A close look at the Dr. FIRE portfolio, as of 2021.
Every FI blogger varies in how much detail they give when talking about their numbers.
In my case, I’m upfront with my income and expenses (as seen in my quarterly updates). On the other hand, I have not disclosed my overall net worth, nor have I gone into detail about my asset allocation.
I’m still going to keep the actual numbers private for the time being, but I do think it’s worth disclosing my overall asset allocation. It can be helpful for readers to see whether the blogger practices what they preach, if nothing else.
The above figure is a quick overview of my allocation. I was surprised that they make such nice round numbers! You may wonder why I appear to hold so much cash, or why I’m distinguishing between equities and pension. If so, read on to find out more.
You might think that is an outrageous cash position.
Normally I’d agree with you.
Allow me to explain…
Lifetime ISA – house fund
Of that 30% allocation to cash, a third is in a cash Lifetime ISA, reserved for the (probable) eventual house purchase.
Honestly, I opened the LISA in a rush, blinded by the promise of a free £1,000 for every £4,000 put in each year.
After contributing to it for a few years, I realised that I didn’t actually know when I was going to buy a house, and having my money locked away earning minimal interest in the meantime seemed like a poor idea.
I’ve since stopped contributing to it, preferring to either keep the money accessible as an emergency fund, or to invest it.
Once a house purchase starts to look likely, I’ll throw in another £4,000 for the free 25% bonus. Until then, I’m leaving this alone.
The other two thirds sits across a few current and savings accounts, and is my emergency fund. It’s essentially 1-2 years’ worth of expenses.
That may sound overly cautious. However, until very recently, my partner and I were living on one wage, whilst she completed her PhD.
Although the nature of my work means that I’m unlikely to suffer a surprise redundancy, the fact remains that I’m on fixed, short-term contracts (typically 1-2 years at a time). With no guarantee that my contract would be extended, or that I would get a job quickly, it made sense to have a large emergency fund, just in case.
In hindsight, things would’ve been fine and I probably could have invested more in equities. Nonetheless, the feeling of security that having such a large emergency fund brings has been priceless.
Of course, there’s also the fact that I intend to take some time off once my current contract finishes, in order to retrain. There was no guarantee that Ms. FIRE was going to find a job as fast as she did (especially in this new covid world we live in), so at the time it made sense to have plenty in reserve to keep us afloat.
‘Dr. F, why have you separated “pensions” from “equities?”‘
Good question, dear reader.
As it stands, my pension is a defined benefit pension. I pay in about 10% of my wage, and that buys me an annuity of 1/75th of that year’s salary, eligible to be drawn when I reach State Pension Age.
If we assume I’ve accrued a pension of £1,000 per year, then I value the pension at (£1,000 x 20 = ) £20,000.
In reality, some of my pension is also ‘defined contribution,’ and is invested in equities. But it’s currently such a small amount that I’m choosing to just lump it in with the rest of the pension. I’ll revisit this decision and separate the two if/when I start contributing to a different pension in the future.
This the story of my investing life so far.
When I first opened my Vanguard Stocks and Shares ISA, I immediately stuck some money into the Lifestrategy 80 fund.
Immediately after, I decided that bonds were probably unnecessary, given my time horizon of 20-30 years. So I set up a direct debit to purchase the Lifestrategy 100 fund every month.
Some time after that, I read Investing Demystified by Lars Kroijer, I realised that the LS100 fund has an oversized allocation to the UK, and that buying the FTSE Global All Cap fund might make more sense.
(For an indepth comparison between the two, see LifeStrategy 100 vs FTSE Global All Cap)
Every time I changed my mind about what fund to invest in, I decided against selling my previous holdings. Hence the peculiar fund allocation in my ISA.
No tax relief?
My Stocks & Shares ISA currently makes up the largest percentage of my net worth, at 40%.
There’s an argument to be made that I’m missing out on tax relief (i.e. free money) and the subsequent compounding by not instead paying into a pension.
My thinking was it’s no good having all my assets tied up and inaccessible until I’m at least 58, if not 60+.
For the past few years, I have favoured paying into my ISA, whilst still continuing to pay slightly more than the employer match into my pension.
At some point in the near future, I’ll decide that my ISA is large enough to afford me some flexibility and subsequently switch gears. I’ll then prioritise maximising my pension each year. This is subject to any future change in UK law – if pension tax relief gets abolished, for example (I’m exaggerating for effect, but you never know!), then I’ll stick with the ISA.
As well as the above, I also have <1% of my net worth in a couple of things that wouldn’t be noticeable in the first chart.
I have a few individual stocks and shares in my Freetrade and Trading212 account. I’ve just purchased these for fun, and don’t include them when I calculate my net worth. They total no more than £50.
Until recently I had £30-40 in RateSetter. At one point I had £1000, in order to claim the welcome bonus, but withdrew most of that once the year-long qualifying period passed. I kept a small amount in for fun, but it has since been returned. With their recent announcement that all RateSetter investing accounts are to close, it looks like I won’t be investing in P2P again any time soon.
Finally, I have about £20 worth of Ethereum, from when a friend referred me to Zumo. All aboard the bitcoin hype train!
As you can see, my overly cautious nature and preference for passive index investing shines through.
Many would probably mock the relatively large amount of cash I hold, but I consider the peace of mind and security more than worth the ‘lost’ gains from investing.
Some might prefer investing in a variety of assets, but I prefer to keep it simple and stick with a global index tracker. I’m unlikely to make the huge gains seen with Tesla or GameStop, but I’m also unlikely to lose all my money overnight!