This week we carried on talking about the "sexy" stuff.... investing! In week 6 we covered the theory behind investing and then in this week's session we went over how to actually implement this and buy your first assets. Then we discussed the FIRE (Financial Independence/Retire Early) principles and how to know when you can retire.
Disclaimer
We are NOT financial advisers. The content of this course, the articles on Alan's blog and these emails are NOT financial advise. This is our opinion and we are just sharing what we are doing. DO YOUR OWN HOMEWORK
That being said, onto the Week 7 recap!
Week 7 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!
Disclaimer
We are NOT financial advisers. The content of this course, the articles on Alan's blog and these emails are NOT financial advise. This is our opinion and we are just sharing what we are doing. DO YOUR OWN HOMEWORK
That being said, onto the Week 7 recap!
Week 7 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!
Investing Part 2: Implementation!
These specifics are for people in the UK. There is a TON of information out there for those of you in the USA... we suggest JL Collins' blog and book The Simple Path to Wealth as a good place to start. For Canada check out Kristy and Bryce at Millennial Revolution.
We've been banging on about Vanguard index funds. How do you actually buy them?
You need to pick a "platform" (sometimes called a "provider") to buy the funds in and then decide what investments to buy from within that platform. It's a bit like buying bread in the supermarket... think of the platform as the supermarket and then the funds as the different breads you can buy within the supermarket. Vanguard has it's own platform (supermarket) and its own index funds (bread) so buying Vanguard index funds through Vanguard's platform is like buying supermarket brand bread.
These specifics are for people in the UK. There is a TON of information out there for those of you in the USA... we suggest JL Collins' blog and book The Simple Path to Wealth as a good place to start. For Canada check out Kristy and Bryce at Millennial Revolution.
We've been banging on about Vanguard index funds. How do you actually buy them?
You need to pick a "platform" (sometimes called a "provider") to buy the funds in and then decide what investments to buy from within that platform. It's a bit like buying bread in the supermarket... think of the platform as the supermarket and then the funds as the different breads you can buy within the supermarket. Vanguard has it's own platform (supermarket) and its own index funds (bread) so buying Vanguard index funds through Vanguard's platform is like buying supermarket brand bread.
What's this about fees? What do I have to pay? How does it work?
There are 3 different fees involved as well as the cost of buying the index fund itself. Continuing the supermarket analogy....
Is Vanguard always the best platform?
Vanguard is very cheap but it's not always the cheapest depending on what assets you already have. Percentage fee brokers (like Vanguard) are good for small investors whose assets are likely to remain below £25,000 (in an ISA) or £100,000 (in a SIPP and depending on the mix of assets) for some time to come. If you already have some investments do your own research. This article from monevator is useful for this!
Different types of tax-advantaged accounts
In the UK there's ISAs, SIPPs and pensions and we explained how the tax works on these!
FIRE principles
There are 3 different fees involved as well as the cost of buying the index fund itself. Continuing the supermarket analogy....
- Platform fees - you have to pay to enter the supermarket
- Dealing fee to buy the index fund - some supermarkets charge you to use their bags (Vanguard doesn't charge)
- Buy the index itself - the cost of the bread itself
- AMC (annual management charge) are ongoing fees to manage the fund on your behalf - paying the baker to look after the bread for you to make sure it's tasty!
Is Vanguard always the best platform?
Vanguard is very cheap but it's not always the cheapest depending on what assets you already have. Percentage fee brokers (like Vanguard) are good for small investors whose assets are likely to remain below £25,000 (in an ISA) or £100,000 (in a SIPP and depending on the mix of assets) for some time to come. If you already have some investments do your own research. This article from monevator is useful for this!
Different types of tax-advantaged accounts
In the UK there's ISAs, SIPPs and pensions and we explained how the tax works on these!
FIRE principles
We've been teasing you about FIRE principles for some weeks now but we had to lay the foundations first. Now that we've done that, this week we talked about FIRE and how to get to retirement.
The key here is that SAVINGS RATE is the determining factor of how long it will take you to get to retirement NOT how much you earn.
To work out how much you need to retire multiply how much you want to live on in retirement by 25. The inverse of this is 4% (1/25 = 4%). Alan has written a blog article all about the 4% rule.
That's it!
Coming up next week
Week 8! Course finale! You've nearly made it to the end of the course! We're going to cover how to plan for the future and how to figure out how long it will take to get to the target that you've set. Katie's going to crack out the spreadsheets. She is SUPER excited!
Week 7 homework
This week's homework comes in two parts since we covered two topics. Investing implementation and FIRE principles.
Investing implementation homework
The investing implementation homework is the same as last week, week 6!
FIRE principles homework
1. Set your target. Full FI? Partial FI? “On time” retirement?
2. How much do you need invested in order to reach your target? (25x however much annual passive income you want)
Optional:
3. Watch the Playing with FIRE documentary
4. Read Quit Like a Millionaire (UK version or USA version)
5. Have a play with the Playing with Fire retirement calculator
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
The key here is that SAVINGS RATE is the determining factor of how long it will take you to get to retirement NOT how much you earn.
To work out how much you need to retire multiply how much you want to live on in retirement by 25. The inverse of this is 4% (1/25 = 4%). Alan has written a blog article all about the 4% rule.
That's it!
Coming up next week
Week 8! Course finale! You've nearly made it to the end of the course! We're going to cover how to plan for the future and how to figure out how long it will take to get to the target that you've set. Katie's going to crack out the spreadsheets. She is SUPER excited!
Week 7 homework
This week's homework comes in two parts since we covered two topics. Investing implementation and FIRE principles.
Investing implementation homework
The investing implementation homework is the same as last week, week 6!
FIRE principles homework
1. Set your target. Full FI? Partial FI? “On time” retirement?
2. How much do you need invested in order to reach your target? (25x however much annual passive income you want)
Optional:
3. Watch the Playing with FIRE documentary
4. Read Quit Like a Millionaire (UK version or USA version)
5. Have a play with the Playing with Fire retirement calculator
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