So as mentioned, I decided it’s time to get my financial sh*t together. Starting by looking at my current net wealth with a Pie Chart (and then it’s ability to earn me some sweet sweet passive income.)
I’ve quickly had a look at my finances and asset allocation. On first calculation it looks a little something like this;
The property is entirely my residential property, with the amount taken as the Market Value per Zoopla.com minus the outstanding mortgage amount;
While this can’t be too far off the mark in terms of the market value of my dwelling (horrible – sounds like I live in a cave) I’m not entirely sure I should include it at all as part of my retirement portfolio… Why?
It definitely represents real wealth, but it’s not really part of my retirement portfolio. If it was a rental property generating some income then it could stay. I’ll keep track of the value and the equity in it, but for now, bye-bye.
The plan is to eventually move out and keep this as a rental property. Then it will be earning it’s keep and it can come back in.
Ahhhhhhhh – I need to diversify.
I’ve been piling most of my savings each month into cash with the aim of having a year’s worth.
For the last couple of years I have decided to just focus on accumulation through my actual contributions, rather than any specific return. Which is fine, up to a point. There’s a lot to be said for having a liquid fund in cash, that’s free from volatility, but as it creeps towards a years worth of salary it’s time to start chasing those inflation beating returns.
At the moment I’m chasing the best rates (which are current accounts) and so pinging money between multiple accounts each month. Time consuming but worth it. ISA rates are weak at the moment and if you are paying higher tax rates then savings/current account rates aren’t much better. So my cash isn’t generating much income, especially in real terms.
The plan…. to start re-allocating some of this into some low cost bond trackers. Currently more is going into cash than equities each month. Which will push down my equity exposure going forwards and increase my bond holdings.
Equity – (UK, North America, Asia and Emerging)
Most of the equity is in my employers pension scheme and another growing chunk is being put into the companies share option scheme.
Currently I’m whacking 20% (including employers contributions) into the scheme. It’s a good scheme with low charges (typically less than 0.1%).
So for now, I’m going to leave contributions at this rate. But it’s got to reach a point where you don’t won’t too much tied up in one scheme;
– Too much within one scheme, reducing diversification to providers.
– Limited finds to choose from, again reducing diversification.
– It’s in a pension scheme! Good from tax benefits received and employers contribution but it still has it’s risks. Minimum retirement age of 55, at the moment. This is already raising to 57 and could easily rise higher. Tax benefits could easily change.
So I’m going to need to decide how much of my portfolio I’m happy not having complete control over…in case the government decides to skim some money from it, raise the retirement age to 95 or just deny it ever existed.
Also, I can’t get my grubby little claws on any of the dividend income if it’s wrapped up in a pension.
Equity – Share Options
I also already made the decision to max out on the company share option scheme, which hurts for the three years it is run for, but offers superb potential return, not without it’s risks, Obvs.
Hopefully I will be sat on a nice return at the end of the three years, but at worst if the option isn’t worth anything I can just get the cash back (plus some minuscule interest).
Will need to decide how the value this, as equity or cash? As cash turning into equity as the option date approaches, if the option is in the money? Use Black-Scholes to value it, although that’s going to be a ball ache and is heavily reliant on the assumptions you use.
What’s the point, Charlie?
If all this stinks of the mutterings of a confused mind…it is.
Next to have a look at where this is going, if I don’t change anything and shuffle on regardless.
Blimey, this post is probably about as interesting as listening to Nickelback, but it’s the start of something amazing. And it’s not that dull. I hope.
Now for a glass of Jura.