A summary of the main points and my personal action list
You made it to the finishing line – yay!
Now that I’ve read through the book twice, I realise that I was unnecessarily bamboozled by a plethora of jargon I didn’t understand.
- What’s a 401K?
- What’s a Roth IRA?
- How does the S&P 500 compare to the FTSE?
- Etc, etc ..
It turns out that, although I now know the answers to these questions and many more, they are all largely irrelevant to my investment planning. However, this fear of the unknown is precisely what feeds the financial industry.
What I’ve arrived at are the following conclusions which are pretty self-explanatory and simple. There’s no great mystery about investing – but there’s a massive industry that gets paid when you delegate your decision making to them.
Nobody (apart from independent bloggers and other altruistic souls) has an interest in simplifying this stuff – because there’s just too much money to be made from alluding to subtleties and complexities which you clearly do not understand.
Don’t be fooled. Anybody who can read and write can understand this stuff, it’s not rocket science – but some of it is counter-intuitive.
While there are many up-and-coming online services available in the US to smooth the financial planning process, in most cases we don’t have access to like-for-like services here in the UK (yet).
However, don’t think that consulting a high-cost IFA is your only alternative. With a little bit of reading and research, you can figure this stuff out for yourself.
You actually need some spare cash to invest. Every pound you don’t spend is one you can invest instead. That’s a double win! What’s more, if you get used to spending less, your retirement pot also can shrink – which means you can reach financial independence that much quicker.
There are some great blogs I now follow on this very subject, often referring to FIRE (Financial Independence Retire Early). I’d highly recommend adding these personal finance sites to your reading list. I continue to learn a lot from them.
The main takeaway in this section is that passive investing via low-cost index trackers is the best option for 99% of us. Most of the people cannot hope to win most of the time by cherry-picking stocks and timing the market. Statistically, there have to be winners and losers and your chances of winning consistently doing this are close to zero. If there’s one thing you should remember from the book, it’s this:
Fees and taxes matter more than the nuts and bolts of your portfolio.
The most tax-efficient vehicles for saving are pensions and ISAs. There’s a £40K pa limit on pension contributions (currently) and a £15K pa limit on ISAs. Saving more than £55K pa tax efficiently is tricky.
If the aim is to keep total fees below 1% pa, this pretty much precludes using an IFA who will charge between 0.5% and 1% pa.
Using the lowest cost funds and a low cost platform, you can keep fees below 0.5%pa – but adding an IFA fee to this is enough to make your otherwise sound investment strategy a bad one.
How much do you actually need to retire? Taking a safe withdrawal rate (SWR) of 3% pa you need savings of £400K to yield a gross income of £1,000 per month – which will turn into £800 after income tax.
That’s a lot of capital to accumulate for a relatively small income – but that pretty much ‘guarantees’ that level of income forever.
Compare that to an annuity you purchase for £400K, and the income will likely be in the region of £500 per month. Annuities are definitely worth considering carefully because there’s no getting out of them once you press the ‘buy’ button.
If you’re young and time is on your side, you can benefit from compound interest to grow your savings faster as time passes. If you’re older and have fewer years to accumulate your nest egg, you need to save more aggressively. There’s no magic wand here.
Diversifying your investment is crucial. Investing 100% in equities might give you the greatest return – but it also exposes you to the most risk. Investing 100% in bonds is safer – but it’s unlikely you’ll meet your growth requirements this way.
Most people plump for a mix between equities and bonds as a way of smoothing the highs and lows of the stock market with the slow and steady ride promised by bonds.
Depending on your appetite for risk and the number of years you have until you need to access your retirement fund, the mix might range from 20% equities/80% bonds (low risk, lower return) to 80% equities / 20% bonds (higher risk, higher return).
By making regular investments every month, you’ll benefit from pound cost averaging because you’ll buy when equities are expensive AND cheap. Over time, this will average out the price you pay for equities and is safer than investing lump sums.
As equities change in price, your target balance between equities and bonds can get out of whack – so it’s important to rebalance once a year or so to maintain your risk exposure. Some funds automatically rebalance for you.
Not much for us in the UK to do here, except to set up a living trust so that your heirs and dependents can access and manage your estate if you are unable to do so or once you die.
- Pick a diversified low cost index fund. The Vanguard LifeStrategy 40% Accumulation fund fits the bill for me.
- Pick a low-cost platform to enable you to buy and sell. I chose Alliance Trust.
- Place your investments in tax-efficient pension (SIPP for me) and/or ISA wrappers.
- Make regular monthly payments for as much as you are able or until you max out your £40K pa pension limit and your £15K pa ISA limit.
- Rinse and repeat for as long as you can.
- Consult a tax advisor BEFORE withdrawing any money from your pension account.
There it is. That’s everything I learned from re-reading and researching Tony Robbins’ Money Master the Game.
In the course of figuring some of this stuff out, I’ve come across other books which might have been a better fit for me to read, however ..
I read this book BECAUSE it had Tony Robbins’ name on it. It’s highly unlikely that I would ever have read a pure finance book- because I was too intimidated by the entire subject.
So, while I’ve read a lot of criticism of the book, I think the main point is that it’s given personal-finance-phobic people like me a way in to the subject and demystified it enough for me to just get on with it. And for that I’m grateful 🙂
I’ll add the odd post now and then to the blog as my further reading dictates, but that’s pretty much all for now here.