My 2023 Year-End Portfolio
by elmads
Introduction
“Documentation is a love letter that you write to your future self.”
—Damian Conway
Do you sometimes look at your Facebook memories? If not, then try to quickly access your Facebook and go to your memories. Look at what you’ve posted a year ago, then scroll further down, and you’ll see your posts from as far back as you’ve been posting since you’ve started on Facebook.
What do you feel right now after seeing your previous posts? Does it make you cringe? Annoyed? Maybe happy? That’s the power of Facebook memories. It doesn’t just elicit our memories of when we posted something before, but also the specific emotions we had during that time, and then we reflect our past actions on our current state.
It’s sometimes annoying to think that we actually had that kind of rubbish post in the past. Looking back, if you had met your younger self in the past, you would surely want to smack your younger self in the face and say that what he or she posted was embarrassing for you to even remember. Hahaha!
But hey, that was you in the past; the fact that you now see the difference in your today’s mindset from your past self substantially means that you’ve changed. If that change is for the worse or for the better, it is up to your own self-assessment.
It’s not just that; sometimes seeing pictures, written words in the past, or videos would also help you remember a lot of things you’ve forgotten. Maybe you had a goal that you wanted to achieve, but because of specific events in your life, you have already forgotten to pursue it. How about now, though? It could be that today, this year, is the perfect time to rekindle it and take action to pursue that old dream of yours.
Your pictures, written words, and videos are all documentation of your past life. You cannot ever go back in time, but you can always go back to your most cherished memories and still rekindle every minute of them. To feel what you have felt at that exact moment in time.
Yet, there’s also one more important documentation method that most people don’t give much importance to, and that’s your finances.
Can you just imagine what 10 years’ worth, or even more, of your financial data can help you with? It would show you your past self, how you allocated your money, why you spent it, where you spent it, or why you’ve saved or invested it. It tells your own story. This also elicits memories and emotions.
Only a few do this because most people think that making one is complex just because it involves numbers, but it isn’t.
I’ve been documenting my finances in detail since 2018, and it has substantially helped me to see how I manage my money from a 3rd-person perspective.
As 2023 ends, I’ll be doing a short total portfolio update again, which I’ll be sharing with everyone. I hope this encourages you to start your own personal financial journey by tracking your own finances as well. That’s why I made this blog.
So, let’s start with my personal financial tracker.
Personal Financial Tracker by elmads
The above image is taken from my self-made personal finance tracker Excel spread sheet. I’m still in the works of improving a lot of things on it, and then I’ll be starting to put it on the market for everyone to be able to use it as well.
The core of my tracker is the input on my income and expenses; that’s it. Then I just used all of what I know about Excel to make it into a simple personal finance tracker with a dashboard.
It gives me a visual representation of my money management decisions in the past. It helps me reflect on whether I made a poor, good, or superb decision on my part or not. From there, I adjust my current money allocation based on my short-, medium-, and long-term financial goals.
It is a financial diary that helps me remember what I’ve done at a specific point in time. Let’s say, for example, that if I choose the income and expenses portion, then if I click fiscal year 2021, it’ll show me the income I’ve attained that year and all of my expenses. I can further zoom in by clicking a specific month within that year.
Why did I spend so much in that specific month? Therefore, I’ll go back to that year and month and see what happened. That’s when I’ll remember why I did that. Afterwards, I ask myself if it was good intentional spending or just at whim.
With it, I can also make a realistic forecast of what my income and expenses could be this coming month or next year.
It helps me a lot by putting realistic financial goals on my part—goals on how much I can realistically spend to enjoy the present while still being mindful of my current and future financial responsibilities.
It’s balancing my present enjoyment with the enjoyment of my future self. Covering all timeframes.
📝 The Net-Worth to Total Expenses Ratio is also a version of “f***k you money,” also known as FU money. It translates to how many years of your life will your net worth cover your current year’s total expenses. It gives you the freedom to do whatever you want for a certain number of years.
Net Worth
Your net worth is shaped by your income, but it is ultimately influenced by your financial behaviour.
To calculate your own net worth, you simply subtract your assets from your liabilities.
See the article below for a simple guide on how to arrive to your own net worth.
📣 https://elmads.com/?p=1472 — Financial Mutant Level of Managing Money – Your Own Net Worth
Always compute your net worth on a yearly basis so that you’ll know where you were before and where you are now in your financial journey.
Documentation is king in any endeavour in your life.
Below is my end-of-year net worth breakdown for fiscal year 2023.
2023 Year-End Portfolio Breakdown
As shown above, there is a marked difference between the percentage allocation of my 2023 and my 2022 net worth.
Cash stayed the same at 11%, while both alternative investment and equity index fund account shrank by 2% and 4%, respectively. On the other hand, my retirement account increased by 3% and my equity portfolio increased by 4%.
Clearly, my priority in 2023 was to increase my retirement and equity/stock accounts. Cash percentage allocation stayed the same, but I expect it to shrink over time as I continue to expand my investment portfolio.
My goal is to focus on my investment for my medium- and long-term financial goals so that it can work for me as early as possible to capture the wonders of compound interest.
Don’t get me wrong, I’m planning to do this as early as I can so that I can eventually slow down. This became possible because I already have an idea of what my survival number is and how much I’ll need to invest each month for 30 years to cover my entire life’s needs.
📝 NOTE: If you want to know what your survival number is, I’ve written a blog specifically for this with a free Excel spread sheet you can download. Click the link provided. 📣 https://elmads.com/?p=12007 — Your Survival Number: A Guide to Balancing Money and Life.
People think that saving money is all you need for the rest of your life, when in fact there’s no point in saving money and having a lot of money when you’re too old already to even enjoy the fruits of your labour.
What I want is to enjoy my life in all timeframes. Today, after 5 years, 10 years, 20 years, and for the rest of my life.
For this to be feasible, one must be realistic with his or her lifestyle.
You can have anything in life, but you can’t have everything.
The more you want to have, the harder your life will be, and most probably you’ll play the game of money forever.
Playing the game of life just purely for money is vastly different from playing it because you genuinely love what you’re doing, and money is only a by product of it. There’s a stark difference between the two.
Everyone does the first; it’s a noble endeavour when you’re doing it for someone else other than yourself, but I hope that eventually things will change for the better, pertaining to the latter point.
We only have one life; make everything count.
Life is not just about saving up for the future; it’s about spending wisely to create a lifetime of meaningful experiences. Die with zero regrets, having truly lived at every stage of your journey.
Cash Portfolio Allocation – 11%
Cash is king. One of the many cliché phrases you’ll hear sometimes when people talk about money. Despite how mainstream this phrase may be, we can’t deny its truthfulness.
Cash is a buffer for emergency situations such as medical emergencies and accidents. It also covers unexpected expenses like car and home repairs, as well as the financial implications of losing a job.
Having a cash buffer seems to focus more on preparing for doom-and-gloom scenarios, but that is not its only purpose. Having cash in hand can also be used to take advantage of investment opportunities.
You can buy assets at cheap prices when an opportunity arrives. The same can be said when there is a career opportunity in a different place. Maybe you’ll need to transfer to a different city or country for a better life, career growth, and salary; having a cash buffer will help you take advantage of that opportunity.
In my own personal financial management, I always make sure that I have a cash buffer for emergency purposes. I’m a realistic person; I know that life has its ups and downs, and if the down days happen, I want to make sure that I don’t just survive but also face them with vigour and finesse.
One of my money strategies with cash is that all the cash I expect to spend within 3 years should stay liquid or in an easy-access flexible savings account. Though some of it I place in a high-yield certificate of deposit good for a year, 2 or even 3 years, provided that money is specifically needed in a certain year of my choosing.
Currently, my cash is in my Chase Easy Access account, Paragon Fixed Term ISA, and Paragon 120 Day Notice Account.
📝 Both banks are publicly listed companies that disclose their financial reports, business strategies, and plans to the public.
Think of your cash as an employee; you are the CEO and chairman of the board of your financial life. Money must not dictate your life; instead, you must be the one in charge of it.
Here’s how I think about it: Money is a tool to be used to better our lives in line with our own genuine and true definition of what a good life is. So, why should we be dictated by money instead?
Equity Index Fund Portfolio Allocation – 21%
Equity index funds are long-term investment vehicles that are provided by investment institutions to help the public gain exposure to the equity investment world.
Let’s face it, only a small fraction of the world’s population knows how to invest and is even willing to learn about investments. Most people don’t want to bother understanding the complexities of the financial world. Even though all of us know that learning about good financial habits and strategies and having a level of investment knowledge is immensely beneficial for our financial lives, it is still a fact that not everyone has the affinity or time to learn the nuances of it.
This is where investment institutions come into the picture. They invest your hard-earned money on your behalf, and by doing so, they get revenues from it through fees from handling your money.
If you don’t want to handle your investments, do the research, manage risk, and make capital allocation decisions, then let the investment professional do it instead.
That’s the common indication for why a person who doesn’t know or wants to know about investing should invest in an index fund, but times have changed. Index funds are now also used by both professional and investment-savvy investors. Changes in the index fund world, such as the massive increase in different types of index funds offered to the public compared to three decades ago. We now have target date funds, sector funds, value funds, and growth funds, to name a few.
I’ve written a detailed explanation of index mutual funds. To learn more, see the blog links I’ll be linking down below.
- 📣 https://elmads.com/?p=1952 — What are Mutual Funds?
- 📣 https://elmads.com/?p=1982 — Passive and Active Funds
Moreover, index fund investments are also used for a specific personal financial goal, as in my own case.
The capital that I’ve invested in an equity index fund is specific to my family’s personal financial goals.
Remember that there should be a corresponding purpose for every amount of money you save and invest. Money is meant to be spent; don’t be the type of person who hoards money and doesn’t even know what he or she is hoarding it for. Individuals who do not know how to even spend money—it’s the extreme opposite of spendthrift individuals.
Personally, budgeting should be called a SPENDING PLAN, because you’re planning when to responsibly spend that money. There are two types of spenders: irresponsible spenders and well-planned spenders. The former mostly doesn’t cover his or her present and future timeframes. Spend now, cry later type of individuals. Whereas the former covers his or her current and future spending, a strategic financial spender.
Going back to my equity index fund allocation. I plan to spend this money after a few years for a specific purpose that my wife and I agreed to do.
Here is how I think about it: Every time I receive my salary, I immediately give it its own job description. I put them to work 24 hours a day, non-stop. That’s how great money is when you learn to control it from a practical point of view.
Though we people work for money, we shouldn’t let money run our lives. Money should be bowing down to you, not the other way around. Learn how to have a wonderful relationship with money where you’re its superior.
My equity index fund investments are placed in Vanguard Group investments, specifically Vanguard UK. They’re one of the largest investment management companies globally.
Below are the blogs relating to Vanguard Group UK, how to open an account, and some of their investment funds.
- 📣 How to open an Index Fund Investment Account – Vanguard
- 📣 Vanguard UK – The FTSE Global All Cap Index Fund
- 📣 Vanguard UK’s Ready-Made-Portfolios
Index Fund Capital Allocation Breakdown
As of fiscal year 2023, my index fund allocation accounts for 21% of my net worth. I’ll zoom in on that 21% to show you what my holdings are within it (see image above).
51% of my index fund allocation is invested in the Vanguard US Equity Index Fund, which tracks the S&P 500 index.
The Standard & Poor’s 500, or simply the S&P 500, is a stock market index that tracks the performance of the 500 largest companies listed on stock exchanges in the United States.
I’ve been consistently invested in Vanguard’s version of the S&P 500 index, where they invest a portion of the money that I’ve invested with them in exactly 500 companies based on the S&P 500 index. Basically, they’re copying the percentage allocation, including the market weight of The Standard and Poor’s 500 index.
In the global stock market, the United States of America makes up approximately 43% of global market capitalization, as per VisualCapitalist’s “The $109 Trillion Global Stock Market in One Chart” infographic.
In my personal investment projection, the US will continue to thrive and be one of the largest and most influential countries in the world. Henceforth, my continuous investment in the S&P 500. My plan is to increase this portion of my index fund portfolio to 60% in the future.
When you invest in an index fund that follows the S&P 500 index, you’re simply saying that the United States’ economy will continue to do well in the future. Why? Well, because you’re betting on the top 500 publicly listed companies when you invest in investment funds that track the said index.
The other half of my equity index fund portfolio is invested in the emerging markets. The MSCI Emerging Markets Index is a selection of stocks that is designed to track the financial performance of key companies in fast-growing nations such as China, Taiwan, India, South Korea, Brazil, Saudi Arabia, South Africa, Mexico, Indonesia, and Thailand.
Vanguard has its own emerging market index fund, which tracks the MSCI Emerging Markets Index. Approximately, 30% of Vanguard’s emerging market index fund is invested in China. Though there are a lot of geopolitical conflicts and distrust in China, I still project that they’ll be one of the largest and most influential economies in the future, rivalling the US. I can’t sleep on China, despite its current problems. I personally believe that there is a small likelihood that China’s economy will substantially worsen and continuously decline in the future.
Despite this personal view of mine regarding China, I’m currently not planning to add any capital to Emerging Markets; instead, I’ll just continue to hold it—leave the capital I’ve already invested in the Vanguard Emerging Market Index Fund. Then, I’ll continue to increase my percentage allocation in my Vanguard S&P 500 index fund. Once geopolitical tensions in China improve, I might start to gradually add capital to Vanguard’s emerging market index fund.
My Equity Index Fund Allocation Changes From 2022 to 2023
Last year, I had a percentage allocation to Vanguard’s All-Share Index fund, which follows the FTSE All-Share Index. It comprises around 600 of more than 2,000 publicly traded companies on the London Stock Exchange. But I’ve sold all of it already, and I used the proceeds to purchase individual stocks.
In my blog titled “Half Year 2023: I Am Defeated,” I’ve written that I plan to put 50% of my total investment portfolio in index funds.
— E. Madriñan, Half Year 2023: I Am Defeated
Ironically, I did not follow through on what I said as something came up and new opportunities arrived. I’ve discovered new companies where I’m confident enough to invest my hard-earned money based on my own analysis. I’ll be sharing these companies later in the equity/stock allocation portion of this blog.
For this reason, I used the proceeds from my Vanguard FTSE All-Share Index Fund to purchase four stocks in my equity portfolio.
Was it a good financial decision? My answer is yes, if you’re referring to the increase in capital gains from the outcome of my decision. But we’re just talking about stock price movement.
Personally, I see it as a good decision because I was able to purchase these four US publicly listed companies with good business operations and good operational and financial upside at a fair price. So, for me, it is a good investment decision to move my capital and capital gains from my Vanguard FTSE All-Share Index Fund to the four US publicly listed companies.
📝 The investment strategy I use for my index fund capital allocation is pound cost averaging where I consistently purchase shares of the fund every pay day regardless of the fund’s price.
- 📣 https://elmads.com/?p=4958 — The Power of Cost Averaging Investment Strategy
- 📣 https://elmads.com/?p=2335 — Popular Investing Strategies
- 📣 https://elmads.com/?p=2464 — Buy and Hold Strategy
Retirement Account Portfolio Allocation — 21%
The main advantage and difference between investment retirement accounts and general investment accounts are the tax benefits and additional contributions from, usually, employers and the government.
Globally, each country has its own social security system, which is provided by its government. Unfortunately, it is not sufficient to support everyone’s retirement lives.
“Social Security is not a retirement savings plan; it is a social insurance program. It’s a contract that says, as a society, we will look out for you and your family when you can no longer work.”
— Jeff Bingaman
Thus, some countries started their own private retirement investment accounts where the government and the private sector joined together to encourage people to save for their future. It is giving every individual the freedom to shape their own retirement lives by taking their retirement savings and investments into their own hands. This is why private retirement investment accounts are formed in most countries around the world.
Below are several private retirement investment accounts from different countries globally.
- United Kingdom: Self-Invested Personal Pension (SIPP) and National Employment Savings Trust (NEST)
- United States of America: 401K Employer-Sponsored Retirement Plan and Roth IRA
- Philippines: Personal Equity and Retirement Accounts (PERA)
- Germany: Riester-Rente, a government grant-aided, privately funded pension scheme
- Canada: Registered Retirement Savings Plan (RRSP)
- Australia: Australian Superannuation
- New Zealand: KiwiSaver
- Singapore: Supplementary Retirement Scheme (SRS)
- Japan: Individual-type Defined Contribution Pension Plan (iDeCo)
- South Korea: Individual Retirement Plan (IRP)
I don’t aim to be rich; I just aim to enjoy each moment of my life in this world. It is to attain my own definition of a good life, in my own terms, with as much freedom as I can have.
Freedom in the sense that money is integral in a way that I’m not obsessing about it. It sounds counterintuitive, but when you know how much money you need in your lifetime, then how to achieve it will eventually unfold, provided that you continue to expand your knowledge, skills, and mentality. In short, keep on growing to go from point A to point B with joy and fulfilment.
“If you know the why, you can live anyhow.”
— Friedrich Nietzsche
SIPP and NEST Retirement Accounts
My retirement investment portfolio is divided into two accounts, which are the Self-Invested Personal Pension (SIPP) and the National Employment Savings Trust (NEST).
On the one hand, my NEST account is not of my choosing. My employer opened this account for me, as it is a requirement for employers under the Pension Act of 2008.
Employers are required to automatically enrol eligible employees in a qualifying workplace pension scheme. This is known as automatic enrollment, and it is mandatory for employers to comply with this requirement. Automatic enrolment was introduced to encourage more individuals to save for their retirement and to address concerns about the adequacy of pension savings.
“The Pensions Act 2008 established new duties that stated that employers need to provide their UK workers with access to a workplace pension plan that meets certain minimum standards. Some workers will be automatically enrolled in the pension plan, and others can ask to join.”
—Wikipedia
To know more about the Pension Act of 2008, please see the link provided below, taken from legislation.gov.uk.
https://www.legislation.gov.uk/ukpga/2008/30/notes#:~:text=The%20Act%20also%20requires%20employers,set%20out%20in%20this%20Act.
On the other hand, my self-invested personal pension is of my own choosing. I opened my SIPP account under Vanguard Group as well, which is the same investment broker I use with my tax-free individual savings account investment under my equity index fund portfolio.
You might be wondering why I still opened a different retirement account. Why not just invest my capital for retirement purposes in my NEST account?
I agree that having one account would be more beneficial and would remove the friction of checking two accounts. Unfortunately, there’s a disadvantage to using NEST as my primary retirement account. Its fees.
You see, anything that has to do with financial services has a corresponding fee. That’s just the business model of this industry. For most people, they focus on investment returns to make a lot of money, which is actually not wrong, but what most of us forget is that fees are one of the trojan horses in our investment returns.
It’s like a hidden tax that takes a chunk of your return.
To give you context, I’ll show you the fee breakdown for the NEST pension as stated on their website.
https://www.nestpensions.org.uk/schemeweb/nest/my-nest-pension/contributions-and-fees.html
You would say that a 0.48% fee is not bad compared to the 1% of other investment brokers and businesses. I agree, but compared to what I just paid in 2023 on my Vanguard account, which is only 0.18%, that 0.48% fee for NEST is massive. It’s more than double the 0.18% in fees I paid on Vanguard.
Let’s just use the £10,000 example above with the 0.18% I paid on my Vanguard account in fees in 2023.
- 0.18% of £10,000 is £18.
This means that I would only pay £18 compared to the NEST’s £48.
Thinking that 0.48% and £48 are fair enough, that it would not substantially move the needle of my investments. You’re right If we’re looking at it within a year, but can you imagine what happens after 20 years or more?
If let’s say your retirement account reaches £100,000, then you might be paying £400 or more per year in fees with NEST (the deductions are taken automatically from your contributions), while only a smaller amount of around £180 with Vanguard.
The larger your investments become, the more you’ll pay in fees. It’s because fees are based on percentages not on nominal numbers.
This is the main reason why I opened my own retirement account.
The last reason is so that I can have the freedom to choose where I’ll invest my retirement money. My own choice of funds.
As with my Vanguard Equity Index Fund portfolio, I’ve also invested my retirement money under SIPP in an equity index fund, specifically the Vanguard US Equity Index fund that mirrors the S&P 500 and also in Vanguard’s Emerging Market Index fund.
Evan, if this is the case, then why not just move your NEST pension pot to your Vanguard self-invested personal pension pot?
I won’t do it YET, mainly because I’m still employed by the same employer, who still contributes money to my NEST account.
As stated in the Pension Act of 2008, “employers need to provide their UK workers with access to a workplace pension plan that meets certain minimum standards.”
Furthermore, NEST is one of the many workplace pension plan providers in the UK.
My employer, like other employers, is required to contribute a certain percentage to my NEST account. On top of that, the government also adds money to it.
Since I’ve been employed, I’ve recorded all of my pre-tax income, my employer’s, and the government’s contributions in my NEST account. This is what I’ve noticed with the percentage allocation of the contributions.
50% of my total NEST contributions come from my pre-tax income (gross pay), 38% from my employer, and 12% from the UK government.
Let’s say, for example, that person A has a total NEST contribution worth £15,000. Below is the contribution breakdown.
- £7,500—her pre-tax income (gross pay) contribution
- £5,700—her employer’s total contribution
- £1,800—the UK government’s contribution
This information made me think of transferring my NEST pension pot to my SIPP account, so I sent my employer an email asking if they could contribute money to a SIPP. They replied, and sadly, they said that they don’t contribute to a SIPP. They can only contribute to NEST, as that is their first and foremost choice for their employee’s pension.
I can still move my NEST pension pot to my Vanguard SIPP, but I would lose the 38% employer contribution.
I did the math, and despite having the low-cost fees of my Vanguard SIPP, it would not be beneficial for my total pension returns to lose my employer’s contribution. Therefore, my only choice is to continue my NEST contribution but not increase my percentage gross pay allocation into it. Instead, I’ll just focus contributing more on my SIPP account for me to be more hands-on with my investment choices and strategy for my retirement capital.
That’s the story behind why I have two retirement accounts and why I do not plan to move one to another. Unless I change jobs and work for a different employer who doesn’t contribute to NEST, that’s when I’ll move my NEST retirement pot to my SIPP account.
📝NOTE: Some employers can contribute to a SIPP, but you have to confirm this with them first. Additionally, both NEST and SIPP include a government contribution and have tax-free qualities, where any money gained (capital gains, dividends, and interest income) within the account is tax-free.
SIPP and NEST Capital Allocation Breakdown
My self-invested personal pension is with Vanguard Group, which is also where I’ve opened my individual savings account (tax-free account). To know more about these types of accounts, see my blogs titled
📣 https://elmads.com/?p=1738 — UK’s Tax-Exempt Individual Savings Account
With my NEST pension, I chose their NEST Sharia Fund. Most investment management companies have their own investment funds. In the context of banks, think of investment funds as like the banks’ savings accounts, where there are several types of savings accounts with their own advantages and disadvantages. It depends on a person’s personal financial goals to determine which one would be suitable for him or her.
I’ve already explained in the previous equity index fund section of this blog why I’ve specifically chosen the Vanguard US equity index fund that tracks the S&P 500 and the Vanguard Emerging Market Index Fund.
What I’ll explain in this section is why I’ve chosen the NEST Sharia fund under the National Employment Savings Trust (NEST) pension account.
As with other investment management companies, NEST too offers different funds. I’ll share with you their funds and the strategies utilised by the investment managers of each fund.
All information is taken from their NEST’s 3rd quarter report 2023.
- NEST Retirement Date Fund: Nest’s flagship default strategy provides a fund for each year in which we expect a member to retire. We manage members’ assets according to their age and how markets are performing. If members join in their early twenties, they’ll go through four dynamically managed investment phases. Most members will spend most of their time invested in the growth phase. It’s the engine room of the default strategy, aiming to grow well above inflation over 30 years. The consolidation phase prepares members’ money as they approach retirement. The Nest 2040 Retirement Fund is in the growth phase of its lifecycle.
- NEST Ethical Fund: It is for people who want to invest in line with specific ethical or moral concerns, for example, in areas such as human rights and fair trade. It doesn’t just exclude companies that harm the world, its people, or the environment; it also proactively invests in organisations that make a positive contribution to society. The fund invests in a range of asset classes to manage risk appropriately at different stages of members’ lives. It follows a dynamically managed, three-stage glide path, which is similar to our flagship Nest Retirement Date Funds. This includes de-risking members’ pots as they approach retirement. The fund aims to deliver similar returns to the flagship Retirement Date Fund, but it’s likely to be more volatile due to being less diversified. The data below is for the growth phase of this lifecycle.
- NEST High Risk Fund: The Higher Risk Fund is for members who are more confident about taking investment risk in the expectation that their pot will grow faster.
- NEST Sharia Fund: The investments in this fund are screened by Islamic scholars to meet Sharia standards. Life styling and diversification at the asset allocation level are not currently possible for this fund as it invests entirely in a single asset class.
- NEST Lower Growth Fund: This fund is provided for members who are very cautious about investing and are prepared to accept that their pot will not grow very much. The aim of the fund is to maintain the value of members’ savings after all scheme charges over the long term. It may not keep up with the rising cost of living.
- NEST Guided Retirement Fund: The Nest Guided Retirement Fund (NGRF) is available for members to join between the ages of 60 and 70 if they have £10,000* or more in their pot. This fund is a key part of Nest’s post-retirement phase and aims to invest members’ money suitably for their needs throughout retirement. Nest’s Investment Committee annually reviews the fund to ensure the rate of money distributed is sustainable for members.
Maybe you’ve already noticed that each fund has its own goals, and which one a person chooses should be the one that is directly in line with his or her personal investment aims.
In my case, that’s the NEST Sharia Fund. This fund’s investment approach is based on Islamic laws. Even though I’m not a Muslim still chose this fund mainly because of its asset allocation. My initial plan was to choose the NEST Higher Risk Fund, but the asset allocation for this fund is approximately 69.8% equities, 15% bonds, 11.8% others, and 3.4% global listed property (I can’t find any information about it). It is not categorised under REITS, so I’m wondering if the 3.4% asset allocation of this fund is directly invested in properties.
What I prefer is a fund that allocates 100% of its received capital to equities. My investment time horizon is still 2-3 decades, and putting my hard-earned money towards my long-term financial goals will just be wasted on bonds. I don’t mind short-term market price fluctuations because that wouldn’t hurt my long-term investment portfolio anyway; it would just be a blip in a decades-long investment time horizon. Henceforth, I chose the NEST Sharia fund.
See the image below for the difference between the asset allocation of NEST Sharia and the Higher Risk Fund.
To know more about asset classes, see my blog titled
📣 https://elmads.com/?p=750 — The 5 Basic Asset Classes
A lot of my colleagues who are also enrolled in NEST don’t know that changing their fund of choice would make a larger difference on their hard-earned money, specifically the ones within my age group who still have an employment time horizon of more than 2 decades.
Why leave free money on the table, isn’t it? I also informed my wife about this and encouraged her to change the fund where her employment contributions go, which she did. With the wonderful returns experienced by the large and mega-cap public companies in 2023, the NEST Sharia Fund also had its fair share of the market boom at the end of last year.
Pension Pot Contributions including Unrealized Capital Gains
📝NOTE: The image above is the joint amount of my SIPP and NEST accounts.
My total unrealized capital gains in 2023 for my pension pot since I’ve started contributing to it are 12.4%.
That percentage makes a big difference, depending on your invested capital.
For instance, if you have invested £100,000, then your total account balance with 12.4% unrealized capital gains would be worth £12,400 (£100,000 times 12.4% is £12,400).
Whereas if you only have £1,000 on the account, then your total account balance with 12.4% unrealized capital gains would only be worth £1,124.
By consistently investing a portion of your salary over a long period of time, your money will eventually balloon to an amount you’ve never realised could happen in your lifetime.
Additionally, by investing your money in a retirement account, you will also maximise the additional capital contributed by both the government and possibly your employer too. This will further increase your investment pot for retirement purposes.
Remember, the increase in your unrealized capital gains is dependent on your consistent annual contributions. This is where people are always mistakenly thinking that they need to have a large amount of money before they invest, when in fact, investing as early as possible, regardless of the amount, is more important than the amount you invest in the long run.
This is because of the power of the 8th wonder of the world, which is compound interest. Just look at my contributions in the below image as a testament to them. Capital gains are not yet included in it, just the contribution breakdown.
Don’t forget to maximise tax-free benefits with additional financial help from your government and employer-type pension accounts.
As I’ve always said, don’t leave money on the table and find ways to make money while you sleep, because you can’t expect to always work for money forever. You also have to think about your health, fitness, relationships, and precious time in this world.
Work hard and smart, and live with a strategy in mind to achieve your own definition of a good life.
My 2023 Year-End Portfolio Part 2—–>
Knowledge is my Sword and Patience is my Shield,
elmads
This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.
0 Comments