It’s ok to not to optimise your cash holdings

Optimising cash cartoon

What do you do with you cash savings? Is it under the mattress? Is it in the current account you first set up as a teenager? Do you even have cash savings?

A lot of those in the FI and personal finance communities online would advocate spreading your cash funds around various different high interest current accounts, in order to maximise the interest available to people looking to hold their funds in cash.

As you can see from figure 1 and 2 below, since the financial crash average interest rates on savings accounts have rarely kept up with inflation. This has meant that many people are looking to alternative means to make the most of the interest they could be earning.

Optimising cash chart
Fig. 1
Optimising cash graph
Fig. 2

Bring in the high interest current account.

Providing higher levels of returns on your cash savings, the high interest current accounts, an alternative to the low interest traditional savings accounts, usually limit their users to the amount they’re able to earn interest on at any one time. It also usually requires a minimum amount you must pay in every month.

Now I know you can get 5% up to £2,500 in a Nationwide Flex account or 5% up to 1.5% in a TSB current account, but there isn’t a great deal of attraction to these for me when you’re needing to manage 3,970 account logins for an extra £25 a year or whatever non-facetious amount it actually is. I also don’t want to be transferring money here there and everywhere to meet minimum payment requirements. Plus I don’t want my money anywhere near TSB considering the issues they have had yet again last week…no thank you, I’ll stick to ironing my hands.

A lot of the financial forums I read are obsessed with the idea of ‘sit back and relax’, passive investing. Why wouldn’t you be? It’s the easiest, cheapest and most reliable way of receiving a fairly decent return on your money. So why do these same people obsess over scraping and scrimping for that extra 0.5% of interest on their emergency cash savings? God forbid you even consider Premium Bonds as a lower rate taxpayer.

Honestly? I don’t know. Maybe people enjoy the routine every month of moving money between accounts. Or maybe this routine adds to the obsession of optimisation that permeates the finance blogosphere.

Don’t get me wrong I love a bit of financial optimisation. Since following many different blogs and podcasts on how to make the most out of your money and really thinking about the worth of material goods, my eyes have been well and truly opened to these concepts.

But does there come a point where my time is worth more than an extra £38.30 annual interest? Quite frankly…yes.

I currently keep my cash in a 1.1% cash Isa. 0.4% less than what I could get with Goldman Sachs Marcus account, or the various 5% current accounts. But this account is kept right next to my credit account and my main debit account- one login required. In one click I can transfer money over easily and pay off any unseen expenses instantaneously, and I know it’s going to work.

I know you can set up direct debits to automate everything going in and out of your accounts, but I’ve heard too many times about payments being delayed and the minimum requirements for these accounts not being fulfilled. Give me the easy option any day.

I’ve never thought of cash, or emergency savings, as something that needs to be earning you more money like your investments. It’s there to provide comfort, a piece of mind that no matter what you’ll always have an answer to any financial issue that may arise. The little bit of money you receive in interest every year is just the clichéd cherry on the cake in my mind.

For me, this doesn’t come with having small pots of cash all over the place with 10 different banks, with varying degrees of customer service helpfulness if things go tits up. It comes with accessibility, limited effort and to know, no matter what, any sleepless nights I have are never because my direct debit has forgotten to do its job.

So if you’re reading this and are on the fence about opening tonnes of accounts and having to organise the moving of your money around every month, take time to think if its worth. Not just worth it because some guy on the Internet told you if you don’t do this in X years your savings will have disappeared with inflation, but worth it for what your cash/ emergency savings are there for in the first place…peace of mind.

 

 

References

Fig. 1 and 2: swanlowpark.co.uk

Advertisements

Fretting over finance

Fretting on finance cartoon

I am in a battle with myself at the moment. A conflict between the usual rational, headstrong self and the excessive, spend thrift that rarely rears its head. I am torn between letting my consumerist side out for a brief run around or sticking to the norm and continuing on the path of letting my wealth grow.

You’d think this amount of prolonged deliberation and constant overthinking is due to some significant purchase like a new car or putting down a deposit for a house. No. I just want the new iPhone.

Don’t get me wrong, this is no £2.50 coffee purchase or (my new found thrifty favourite) a 59p cold coffee from Lidl, and comes with a considerable price tag, but given my interest in personal finance and being a keen saver/ investor, it’s not outside the realms of something I can’t easily afford (not to brag but it’s a financial position I’ve worked hard and researched heavily to put myself in to and something this blog will come to be based quite heavily on). So where does the anxiety about such a purchase come from?

I recently listened to a podcast episode on Money Box: The Money Clinic, Poppy and Cliff. This couple – Poppy and Cliff – have started their own cereal café business (an awesome idea and something I wish them all the best on), but they differ quite heavily with how they perceive money and how they deal with their finances.

Cliff was very keen to, as he called it, to ‘invest in the business’ and buy more and interesting cereals from around the world. This would, however, come at considerable up front cost. Now I have never owned my own business and have never really looked into it, but I would imagine that’s exactly how growing your business in its early stages is done with the obvious risks attached to those decisions.

Poppy, on the other hand, had a completely conflicting mind-set. She explained how she had grown up being very money conscious, to the point where If she received any monetary gifts, she would never consider it hermoney and loathe spending anything on herself, even to the point where she made the effort to keep the blazer she had been bought in year 7 all the way until the end of her secondary school days (anyone who has ever worn one of those flimsy things knows how much of an achievement that is). Any mention of spending money either on herself or on the business seemed to be begrudgingly accepted through gritted teeth. One particular thing that struck me was the laptop gift given to her by Cliff one Christmas. They explained how her old one had all but gone kaput, so he purchased her a notebook to replace the old one. Even though this seemed like a rational purchase, Poppy was unable to accept the money spent on her and the eventually took the laptop back.

This all ended with a – albeit unconvincing from Poppy’s end – compromise to meet in the middle.

This really stuck with me, and made me realise how easily I could immediately become a Cliff or Poppy, particularly the latter. I constantly need to remind myself to just spend my money and not think about it after its gone…fuck it you only live once

…right?

 

What I am constantly toying with in my head is my next financial goal. I am currently incredibly close to my next big net worth market, and with this purchase I would not quite reach it this month. But this number is arbitrary. It has had very little thought put into it as to why this number is significant for me. I have a nice cash cushion and a steadily increasing amount working for me in the market, so why not just splurge on this one big purchase? It’s not like it’s an everyday (even yearly) occurrence.

This is a conflict I manage to alleviate somewhat my setting aside a set amount a month into a completely separate account. With this amount I can splurge on anything and not even once consult my rational side:

A flat white every morning before work….fuck it it’s budgeted for.

That hipster pale ale down the local that costs a quid more than all the other beers…leave me alone Daily Mail millennial haters, I like the taste.

That £25 spent on new two new books in Waterstones rather than £2 charity shop books…books are important to me, I like to display them, they’re always thoroughly well used and loved and I like the whole Waterstones shopping experience…and hell I do buy charity shop books from time to time.

 

The one thing I cannot bring myself to do, and will forever struggle with, is a long-term, monthly payment commitment. It’s why I’ll forever probably drive second hand cars I can pay for in cash no matter how wealthy I get or how high my wage may be. Or why I always make sure I can afford to pay my car insurance in full for the year. I couldn’t even commit to a 12 month gym membership so pretended to be a student (same price) allowing me to cancel with one months notice if things ever got a bit tight.

All that said, I’m still pondering this iPhone purchase with my more frugal side. Sure, I use my phone everyday, for everything and for long periods of time. But more current one works fine and is yet to slow down or have the typical iPhone battery issues. It does, however, have one whacking great crack through the top third of the screen which I have already forked out £150 to fix.

What attracts me more than anything is this 0%, flexible, 24 month finance deal. Something I would never usually consider, but if it gives me a new phone (one I’m not needing, but one that would certainly be a welcome upgrade) while not touching one penny of my net worth amount, surely this is something I can manage right? Failing everything I can just pay off the remaining balance after 12 months and be done with it. But this goes completely against my usual aversion to monthly commitments – there will always be that next best product, the next thing being pushed in your face for you to buy and I deplore that, but on occasion I just can’t help it.

Oh god, what a first world, middle class problem this all is…

Who knows? Maybe I’m overthinking this…no I’m definitely overthinking this…

Freetrade review – update and direction

Update…

My first post focused fairly heavily on Freetrade and my first investments on their platform. Since then a lot has changed; I have sold off all my holdings except for Sirius Minerals that I have pound cost averaged into during the heavy falls in performance in May and June. I now average around 15p per share with an overall investment of 1000 shares. This isn’t a huge amount when looking at my overall portfolio, but it is an incredibly volatile stock that will probably bounce around quite considerably until Sirius start bringing in their first lots of revenue in ~2021.

I also purchased my first shares in three companies I had wanted to purchase for a number of years, but was unable to as mentioned in my previous post, due to being priced out by your normal online brokerage accounts and their high fees. These shares are Unilever, Diageo and Disney. I originally wanted to invest in Disney when the first initial murmurs of the new Disney+ came out, but Freetrade had not been released back then. As a result, I began piling my money into various funds and trackers instead. Unfortunately I missed out on the +15% rise once details of the Disney+ platform were officially released, but this is a stock I see holding forever and maybe even passing to my (potential) kids so I am not worried in the long term. So at last I purchased a couple of shares in Disney and Diageo and one in Unilever. I’m looking to increase this to 3-4 shares over time and grab another in Diageo. This is all very gradual still and I’m learning a lot about volatility when investing in individual stocks, so my main investments will still stay in trackers and funds for the foreseeable future.

I have updated my chart on the next page to reflect this.

 

A few I am currently watching…

London Stock Exchange (LSE) – I’d been thinking about this one for a while and my hesitance proved a mistake again. I annoyingly missed the considerable rise, brought about by the announcement of their plans to acquire Refinitiv, which LSEs CEO described as being “a leading global provider of data, analytics and global financial markets solutions”, and their strong financial outlook for the first half of the year. The stock soared from ~£66 a share to an ATH of ~£72 a share last week and now resides around the ~£68 price point.

Berkshire Hathaway (BERK) – Currently sitting on $122 billion in cash, Warren Buffet’s company looks to be awaiting market uncertainty to bring about cheaper options to buy in.

Hargreaves Lansdown (HL) – The share price still hasn’t reached the valuation it saw before the Woodford news broke and questions were asked of their Wealth 50 list. I have had great experience with the company personally and they are still considered the largest online broker in the UK. They charge a premium for buying on their platform and are one of the most expensive out there, but people still flock to them for reliability. If they can hold their nerve through the Woodford issues, I see no reason as to why they can’t be a reliable option for a good few years yet.

 

A few extras…

Renewables Infrastructure and Robo Global  – An investment trust and a Robotics and AI ETF. These are long term holds for alternative energies and technologies. These will be put on ice for now until I have looked at other options like the three above.

 

My invested amount now is up to £500 and am currently holding £200 back to invest in any dips. I’d like to get my Freetrade account up to around £1000, while holding 4-6 stocks so as not to spread myself too thinly considering this is supposed to be my ‘riskier’ investments.

 

The App…

The app itself has undergone a number of changes, not least the addition of many more stock options including some fairly new IPOs like Beyond Meat.

They have also smashed a number of crowdfunding campaigns, bringing in a whopping £4million in their last round, reaching 400% of their target amount.

With this money, one of their ventures will be in opening up their platform to a number of European countries, with the waiting list for Ireland, France, Germany and The Netherlands already open.

They have also been trialling free shares for current customer for referring friends and family to their platform.

Finally – and arguably the most significant – the FCA have granted the company new permissions to explore fractional share trading. Where buying into the likes of Amazon (~$1,800 a share) or Alphabet (~$1,200 a share) may have been too much of commitment for some investors to just one stock, Freetrade are looking to allow investors, in the future, to soon be able to buy into any number of companies with any amount of funds they have. So not only are Freetrade bringing investing to more people through their fee free basic account, but also allowing those with slightly lighter pockets to invest in some of the biggest companies in the world; I see this is excellent news and really shows Freetrade’s ambition to bring investing to everyone.

 

I will be trying to write a post more regularly, and have a few ideas on the go at the moment, I just wanted to update the original post with more of a strategy and more experience on the Freetrade platform.

Freetrade app – overview and initial thoughts

Disclaimer – I am not, in any way, affiliated with Freetrade. I am also not a contributor to either of their crowdfunding campaigns, and nor do I plan on doing so. All opinions are my own.

Freetrade – the U.K’s potential answer to Robinhood. Trading and investing in individual equities has long been an expensive affair in the U.K and Europe, charging exorbitant rates unless you’re looking to trade frequently.

Freetrade’s basic account promises to bring trading to the layman with fee free share purchasing (Isa charges and instant trades aside), but how do they do it, and how can they get away with providing such a service?

According to their website, this is done by building their ‘business model’ and ‘tech stack to keep overheads low’…rather ambiguous from an outsiders perspective and raises many questions as to whether this is sustainable long term. As someone that isn’t in this industry, this seems initially like nonsensical business jargon and something, if I were looking to put in a more serious amount of money, I would want clarifying for fear of unexpected, future charges.

They also execute trades in batches at the same time every (working) day, twice a day. They make reference to this being a similar approach to that of the brokerage giant, Vanguard, but with even such a large and globally recognised broker needing to charge a 0.15% platform charge, it begs the question how does this comparatively tiny start-up can manage to charge nothing?

All that said, my experiences with the app so far have been excellent; my only real concern is the longevity and sustainability of the freemium business model, but that is for another day.

Their in app, live chat service has been exceptional, and they are very quick to respond. Being a mobile only platform, you receive notifications to your phone, much like a text message, whenever you receive a reply so you’re not having to constantly log back in to double check. All their rather helpful FAQs on their desktop site are also available on there too.

Depositing money is all too easy. In order to top up your account, you simply need to link a bank account, got to ‘My Account’ and click ‘Top Up’:

Top up

Next, you’ll be presented with a few tips for topping up and when your money will be available, and also a reminder to use your ‘unique reference number’ which you will be presented with on the next page:

Top tips

On the final page you will be provided with your Freetrade account number, sort code and unique reference – this is not absolutely necessary but if not entered when transferring your money, may cause a delay in your money reaching your account.

Bank transfer

As mentioned in the second screenshot, top ups are processed between 7am-4pm, and deposits after this time will enter your account around 9am the next working day.

After your money is in your account, you are ready to begin investing with Freetrade…

 

My Freetrade Journey – first investments

The majority of my investments are in a separate brokerage Isa account with another provider in the U.K, invested mainly in passive index trackers and the odd active fund. I can hear the shrieks and cries of all the Tim Hale fans as they scan their eyes over the word ‘active’, but fear not, this only makes up about 5% of my portfolio, so you can put your pitchforks down.

As this is something I won’t be touching for a number of years, I wanted to dabble with some spare ‘fun money’ in individual shares just to see my money working in other ways. My theory goes that by having this side account with only a few hundred in will give me a distraction to check daily, meaning I will leave my passive portfolio alone and won’t be checking it as much. The issue I was finding in trying to get started, was that my £10 investment in Sainsbury’s, for example, would be immediately eaten up if I went through Hargreaves Lansdown, and considerably depleted even going through Degiro. It wasn’t until late last year I began hearing about Freetrade – shout out to r/PersonalFinance and r/UKInvesting.

I have chosen the ‘Basic Account’ as I am already contributing to an S&S Isa as mentioned above. With the small amount I will be investing and the Capital Gains Allowance increasing to £12,000 for 2019/20, I don’t this will be too much of a concern.

I made an initial deposit of £50, sticking ~£5 in Sirius Mineral, Vodafone and Sainsbury’s.

My reason for choosing these three were rather crude and simple compared to my thought out fund allocation in my main account:

Sirius Mineral– a pure punt, hedging against my FOMO…I’m not usually one to invest or even buy anything because I don’t want to miss out (hence the lack of crypto in my portfolio and absence of a Mercedes on finance on my driveway), but this seemed like a fivers worth of shares worth gambling with (and yes I realise this way of investing is akin to gambling). They also dropped around 6% on the day I invested, so as they say “be greedy when others are fearful”.

Vodafone– again, and this will be a common theme with these initial ‘toe dipping’ investments, a rather basic reasoning for popping £5 into them. I’m with Vodafone and always been impressed by their services and retail stores…they’re also currently at one of their lowest valuations for 10 years.

Sainsbury’s– I shop here at least twice a week, every week. From personal experience it’s always busy, every time of the day. This is just anecdotal I know, but even the Sainsbury’s in the grotty little market town I work in finds masses of people still frequenting its stores. I probably won’t increase my stake anytime soon, however.

Investments

Ideally my first investments were going to be Diageo, Prudential and Unilever, but I somewhat underestimated how much £50 would get me and I don’t intend to risk much more in individual shares every month when I could be adding this to my more diversified, passive fund portfolio.

I will wait for a downtick in either of the above, but with Unilever priced at around 40 odd quid currently, I think that may have to wait an extra month when I deposit my next £50. Prudential or Diageo will more than likely be my next punts.

What else am I watching?

  • Kier Group
  • Royal Mail
  • Weatherspoons
  • National Grid

Overall I am very happy with my experience with Freetrade so far. There is no waiting list anymore, making the sign up process seamless. Their customer service is excellent and the initial usability and interface of the app (albeit currently basic) is decent considering the app has only been live for a matter of months.

There are only a few changes I’d like to see implemented soon. Obviously the introduction of yet more equities would be great, but within the list of shares it would be handy to have an alphabetised shortcut running down the side of the screen, much like that of the one in the ‘Contacts’ iPhone app.

Contacts

Also, when browsing individual shares, the performance charts and information about the share is rather basic. Although I appreciated the causal nature of Freetrade, appealing to the retail investor, I think their platform will be reserved for my ‘fun’ investing in the near and distant future because of this. If they continue growing their brand, developing their app and expanding its usability and maintaining their excellent customer services, I see no reason why people will not warm more to them and begin to trust their platform with their money.

D

😎

UPDATE 23 April – Having used the platform a little more now, there are a number of additions I would like to see within the app. I believe a lot of these have been briefly mentioned in their 2019 road-map but I would still like to lay them out for this post.

Probably the biggest change I would like to see implemented is partial share investing. At the moment you are only able to buy whole shares. This means if you’re looking to only put in small amounts (£50 a month for example), you will either find yourself saving a number of months or simply looking for alternative investments if you wish to purchase shares in Disney (~$133), Apple (~$207) or Berkshire Hathaway (~211). Partial share investing would appeal even more to the sort of retail/casual investor Freetrade initially appear to be marketing for.

One other ‘biggy’ I would like to see implemented is the introduction of more analyses in under the portfolio tab. At the moment this tab simply shows your holdings, the amount of shares you hold in each and the current value of the combined shares. It would be helpful to have something visual to segment your portfolio by various categories such as sector and weight of a particular holding within your portfolio. At the moment I am having to do this independently through an Excel spreadsheet. This ties in with what I mentioned above with trusting the platform with greater amounts of their money – simple features like this are part and parcel with Vanguard and Hargreaves Lansdown, so Freetrade will have to follow suit at some point.

Again, coming back to the discover tab, it would be helpful to be able to search a stock by sector and/or description rather than just the exact name. At the moment there is no way to browse just ‘Insurance’ shares or ‘Retail’ shares. Obviously, this is redundant if you know exactly what stock you want to be investing in, but it would be great to browse the list of choices available, within a particular, sector on whim.

I think that is all for now; I have added a number of stocks to my portfolio since this post was first created, with my breakdown on the corresponding page having been updated accordingly.

 

 

 

Freetrade website