Retiring and going to med school... What to invest in and when to pull the trigger?

[banker22]

Yes the 16-26k is just tuition.

The options aren't binary: London vs Scotland. I will likely move out of London for school anyway - probably somewhere up North or Wales where my money would go a lot further (and probably further than in Edinburgh!)

[vexed87]

Here's the best UK broker comparison chart that I know of:

http://monevator.com/compare-uk-cheapes ... e-brokers/

It gets updated regularly. I set up my ISA with Charles Stanley Direct but never used it because my priorities changed.

[Ydobon]

Being resident would only save £16-26k total. Worth a year chilling in Scotland? Maybe not!

I'll try and not take that personally

I doubt you even need to be in Scotland. Probably just rent a cheap flat here and get on the electoral register for a year. You could probably do that remotely and stay in London if you wanted (not discussing the ethics of it, just the possibility). If you aren't able to hack 'a year chilling in Scotland', it might not be the best place for you to study, either?

I also use Charles Stanley Direct, they seem to be competitive for costs and have ok customer service.

Ps. Another for #3 as regards your ideas at the start of the thread...

[banker22]

Just joking - I love Scotland and would happily live there. That could be an excellent option...

Quick question about ISAs for all of you savvy people:

- If I open a stock and shares ISA and put the allowance in, but in cash, and don't invest in stocks and shares by the deadline, can this money be invested after the deadline tax free? Or does it have to be invested in stocks and shares by the deadline to be invested?

- If I invest the full amount in the ISA now, then take it all out later (December, for example), can I put the full amount back in again before the deadline?

[Ydobon]

ISA question #1 -

The ISA is just a wrapper - as long as the money is in the ISA you can do whatever you like with it. Invest it/don't invest it/buy a single unit of a fund and wait 500 years until the platform charges eat the rest of your money

ISA question #2 -

Not yet. This is currently one of the biggest issues with the ISA regime. The government is changing this by introducing 'fully flexible ISAs' that behave as you imagined. This will supposedly be in place by 'autumn 2015', but I can't find any official confirmation of a specific date in autumn.

[banker22]

Awesome, thanks.

When you UK based folk invest in dividend stocks, are you investing in UK or US equities? It seems that US dividend champions generally have longer / stronger champions than UK companies. Tesco cutting dividend was also a dangerous precedent.

Problem with buying US equities is the FX spread these ISA providers charge. HL charges 1.5% spread on FX for buying, selling and dividends! Anyone aware of any with better FX spreads?

[vexed87]

I'm no expert, but I do appreciate that aside from the FX charges, theres capital gains tax of 30% for residents outside the US, the UK has a special relationship with the USA (can't remember the name of the treaty) but we can claim back 15%. Brokers usually fill you in with the details if you hold those shares.

I am undecided about what percentage of my shares will be US based, but with most major corporations being global, there's already an element of global diversification within your portfolio if you select the right companies.

Maybe I'll buy in to a US shares index fund based in the UK to do away with the hassle of worrying about FX fees/claiming back CGT etc. It sort of makes sense given I'm not based over there and can't make judgments about the economy across the pond etc... it would make value investing a little tricker.

Didn't Tesco cut dividends because it has massively overstated its profits? Surely a temporary blip while they get the ducks in a line.

[radamfi]

I'm in the UK and I've been investing in US shares for a few years. Originally I used TD outside of an ISA. That way you just have one foreign exchange fee as when selling the shares you keep them in dollars. However, I was worried about CGT. Luckily, IG have recently started offering ISAs with just a 0.3% foreign exchange fee so I now use them.

Another option is buying US shares through spreadbetting. Here, you don't have to worry about foreign exchange as you can simply bet in GBP. There is also no CGT or income tax. However, you have to pay steep interest charges so it is only worthwhile if you don't intend to hold on to the shares for very long. Although that is partly recouped by saving the money you don't put on margin in a savings account (or these days in a high interest current account).

[banker22]

Great tip on the IG ISA - thanks! Do they have a good selection of funds? I would be holding for long term and looking for dividends, so spread betting wouldn't be ideal...although great FX rates. Do you know of any ISA providers that let you have a USD account within the ISA? Or transfer your USD dividends from US shares within an ISA to a USD account outside your ISA?

Also, do you know of any ISA providers that allow you to reinvest US equity dividends without incurring an FX fee? I spoke to one yesterday and they didn't offer this as an option... So you would get double charged if you wanted to re-invest dividends in US equities...very annoying.

Finally, what do you think is a good withdrawal rate for me given I want to draw 20-25k per year for 4-5 years, then 10-15k for 2 years...then will be earning good money again and will continue to grow the account for 20-25 years before actual retirement?

[radamfi]

I don't know about funds inside an IG ISA. I do have some funds but they are in separate ISAs managed by the funds themselves. You can of course get ETFs and investment trusts inside self-select ISAs.

As far as I know, you are not allowed to hold foreign currency inside an ISA, so all sales and dividends have to be converted to GBP. So, as far as I know, you have to decide whether it is worth saving on foreign exchange by having a dollar account outside of an ISA and expose the shares to tax, or pay foreign currency charges and hold within an ISA.

As a result of this, and also because of the US withholding tax, for the long term hold, high dividend portion of my portfolio I prefer UK over US dividend stocks. I think there is enough choice within the UK market.

[banker22]

@radamfi

It definitely seems to make sense to buy UK stocks, but UK companies don't seem to be as religious in their payment of dividends as US companies. Have you found this to be the case?

[radamfi]

Dividend cutting happens but if you have a varied portfolio of high yielding shares then it is not so much of a problem. The US market isn't immune to dividend cutting. I'm sure Jacob mentioned on his blog that his dividend income went down during the post-2008 financial crisis. The City of London Investment Trust famously hasn't cut its dividend for over 40 years so some people wanting high income just buy that and don't bother with individual shares. The Motley Fool UK website has many articles from 2000 to 2010 ish on high yield portfolios and they created mock portfolios and followed their income over many years.

The Motley Fool UK has an active discussion board on high yield portfolios where the practical construction of high yield portfolios, typically for retirement, is discussed.

[banker22]

Thanks - just had a good read through. Looks like the income of the mock portfolio dropped 35% during the crisis due to dividend cuts. Sounds like similarly selected portfolios in the US only lost around 10%. Maybr, due to the factors I listed above, it's a less advisable strategy in the UK?

[vexed87]

I don't know about less desirable, as once you have factored in both the FX costs and the hikes in taxes you need to consistently get a significantly better return in the US compared to the UK to justify the FX/higher taxes. After all we are talking about a cut in dividends for a relatively short period of time.

Plan on having some resiliency, e.g. a buffer in your SWR, an ability to tighten your the belt during tough times or even earning from side gigs etc. These are simple way of mitigating the risk of dividend cuts. If you plan on retiring, doing nothing else to bring in income and having a lavish lifestyle in retirement then you need a bigger nest egg, pure and simple. It makes sense to diversify out of the UK, for circumstances such as Japans stagnating growth over the last 20 years. If we were in Japan, we would be kicking ourselves for not doing so. I would have a stronger bias towards the UK, as FX/taxes will eat in to your ROI. I haven't decided exactly what my equities will look like, but likely 70% UK, 30% US, (or 30% rest of world.)

Even if dividends do get cut, don't forget that if chosen wisely, your shares typically appreciate in value over time too, so liquidising your shares would be another way to shore up your bank balance.

[Ydobon]

Any particular reason for dividend stocks vs. a total return approach?

[banker22]

Hi all

A little update from my end, 18m later. I am now 30yo and have a young child. We have decided to move to the US (great timing post Brexit...). My finances are:

- £65k in a taxed brokerage account, entirely in absolute return funds and cash
- $50k of equity in a $400k house in the US, which we are currently renting out for $500 / month cash flow (NOT including vacancy or maintenance, but including taxes, insurance and management)
- $56k of student loans at 2.75% average interest rate

So I'm roughly $150k better off than I was 18 months ago, which I'm very happy about, mostly due to:

- Outperformance at work, which led to higher bonus
- Wife's job is a nice little earner
- Strong stock market returns early last year

I am all set to move to the US later this year to go to medical school, but am having a case of (slightly) cold feet. Here are my revised options:

1. Go to school as planned. Easily blow through all savings rather quickly, and be reliant on wifes job, additional loans, scholarships, family loans / handouts, side hustles and potentially military / national guard service (also a desire of mine, not just for the $). All of which may be stressful with at least one young child, but would lead to an additional few years down the line practising medicine. My wife is supportive and ready. I am actually taking some time off of work to set up a side hustle website right now!

2. Work for another few years and become FIRE. Here's what my net worth (total assets - total liabilities ((inc. student loans)) would look like every year for the next few years (end of each year):

- 2016: $80k (now)
- 2017: $175k
- 2018: $320k
- 2019: $500k
- 2020: $750k
- 2021: $1,050k

These numbers assume:

- No reinvestment along the way - ie keeping it all in cash (conservative - could retire 1y earlier at least with smart investing)
- Wife keeps her job or equivalent (reasonable assumption)
- I receive average bonus (conservative, as with top bonus every year I could reach 1m 1-2 years faster, at least)
- Banking continues to pay for another couple of years
- Very conservative (ie large) cost of living budget...almost disgustingly so

I would then be able to live off the investment income and would have a large, growing nest egg that would serve as FU money forever and be probably quite large by the time I'm 50-60.

On the flip side, I reallly dislike my job and it requires 100% of me. There is no room to just hang around and collect a paycheck - I am required to be 100% engaged. Burnout is a very real possibility. That said, I am good at it and can learn to love it again with some effort, I think. I think that, also, after 1-2 more years I kinda have FU money in that I know I can leave any time to pursue my dream with a large cash buffer. Also, I would be starting medical school at 35-36. Not too old by any means, but a factor. I don't particularly mind being the "old" guy...particularly if I'm the old, rich guy

3. Some combination of the above. Maybe work for 1-3 more years, enough to see me through school but then with 0 left at the end, but a new career.

I am really struggling with this decision, and it has been made harder by the fact that I now have a child. Am I being selfish pursuing my dreams at the expense of financial security, when just 4-5 years more of work will see me and my family set up for life? I feel like I am lucky enough / have worked hard enough to be on a very high earning trajectory and can almost have my cake and eat it too, in a way...

Thank you all !

[banker22]

Oh, forgot to mention: I have an employer pension that is currently worth £50k but I can't touch it until I'm 65 so I don't count it in my net worth calcs. I suppose if I stayed here for another 5y it would be worth a lot more !