example. Apple more than 3%. Spurred supercharged returns in recent times yet could so easily be reversed in the short term.
Of course, @JimDog has the fortunate position of having a hybrid DB/DC scheme with some income protection. Much depends on how long you can participate in the market prior to drawdown. Someone above (possibly you) mentioned the phrase ‘time in the market, not timing the market’ – wise words.
My own (modest) investments are largely index-based but I have some satellite funds which are fun to explore and which I hope (and ‘hope’ is the right word) reflect some longer-term trends – e.g. biotech/healthcare funds (based on demand/application of AI) and India/Vietnam (demographic/geopolitical considerations).
TBH, bonds are a mystery to me - never purchased one and held to maturity. I’ve no idea how ‘life strategy’ funds buy and sell them with constant churn - and these products typically have higher charges.
I’d suggest stay well away from independent thought around investing in bonds, as this is a category of asset class which can be insanely complicated – and often operate counter to how you’d expect. Plus the term ‘bond’ embraces so many things e.g. UK govt gilts, US T-bills, right through to junk bonds (that’s very low-rated high yielding debt) and bonds which are deeply subordinated to other lenders and even other bonds, the latter especially in securitisation strictures, which often feature several tiers of bonds.
And, as quite recent events have shown, if you get and inflation/interest rates spike which is unexpected, the capital values of bonds can sink. An atypical ‘moderate growth, with protection’ approach was the 60/40 fund (equity:bonds split) but some of these funds took a hiding when the capital values of both classes fell, given the orthodox thinking was that bond values would harden in response to falling equity prices (also with the thinking that interest rates are reduced in the event of recessions, the latter also causing softer equity values).
I think it was the Questor column in the Torygraph which ‘bought’ some UK inflation-linked gilts, thinking the returns would offer relief should inflation tick-up (which it did). Unfortunately, the terms of the bonds didn’t align with the header description and the capital value plummeted. In the ‘comments section’ a bond trader explained the driving mechanics behind the reduction in value – lesson learned the hard way!!
It used to be the case that (sophisticated) higher-rate tax payers would buy short-dated gilts which had a small component of ‘interest’ and a larger component of (capital) ‘redemption gain’ (i.e. both working in to a ‘yield to maturity’ working). By doing this, they could book their primary gain as ‘capital’ using a much more generous CGT allowance than nowadays.
It’s the theory that upon a (medically healthy) retirement, a person will have the ability and wishes to spend funds while they can e.g. stored-up pleasures if you will, be this travelling, new pastimes et al. As the years advance, once objectives have been achieved et al, people settle down and spending needs become focused on the basics of living, ergo a bell-shaped profile of spending. What’s missing though is consideration of medical spend needs in later years, which will all know can be very expensive (and I’m not discussing P-word matters here around the welfare state).
In respect of some above posts, nothing wrong with considering trackers per se it seems to me, I wonder if for many though a mix of active and passive can be most useful?
And of course buying a tracker in an unloved environment does not protect you from poor results.
A large majority of my chosen active funds have smashed their respective benchmarks over time, yet the addition of the ‘right’ selection of trackers helps ease one’s conscience/fears of underperformance within the portfolio as a whole.
Further, you have to have the discipline to switch active horses without sentiment when the time is right (which is usually just when it feels like it’s wrong!)
I would also suggest that not all trackers are equal however and there are some variances among funds in the same sector.
Further, do have a detailed read of how the selected tracker fund works and what it can invest in, do not assume that the ‘can’ bit is a rarely used option, if they can, they probably will and do.
Also, the fund label might be a reasonable assumption of what it does but not always, I personally use what imo is an excellent tracker fund within my portfolio but the detail of the holdings does not explicitly match the header!
This is where bond tenor (i.e. maturity timeline plays). If you’re playing with long-dated bonds, it’s a very long wait to see your capital back, and your underlying capital valuation will have taken a knock. If short-dated, the impact of increased rates will wash-out pretty quickly.
And the capital position for things like pensions funds is very important.
Very sensible, or maybe just fortunate that your hobbies and pastimes are things that don’t cost. My wife and I are much the same and really don’t want or desire much extra these days. We have friends who enjoy eating out often and this probably runs them close to a grand a month, whereas we are fine with eating out once every month or two at the most. We could easily afford frequent eating out, but for our friends, it makes funds a bit tight.
Often the case I find where people with the most expensive tastes are the ones with less money.
Mind you, we will have our daughters and families over for dinner and spend $170 on a prime rib roast (with Yorkshire pud of course).
Generally, we tend to spend our money on things that have value like a more expensive home and such. If one enjoys spending time at one’s home to a high degree, the need to fly somewhere exotic twice a year, just to get away, may not be as necessary. And I specifically say ‘may not be’ as everyone has different tastes and requirements and it’s certainly not for me to judge.
Yes, many trackers and pensions are still structured on this premise that a higher proportion of bonds makes the fund safer and a higher proportion of stocks makes the fund riskier.
That is in a simplistic sense true in that stock prices and returns are historically more volatile than bonds prices and returns on average.
But as long as the owner isn’t reliant in the medium to long term (10 years or more) on those investments, global stock funds have given better returns than bonds in recent decades.
As @Jamiewednesday has mentioned on the forum previously, post the GFC (2008/9) and the general stock market falls, the beloved regulators looked at the pensions sector (and things like ‘with profits’ funds (i.e. having the long growth view)), and decreed they had to hold a higher % of bonds, which really didn’t fit their m.o… Mind you, pensionco’s need income to manage their ongoing obligations, so some interest/bond coupon income is beneficial.
Of course, with bonds, which should be materially safer as an investment class, you don’t benefit from ‘compounding’ (from earnings growth), as you do with equities.
