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This is the week you have all been waiting for. The "sexy" week where we talk all about investing. We hope it lives up to the hype! I wonder if Alan will manage to stay fully clothed on the call. Tune in to find out!
There's a lot to cover! There is soooooo much to talk about when it comes to investing. We've split the investing content of the course into 3 parts.
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Hang tight
A little knowledge can be a dangerous thing! We have two more weeks of content to cover this investing stuff. Hang tight. You don't need to implement anything yet! We have more to tell you. Just stick with it! What I am trying to say is learn as much as you can and through the investing weeks and THEN implement.
Disclaimer
We are NOT financial advisers. The content of this course, the articles on Alan's blog and these resources are NOT financial advice. This is our opinion and we are just sharing what we are doing. DO YOUR OWN HOMEWORK
That being said, onto the Week 6 recap!
Week 6 recap
Learning about investing is like learning a whole new language. There are going to be terms and phrases you don't understand. Stay calm, look up what it means, ask us! If you forget what it means then we can go through it again. Please remember there is no such thing as a stupid question. If you are thinking it so are other people probably so ASK AWAY!
One subtle distinction to point out on the language that can be confusing. There's a difference between "index linked" and "index funds". Index linked is a term in the UK that usually means that something is going to go up in line with inflation. For example, many pension schemes are linked to the RETAIL PRICE INDEX so that as retail prices increase year by year, pensions increase by the same proportion so as to maintain their value in real terms.
An Index fund is what we have been talking about investing in. More on this shortly..........
A little knowledge can be a dangerous thing! We have two more weeks of content to cover this investing stuff. Hang tight. You don't need to implement anything yet! We have more to tell you. Just stick with it! What I am trying to say is learn as much as you can and through the investing weeks and THEN implement.
Disclaimer
We are NOT financial advisers. The content of this course, the articles on Alan's blog and these resources are NOT financial advice. This is our opinion and we are just sharing what we are doing. DO YOUR OWN HOMEWORK
That being said, onto the Week 6 recap!
Week 6 recap
Learning about investing is like learning a whole new language. There are going to be terms and phrases you don't understand. Stay calm, look up what it means, ask us! If you forget what it means then we can go through it again. Please remember there is no such thing as a stupid question. If you are thinking it so are other people probably so ASK AWAY!
One subtle distinction to point out on the language that can be confusing. There's a difference between "index linked" and "index funds". Index linked is a term in the UK that usually means that something is going to go up in line with inflation. For example, many pension schemes are linked to the RETAIL PRICE INDEX so that as retail prices increase year by year, pensions increase by the same proportion so as to maintain their value in real terms.
An Index fund is what we have been talking about investing in. More on this shortly..........
What are assets?
We've been jabbering on about buying your freedom for weeks now. We've been telling you to buy assets not liabilities. But what does that actually mean? What are assets? What are stocks and shares? How do you even buy them?
Well Alan wrote a blog post all about this.
The main asset classes are:
You will notice that we have left gold and crypto off this list because they aren't yet productive assets. Does gold produce an income? Does owning Bitcoin produce an income? An asset is something that produces an income for you such as a property that brings rent or an index fund that produces dividends from company profit.
We've been jabbering on about buying your freedom for weeks now. We've been telling you to buy assets not liabilities. But what does that actually mean? What are assets? What are stocks and shares? How do you even buy them?
Well Alan wrote a blog post all about this.
The main asset classes are:
- Equities also called stocks & shares
- Bonds
- Money Market - things that pay interest
- Real Estate/Property
- Commodities
You will notice that we have left gold and crypto off this list because they aren't yet productive assets. Does gold produce an income? Does owning Bitcoin produce an income? An asset is something that produces an income for you such as a property that brings rent or an index fund that produces dividends from company profit.
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The Donegans invest almost entirely in index funds and the stock market. We own the Vanguard FTSE Developed World ex UK index fund in tax advantaged accounts (ISAs and SIPPs). If you are SUPER keen then we created a page going through all our investing content on the blog that you can read if you like. Or you can just come to week 7 and keep working through it with us!
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But WAIT Donegans; Isn't investing in the stock market risky?
The financial industry has confused the terms "risk" (risk of losing money) and "volatile" (how much the value of your investment changes over time). Click on the photo below to read an article Alan wrote that explains all about this!
The financial industry has confused the terms "risk" (risk of losing money) and "volatile" (how much the value of your investment changes over time). Click on the photo below to read an article Alan wrote that explains all about this!
Vanguard Index Funds
Our strategy is to buy Vanguard index funds. They're easy to buy, it's a simple strategy and the fees are very low. We'd rather be living our lives than spending all day every day thinking about our money and managing our investments. Next week JL Collins is going to go into detail on index funds and the following week we'll cover practically how to buy them. We wrote a whole investor series of articles starting with what is diversification and moving to what is an index fund that you can get into that will explain more.
Our strategy is to buy Vanguard index funds. They're easy to buy, it's a simple strategy and the fees are very low. We'd rather be living our lives than spending all day every day thinking about our money and managing our investments. Next week JL Collins is going to go into detail on index funds and the following week we'll cover practically how to buy them. We wrote a whole investor series of articles starting with what is diversification and moving to what is an index fund that you can get into that will explain more.
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In it for the long term
For our strategy to work you have to be in this for the long term. This is not a short term get rich quick scheme. This is slow and steady wins the race. Buy and hold and NEVER sell. Never kill the golden goose! You have to be prepared psychologically for WHEN the stock market crashes. We suggest this meditation from the OG of Financial Independence JL Collins. If you know that you won't hold on WHEN the stock market drops this strategy WILL NOT work for you. |
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Impact of fees
We met back up with Early Ellie and Late Larry who we first met in week 4 when we talked about the power of compounding. The moral of the story in week 4 was to invest as early as you can. We revisited Ellie this week to see the impact on her investments of choosing between an actively managed fund and an index fund. Fees MASSIVELY eat into your returns. Of course Early Ellie and Late Larry are still doing better than Never Bothered Ned who never bothered investing and has a big fat ZERO.
We met back up with Early Ellie and Late Larry who we first met in week 4 when we talked about the power of compounding. The moral of the story in week 4 was to invest as early as you can. We revisited Ellie this week to see the impact on her investments of choosing between an actively managed fund and an index fund. Fees MASSIVELY eat into your returns. Of course Early Ellie and Late Larry are still doing better than Never Bothered Ned who never bothered investing and has a big fat ZERO.
Coming up in the next two weeks
You might be thinking...
"This is all very well Donegans but I'm now sat at my laptop ready to invest, how do I actually do it? What are the different accounts I can get? What are the different fees you have to pay and how can you minimise these?"
Well this week we covered some of the theory of investing. Next week we'll have JL Collins live explaining more about index investing and his Simple Path to Wealth. And the following week we're going to talk about how to implement all of this! Stick with it, we're building week on week.
You might be thinking...
"This is all very well Donegans but I'm now sat at my laptop ready to invest, how do I actually do it? What are the different accounts I can get? What are the different fees you have to pay and how can you minimise these?"
Well this week we covered some of the theory of investing. Next week we'll have JL Collins live explaining more about index investing and his Simple Path to Wealth. And the following week we're going to talk about how to implement all of this! Stick with it, we're building week on week.
Week 6 homework
To get the most out of this course you must do the homework (plus homework is fun! Or that's what Katie tells me....)
So here is the homework for week 6...
1. When we ran the course the first time we didn't give enough information on how to choose an index fund and how to actually get going. During lockdown in 2020 we wrote a whole series of articles covering this and they go into way more detail than we have time to cover on our calls. Your homework is to read the articles about index investing which start with this one called What is diversification.
2. For existing investments (in the UK these might be Stocks and shares ISAs, pensions with your employer, Self Invested Personal Pensions (SIPPs)) find out:
Side note on DB pensions
For Defined Benefit pensions (also referred to as DB pensions or final salary pensions), what the fund it is invested in is less important. That's because you are promised a certain amount each month/year when you get to retirement age and the employer is taking on the risk that what they've invested in isn't enough to support that.
A few of you asked whether you should transfer your DB pension out from your former employer. BE VERY CAREFUL with this! A DB pension promises to pay you a certain amount in retirement which is a pretty sweet deal! There is a lot to think about with this, sit tight and we'll talk about this in the next couple of weeks.
To get the most out of this course you must do the homework (plus homework is fun! Or that's what Katie tells me....)
So here is the homework for week 6...
1. When we ran the course the first time we didn't give enough information on how to choose an index fund and how to actually get going. During lockdown in 2020 we wrote a whole series of articles covering this and they go into way more detail than we have time to cover on our calls. Your homework is to read the articles about index investing which start with this one called What is diversification.
2. For existing investments (in the UK these might be Stocks and shares ISAs, pensions with your employer, Self Invested Personal Pensions (SIPPs)) find out:
- What funds they are invested in - exact names and the most detail you can find.
- How much the fees are - and there might be a few, platform fees, annual management charges (AMCs), entry and exit fees. You might have to call them and ask or get super geeky on the paperwork. They don't make it easy to actually find out, it isn't in their best interest.
- Are they active or passively managed - it should say on the fund fact sheet or you might have to ask them.
- What funds are available to invest in (can you choose?) For example if you have a pension that is already invested into a certain fund what other funds can you choose within that pension?
Side note on DB pensions
For Defined Benefit pensions (also referred to as DB pensions or final salary pensions), what the fund it is invested in is less important. That's because you are promised a certain amount each month/year when you get to retirement age and the employer is taking on the risk that what they've invested in isn't enough to support that.
A few of you asked whether you should transfer your DB pension out from your former employer. BE VERY CAREFUL with this! A DB pension promises to pay you a certain amount in retirement which is a pretty sweet deal! There is a lot to think about with this, sit tight and we'll talk about this in the next couple of weeks.
Ask for help
Remember to reach out in the Facebook group with any questions you have or if you get stuck. Don't let confusion be an excuse for not progressing with this stuff. We are here to support you!
Alan and Katie
Remember to reach out in the Facebook group with any questions you have or if you get stuck. Don't let confusion be an excuse for not progressing with this stuff. We are here to support you!
Alan and Katie
