I’ve said before that Stocks and Shares ISAs are a crucial item in your investment armoury, and with Plonkee’s comprehensive introduction to them, they were demystified. Now Plonkee has done it again by giving us a guide to some basic investment funds. It’s posts like this that save me hours of research.
In terms of asset allocation, the only major difference that you might want to consider between the UK and US, is that the UK makes up a smaller part of the world economy. This means that it’s arguable that you should diversify overseas more than Americans.
Combining this knowledge with David Swensen’s investment strategy, you can match my investments pretty closely*.
* Well, on paper at least! I don’t have enough invested right now to make this kind of diversification efficient and there will be some major differences when/if I do.
In Picking Warren Buffettâ€™s Brain: Notes from a Novice, Tim Ferriss shares the notes he took at a recent convention for Berkshire Hathaway shareholders. It’s an interesting read and here’s the crux of it all:
How would you invest your first million dollars?
“Iâ€™d put it all in a low-cost index fund that tracks the S&P 500 [UK equiv: FTSE All-Share] and get back to workâ€¦”
Why do people struggle with this simple investing concept? Because people believe the experts, and when you pay the experts for advice… well, I’ll let Warren continue:
“No one will give you this advice [index funds] because no one gets paid for it.”
How about the best books to read “for investing and life”?
- Buffett: Chapters 8 and 20 in The Intelligent Investor.
- Munger (Vice-Chairman, Berkshire Hathaway): Anything by Ben Franklin.
There are a lot of very good US-based personal finance blogs around, but sometimes the information given is difficult for a UK reader to understand as the terms used are completely alien to us.
One of the newer additions to my RSS reader is Plonkee Money – a site I found when searching for a US-UK personal finance translator. Plonkee’s UK-US comparison post is now a year old and is still visited regularly when I forget what a term means.
Roth IRA = Stocks and Shares ISA
Roth IRAs and Stocks and Shares ISAs are similar investments but there are significant differences in the rules in each scheme.
Being notoriously difficult to understand, Plonkee is now – in the build up to the new financial year – producing a comprehensive introduction to Stocks and Shares ISAs – a crucial item in your investment armoury. Whether you’re new to ISAs or fancy brushing up on your knowledge for the coming year, this is looking like an important read.
- part 1: all about you â€“ why you want to invest, and how much money you have to play with
- part 2: all about risk â€“ successful investing means always being able to sleep at night
- part 3: all about investments â€“ the types of investments that you can put into ISAs
- part 4: all about asset allocation â€“ how to decide which mix of investments is right for your ISA
- part 5: all about funds â€“ narrowing down your choices
- part 6: all about providers â€“ getting the best deal for the money
- conclusions â€“ whatâ€™s been covered, and what to do next
NPR‘s All Things Considered recently profiled David Swensen and analysed his investing strategy (Swensen is Yale University’s head investor):
Yale University recently announced a 23 percent return on its investments, swelling its endowment to a whopping $18 billion. The man behind that investment success is David Swensen, one of the most gifted investors in the world. He’s made an average 16 percent annual return over 21 years â€” better than any portfolio manager at any other university.
Nobody has numbers that good. Not at Harvard, Princeton, Stanford, or any foundation or pension fund; Swensen consistently beats them all. […] Yale pays Swensen $1.3 million a year. That sounds impressive until you realize that, with his track record, if Swensen started his own hedge fund, he could earn $50 million to $100 million a year.
Swensen’s investment formula takes the pain out of asset allocation. All you need to do is adjust the percentages and fund locations depending on your age, your assets, and your risk appetite. Perfect.