Gyroscopic Investing

Hi all

I've been a long term lurker and have read the (new) book. I am in the process of setting up my portfolio and have a few questions regarding each asset. First, some context. I am 32yo and am hoping to FIRE within 5 years or so. As such, I intend to contribute far more than my ISA contribution each year and so am trying to prioritise which investments to put in my ISA. My current net worth is around 150k. For sake of argument and to make the numbers easy, let's see retirement takes 1m. Here are my questions:

Equities

The book recommends a FTSE 100 tracker. The FTSE 100, however, has roughly 70% of its sales from overseas. The FTSE 250 is around 50%. Which do you go for? I'm leaning towards the FTSE All Share, which will be around 55-60% or so.

Gilts

How do you all do this? Rather than a fund it seems easiest to buy the longest dated gilt available and sell when it hits 20 years. Is this right? The longest dated one I can find is 2068, so 50 years. Is this OK? The book says more like 30-40. How is this taxed both in terms of gains and also income? Would it make more sense from a tax perspective to buy the Vanguard Long Duration Gilt Index Fund (Accumulation)?

Gold

To avoid using a fund in my ISA I looked into the royal mint, but the carrying fees and spread are crazy high - makes more sense to just deal with the capital gains outside of an ISA. I understand that buying coins is CGT free, but I don't trust myself with c.250k of physical gold under the bed...so I am going with bullionvault and their c.0.12% annual carrying fee and tight spreads. It's also physically backed up.

Cash

My wife is a US citizen but will soon be a UK citizen and will relinquish her US citizenship. In the meantime she can have an ISA but has to be very careful what she invests in to avoid the incredibly punitive US PFIC taxation. As such, I was just going to open a cash ISA for her and max it out. Then, down the line if/when she relinquishes her citizenship we can transfer this to a stocks and shares ISA to buy higher yielding (higher taxed) investments.

This would cover 100k over 5 years. leaving 150k. With this, I was considering setting up a short duration gilt ladder, as per the book. Is this taxed the same as the long duration gilts? How would this work? I buy a c.12 month gilt and let it mature, and then with the proceeds buy another? Is it as simple as that? Given this would be maturing far more often than the long duration gilt (and therefore realising gains, albeit small), would it make sure to have this in the ISA rather than the gilt?

Alternatively, given I would be holding 100k in pure cash in a cash ISA, would it be OK to use a fund like the iShares UK Gilts 0-5y ETF?

Tax

At the end of the day, over five years we would only have 100k in a cash ISA and 100k in a stocks and shares ISA. If I set my portfolio up as above, what would be the preferential order of priority to go into the ISA?

1. Equities
2. Gold
3. Long duration gilt
4. Short duration gilt

Sorry for all of the questions and complexity.

Thanks

Hi Banker 22 and welcome to the forum.

Some thoughts on your questions

I think over time the thing you need to worry about most is fees, make sure you choose the most suitable broker / fund combination.

http://monevator.com/compare-uk-cheapes ... e-brokers/
http://monevator.com/low-cost-index-trackers/

Equities

Ftse All share v. Ftse 100, probably not going to make a lot of difference.

viewtopic.php?f=2&t=7675&p=129591#p129591


Gilts

Yep 2068 is good, sell in 30 years time
Outside of an ISA, tax is payable on interest, but not on capital gains.

Gilts are a bit of a niche product so not all online brokers actually support purchase online but usually allow you to buy/sell over the phone at online commission rates.

Most of my Gilt allocation is in individual gilts, but I do hold a bit of the Vanguard Long Duration Gilt Index Fund because its so widely available.

Gold
Don't be shy of holding some in an ETC e.g. SGLN just for ease of rebalancing.

Tax

Yep thats the generally accepted order.

Thanks!

What broker do you use?

How do you hold your cash allocation?

How about FTSE 250 vs. FTSE 100 / All Share?

ATM I use iWeb and XO. Both low commission, no 'holding' fees . XO does Gilts online, iWeb you have to phone (I think).

I don't have any short term bonds, hasn't been worth it during the time I've used the PP. I have some deep cash in ILSCs the rest is spread around various savings/current accounts, not sure its been worth it. NS&I is a good low stress place to park cash.

I'd just go with the lowest cost FTSE 100 ETFs and not worry about it too much.
If you have a hunch that one might outperform the other open a variable portfolio to scratch the itch.

Remember the FSCS compensation limits at £85K cash, £50K stocks per person per institution... oh and check that the institutions you use are registered.

I have been thinking more and more about what to put into my ISA.

In my wife's ISA we are definitely holding gold funds, so that's off the table.

In my ISA, however, should we hold gilts or equities?

Here's how both are taxed:

Gilts:

- No capital gains tax if sold or held to maturity
- Interest income subject to normal income tax

Equities

- Capital gains tax beyond the £11-12k personal allowance
- Dividend income subject to normal income tax beyond the £5k personal allowance

There are 3 phases to our plans for the next 10 years:

Phase 1: Accumulation

The plan is to accumulate £1m in the next 4 years, which would give us the following (ignoring gains / losses over the years):

Wife's ISAs: £100k of gold funds
My ISAs: £100k of either equities or gilts

Physical gold: £150k
Taxable brokerage: £150k of either equities or gilts and £250k of the other
Cash: £250k

Questions: Which should we put in the ISA?

Phase 2: Transition

I would then look to live off of the income and draw 3-5% from the portfolio for 6-7 years and would also sell £40k of taxable assets every year to continue to contribute into our ISAs.

Questions: Which should we sell to put into the wrapper every year? Probably a mixture of things that have gained and lost to make the net tax effect 0? Does that make sense? I would also maybe consider selling all of our gold funds at this point and moving most to physical.

Phase 3: Maintenance

Then I'd start earning again so would leave the portfolio alone but wouldn't earn enough to keep contributing very much. Would keep selling the £40k per year to contribute to ISAs.

I am struggling a little, given the above plans, to determine the best (and most tax efficient) course of action. Any suggestions would be much appreciated.

Thanks!

My situation was somewhat similar, I'm still wrapping up from taxable holdings into two ISAs. I've found in practice the PP is pretty tax efficient, I haven't hit any significant capital gains or income tax issues along the way.
That said our income situation has changed year to year so long term planning would be pointless. The only real issue I've had is brokers changing their fee structures in a way that would be disadvantageous to me. YMMV.