FIRE proofing the Portfolio

 

“You’ve got to know when to hold’em, know when you fold’em” sang Kenny Rogers.  Well, I’m thinking along those lines right now – what’s best for us and our future.  But how do you construct a FIRE proof portfolio?

Of course that is from “The Gambler” and investing money is sort of like gambling – you hope that it’s not and you’re on to a sure FIRE winning strategy – but you can’t be certain.  Could investing money now be a good idea when it could be 0.5% lower in an few hour’s time?  5% lower in a few month’s time or 50% lower in a year’s time. Do bears shit on your portfolio? Of course, all these things can, do and will happen.  You can also try saying you should have invested money in the past but that won’t help either.

But wiser people than me have said that it’s time in the market not timing the market that leads to long term success.  So, no matter how the markets look or feel, you should still keep investing if you have the money.

Bonus Time

GFF might be a bit unusual because for all of my professional career, I’ve received an annual bonus that’s roughly a month or two’s salary around February time and I’ve never gone out and blown it.  When others were buying new cars, new threads or new toys – GFF was loading up his SIPP, LISAs, ISAs, VCTs & EIS  It’s not really in my nature to connect money paid for my job and buying things to make me feel happier.

So this year with the bonus, I bought £7,200 into ISF buying just over 1,000 shares.  This was made up of a sale of two VCTs (thanks Baronsmead & Northern) that I had held for 5 years and a cash top-up primarily from the bonus.

ISF is a FTSE100 tracking ETF with fees of just 0.07%.  The attraction to me is that it pays a healthy dividend of about 30p per share (meaning my purchase yields about £300 a year or around 4.25%), the fees are also very low which helps improve my return overall.  I have SIPP funds invested in low-cost global trackers but this money being held outwith of a SIPP is intended to pay dividends now!  It’s a good choice if you want income instead of growth.  I have been acquiring ISF for the last couple of months as part of my Ready, Aim, FIRE plans.  I’ll probably continue to buy more as well as money becomes available.

The 30p per share dividend would mean that for an annual income of £24,000 I’d need to hold (24,000/0.3) = 80,000 – so a measly 1000 shares isn’t going to immediately bring about FI – but it’s a step in the right direction.  I plan to live off my income in a FIRE scenario – something you might call the yield shield.

I’ve read a bit about the limitations of a yield shield and I’m aware that this purchase may not actually be the most astute action to take.  There are risks associated with investing in the FTSE100 alone versus a global tracker like VWRL; the FTSE100 has lagged other indices, dividends paid will lower long term growth, the UK focus only increases the variability of returns. However, compared to some of my previous investments (like this) it’s not exactly like betting the house on black in Vegas.

ball casino chance gamble
Photo by Pixabay on Pexels.com

Being able to buy as much as I did is part of a longer term plan.  I have about 15% of my net worth in VCTs and many of those are coming to the end of their 5 year holding period to allow me to sell without losing the 30% tax relief.  Some have been good and some just plain useless (looking at you Puma).  I’m still investing in VCTs but more money should be coming out than into VCTs and I’ll funnel that into ETFs like ISF to boost our dividend income.  Overtime, this should lead to a reliable stream of dividends, replacing the less reliable P2P lending income, often sporadic/paid out of capital VCT dividends and supplementing other income.

Thanks, GFF

*This does not constitute advice.  Do your own research because the worst advice you can get is from some idiot on the internet.

Finally, for all you Kenny Rogers fans

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10 thoughts on “FIRE proofing the Portfolio

  1. What vcts do you use? At the moment I’m just using simple world trackers and have about 100k in them but keep wondering if I should look at some thing higher risk while I’m still young

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  2. Usually “time in market, not timing the market” -people don’t consider much alternatives for stocks other than cash.

    I agree you need to keep all of your money invested in _something_, but if the Shiller PE is 30 it’s wise to consider alternatives to stock – other than cash.

    I am only 1/4 into stocks with these valuations and market outlooks. Let’s see how it goes. So far, I’m well ahead in this move, but that’s hardly proof of anything.

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    1. In 5 year’s time we will all know what was the right thing to do now – in the meantime we can only plan and guess.
      For what it’s worth; the ftse100 is trading moderately cheaply by any number if measures and with bind yields so low it’s a but from me.

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      1. Plan and guess? Sayeth the Ploughman Poet:-

        But Mousie, thou art no thy lane,
        In proving foresight may be vain:
        The best-laid schemes o’ Mice an’ Men
        Gang aft agley,
        An’ lea’e us nought but grief an’ pain,
        For promis’d joy!

        Still thou are blest, compared wi’ me!
        The present only toucheth thee:
        But Och! I backward cast my e’e,
        On prospects drear!
        An’ forward, tho’ I cannot see,
        I guess an’ fear!

        Liked by 1 person

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