I have some basic tips for UK investors which are a good baseline to work off.
1. Put your money into an Independent Savings Account (ISA). You can put in £20k per year tax-free. If you have more than £20k now, you can move another £20k at the start of the next tax year.
2. For a new investor, I think a simple and good method is getting a Vanguard Lifestrategy ISA with 100% equities—this buys you stocks across lots of different markets. As far as I know, Vanguard has the lowest fees at about 0.15% - even these small percentages are important as they eat up bigger investment gains. If you’re doing patient philanthropy, you want equities not bonds for higher returns.
3. See this post for discussion of donor advised funds, which might have more tax advantages, though advice seems inconclusive at the moment.
I’d add that since timing the markets seems impossible, drip-feed investing seems to be a good idea because of something called pound-cost averaging. You can do this easily with Vanguard by setting up a direct debit. I’ve also heard the US and UK personal finance subreddits recommended by some smart people.
1. Empirical research. I did look into this and a quick google scholar search reveals lots of sceptical papers.
2. The theory doesn’t make sense. On the efficient markets view, at any time that you put money into the stock market, you would expect the market to rise, just because the stock market increases over time in expectation. If you have £1m, then you would always be better off in expectation putting that into the stock market as a lump sum. If you spaced it out as 100 £10k investments over 100 months, then, in expectation you would miss out on the investment returns you could have got in those 100 months.
Interesting, thanks. For point 2 - is there some trade-off from the instalments being spread over time against the time they’re in the market for? On one hand, you have investing £10K in one payment and leaving it for 5 years, and on the other hand investing £2k each year for 5 years. But could there be a middle-ground, some function of the variability and average returns, e.g. spreading the £10k in monthly payments in the first year, then leaving it for the next four, that does better than both extremes?
For point 1 - from very quickly skimming these papers (and as an amateur) it looks like the pound-cost averaging approach is beaten by other more complex approaches, but it still seems to be better than lump-sum. Is that your understanding?
For a new investor, I think a simple and good method is getting a Vanguard Lifestrategy ISA with 100% equities—this buys you stocks across lots of different markets.
Does anyone know if there’s an ISA (Individual Savings Account) w/ a fund that doesn’t invest in meat and dairy companies and companies that test on animals? (I know that I can open an ISA on something like Trade 212 and invest in individual stocks myself. But due to having more important things to work on, I’m looking for a more “invest-and-forget” type of investing.)
Interesting post on investing rather than buying a home.
I would just point out that the calculation is quite dependent on how much has to be borrowed from a mortgage provider. If hypothetically one doesn’t need a large mortgage, or any mortgage at all, buying could be better.
Also from a pure altruist’s point of view I suppose the fact that any increase in house value is money you will only have when old may not be that relevant if you’re happy not to enjoy that increase in value for yourself and instead just want to donate the property to an altruistic cause when you die. This would probably only be relevant for those who don’t want to have children though.
I have some basic tips for UK investors which are a good baseline to work off.
1. Put your money into an Independent Savings Account (ISA). You can put in £20k per year tax-free. If you have more than £20k now, you can move another £20k at the start of the next tax year.
2. For a new investor, I think a simple and good method is getting a Vanguard Lifestrategy ISA with 100% equities—this buys you stocks across lots of different markets. As far as I know, Vanguard has the lowest fees at about 0.15% - even these small percentages are important as they eat up bigger investment gains. If you’re doing patient philanthropy, you want equities not bonds for higher returns.
3. See this post for discussion of donor advised funds, which might have more tax advantages, though advice seems inconclusive at the moment.
4. For god’s sake don’t buy a house.
I’d add that since timing the markets seems impossible, drip-feed investing seems to be a good idea because of something called pound-cost averaging. You can do this easily with Vanguard by setting up a direct debit. I’ve also heard the US and UK personal finance subreddits recommended by some smart people.
I’m very sceptical of pound-cost averaging.
1. Empirical research. I did look into this and a quick google scholar search reveals lots of sceptical papers.
2. The theory doesn’t make sense. On the efficient markets view, at any time that you put money into the stock market, you would expect the market to rise, just because the stock market increases over time in expectation. If you have £1m, then you would always be better off in expectation putting that into the stock market as a lump sum. If you spaced it out as 100 £10k investments over 100 months, then, in expectation you would miss out on the investment returns you could have got in those 100 months.
Interesting, thanks. For point 2 - is there some trade-off from the instalments being spread over time against the time they’re in the market for? On one hand, you have investing £10K in one payment and leaving it for 5 years, and on the other hand investing £2k each year for 5 years. But could there be a middle-ground, some function of the variability and average returns, e.g. spreading the £10k in monthly payments in the first year, then leaving it for the next four, that does better than both extremes?
For point 1 - from very quickly skimming these papers (and as an amateur) it looks like the pound-cost averaging approach is beaten by other more complex approaches, but it still seems to be better than lump-sum. Is that your understanding?
Is there a timing approach you’d recommend?
Someone shared this link with me which supports your view that lump-sum is generally better, especially if you don’t have diminishing utility.
Does anyone know if there’s an ISA (Individual Savings Account) w/ a fund that doesn’t invest in meat and dairy companies and companies that test on animals? (I know that I can open an ISA on something like Trade 212 and invest in individual stocks myself. But due to having more important things to work on, I’m looking for a more “invest-and-forget” type of investing.)
Interesting post on investing rather than buying a home.
I would just point out that the calculation is quite dependent on how much has to be borrowed from a mortgage provider. If hypothetically one doesn’t need a large mortgage, or any mortgage at all, buying could be better.
Also from a pure altruist’s point of view I suppose the fact that any increase in house value is money you will only have when old may not be that relevant if you’re happy not to enjoy that increase in value for yourself and instead just want to donate the property to an altruistic cause when you die. This would probably only be relevant for those who don’t want to have children though.