This is the third in my annual posts about my ISA (tax-free) portfolio. I’ve written before about how there is an outside (~10%) chance of my ISA portfolio reaching $100m, if I live for another 40+ years. Yet, as of my last post a year ago, the total FvL ISA pot was worth ‘only’ £355k (~$500k, back then!). So how am I feeling about multiplying my ISA 200x?
My $100m assessment was based on a scenario analysis over the next 40+ years. Making various assumptions (no withdrawals, regulation changes, etc), if I maintain contributions at £20k x2 per year, and achieve an ‘Above Average Risk’ level of return (>9% per year average, quite a high level of volatility), then in about 10% of predicted outcomes my total pot would reach $100m.
There are a couple of simple mental tricks that help me get my head around this growth. First of all, contributing £20k x 2 per year is quite a lot of money; over 30 years this is £1.2m. To make it easier to think about the growth of this annually-topped-up portfolio, let’s simplistically assume it isn’t annual top ups, but instead is a lump sum of £600k ($750k) in year 14.
Secondly, remember the rule of 70. Assuming I average returns of 7% then my portfolio doubles in 70/7=10 years. At an average return of 10% it takes about 7 years to double. So if I start with $0.5m, and averaged 10% return, after 35 years I have doubled 5 times, and I’m at $16m. But if I add (see previous paragraph) $750k in year 14, this $750k then doubles three times; this adds a further $6m. The two together get me to $22m in 35 years. Now assume I last a further 14 years , which takes me to the average life expectancy for UK males of my age, and I double my combined $22m pot 2 more times. $88m. Not quite $100m, but not far off.
Before you say that 10% per year is unrealistic, I am citing everything here in nominal ‘money of the day’ figures. This is before allowing for inflation. Historic returns for a diversified portfolio can easily achieve 5% per year on top of inflation. This works out as 7-8% per year in nominal figures. 10% is high, I will accept, but not absurdly so. If you have significant fees then you can forget it, but if you hold low-cost passive trackers this is not that unusual.
In the meantime, there I was a year ago with £355k. At today’s exchange rate this is barely $450k. How have I fared since then?
It’s the end of the month and the end of the quarter. This is a combination post with my usual monthly portfolio performance along with a quarterly review of how I’m progressing on my goals for 2017.
What happened in March? The UK saw its first terrorist outrage for years, with the disgusting car/knife attack at the Palace of Westminster. While five people died (about the same as an average day of car fatalities, in fact), over 70 people were injured – which is thousands of people in families/friends affected. It reminded me of the January Melbourne attack, in which a malcontent killed five people and injured 30 in a drug-fuelled car-only attack on the busiest street in the city centre.
Why in London there were twice as many people injured (or half as many people were killed, relative to total casualties), as in Melbourne I have no idea but would be interested if anybody has any insights.
What I can say is that I think London’s authorities/emergency services did an amazing job, with the criminal apprehended (erm, shot fatally) 80 seconds after the attack started, no collateral damage and lots of heart-warming stories of common sense, thinking under fire, charitable support and so on.
The other thought that will have occurred to lots of us is how thankful we Brits should be for our (almost) gun-free culture. Extremists in the US do a lot more damage far more easily.
From an investment / UK markets perspective the big event was probably the UK government formally triggering Brexit via Article 50. This event was so well choreographed that it had a negligible impact on the markets. While I am no defender of the current UK government, in fairness to them they ended up implementing a Brexit process that they had laid out around six months ago, with zero amendments. They do deserve some credit for remaining in control and being true to their word.
By contrast, March also saw the UK’s first budget under the new(ish) regime. This led to a farcical U-turn around National Insurance (the UK’s social charge, a.k.a. a tax on work). Unlike the Brexit saga this showed our senior leaders at their anti-leadership worst, in a petty dispute which did nobody any credit. But nothing in the budget made any impact on markets /etc either.
Overseas, the main news in the markets was the defeat of Trump’s repeal of the Obamacare bill. This wasn’t what pharma investors wanted. But the wider impact is to call into question the Republican regime’s credibility, which in turn suggests they may not achieve the market-friendly changes to taxes and regulations that many hope for.
So in this environment, how did markets fare and how my portfolio perform?
I caught up with a very successful friend of mine this week. She sold a big chunk in her business a year ago, clearing >£10m of cash. She has been meaning to decide what to do with the funds but has been too busy / fearful / etc to decide. So the money has been sitting in cash in her bank account. But she told me today that she’d decided to go with a Swiss Bank and use them to open an offshore bond, putting £5m into it.
I sighed, rolled my eyes, and generally acted in a not-very-empathetic manner. Then I asked her to consider taking £1m of her £5m, doing a simple Do-It-Yourself approach instead, and comparing the difference over a few years. She asked me to drop her an email with some details. So today I sent her an email, which I reproduce below. Please note that this is not financial advice, just encouragement.
Any comments/improvements would be very welcome. For reference, Jane lives and works in the UK, has several kids, and has a husband who works in the public sector. Jane has a net worth of at least £20m.
As promised here is what I would encourage (note – not advise) you to consider as you deploy your funds.