Jeff Prestridge: Three ways I plan to get rich in 2018

29 December 2017
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I always start a new year full of good financial intention. Overpay on the mortgage, put more money aside for the future and cut down on some of my frivolous spending – a stream of coffees from Pret a Manger and naughty visits to Wasabi in search of healthy sushi.

OK, the resolutions do not always last the full calendar year but at least I give them a go for as long as I can.

2018 is no different. Indeed, I go into this new wonderful year in pretty good financial shape. This is because I have just paid off a chunk of the mortgage on the family home. I feel much richer as a result, less indebted.

It means that provided I stay in employment for the next two years – not guaranteed given the considerable financial pressures newspapers face – I have every good chance of being mortgage-free in the next two to three years. A great financial millstone will then be lifted from my shoulders. For the first time in many years, I will feel financially liberated – I will celebrate by dancing around a totem pole put up in the family home’s garden just for the occasion.

I have always believed that in order to build wealth, you need fi rst to keep your debts under control. My mortgage, thankfully, is the only debt I possess. I’ve no car or home improvement loans to worry about.

As for my investments, I will continue to contribute to my work pension – a no-brainer given the tax relief I receive on my contributions and the payment boost I get from my employer (thank you, Daily Mail and General Trust (DMGT)). The pension fund is ticking along very nicely (thank you) and remains broadly invested. It is the linchpin of my retirement plans, although I have no intention of retiring until I can write no more. Most journalists die writing.

I will also continue to buy a few shares each month in my employer through an employee share save scheme. Provided I hold them for long enough (five years), any proceeds will be tax-free. I see the shares as providing me with a nice little nest egg (not life changing), which I may use to pay for a trip of a lifetime – Australia or New Zealand – to see with my own eyes the magical scenery that formed the backdrop to the trilogy of films based on JRR Tolkien’s Lord of the Rings. Being a keen walker, I really fancy a haul up Mount Ngauruhoe – Mount Doom, the ultimate destination for Frodo as he sought to destroy the One Ring.

But my main ‘get rich’ plan in 2018 is based on my tax-friendly Individual Savings Account (Isa). I hope to utilise as much of my annual £20,000 allowance as I can (something I have rarely done in the past). A reduction in my mortgage payments will give me scope to carry out this action plan. I plan to do the following:

  • I will invest monthly rather than throwing money into my Isa ad hoc. It means I will not have to worry about market timing.
  • I will only put my money into investment funds or trusts – not direct shares, such as DMGT. I will get diversification as a result.
  • I will spread my contributions across three or four funds. Although I have yet to hone my selection process down to specific funds, I will definitely be looking for emerging markets exposure. Some of these markets – the likes of China and India – should provide strong returns as their underlying economies continue to grow at a faster rate than anywhere else in the world.

Having recently met Carlos Hardenberg, manager of Templeton Emerging Markets Investment Trust, in London and been mightily impressed, I would not be surprised if some of my money ended up in his fund. He is meticulous in the way he goes about his work, constantly scouring the globe for investment opportunities.

I will also probably opt for a couple of global investment trusts – spread across the world’s main stock markets. The likes of Scottish Mortgage* and Edinburgh, managed by Baillie Gifford and Invesco Perpetual respectively – trusts that I already hold in my Isa.

Of course, stock markets could plunge at some stage, which will undermine my get rich strategy. But I am prepared to take that risk.

You might wonder why I have not mentioned Bitcoin in my 2018 plans. Well, I do not invest in something I do not fully understand. So I will be keeping well away.

Wishing you all the best in your quest for financial security in 2018. If you pay down debt and invest wisely, you will not go too far wrong. 

Jeff Prestridge is the personal finance editor of The Mail on Sunday. He won the Contribution to Personal Finance Education category at the Santander Media Awards 2016. Email him at columnists@moneywise.co.uk 

Read more about investing on Moneywise

* Denotes a Moneywise First 50 fund for beginner investors.

In reply to by Xrat (not verified)

In case some readers misunderstand, a tax penalty (to compensate for tax relief already given) applies only to crystallised (withdrawn) amounts. Jon will pay extra tax only once he has spent over £1 million of his pension fund, not once the value of the assets in his fund exceeds £1 million ( or a bit more if he has a Protected Lifetime Allowance). And the Lifetime Allowance is shortly going to start rising annually in line with CPI. That said, 75% of the value of any pension funds drawn down will be taxed at his marginal rate (likely to be 40% given the overall size of his pot and hence the level of income it is likely to generate) and income from an ISA will be tax free, so there are certainly good arguments for those with large pension pots to consider using ISAs as part of their retirement strategy. But for most people a combination of generous up front tax relief and employer contributions means that, given equal performance of underlying funds, they will do significantly better with a pension than an ISA to fund their retirement.

In reply to by Paul Howard (not verified)

Thank you Paul,If it helps anyone, in fact I have an index linked final salary pension generating a little over £20k/annum (crystallising around £500k of my lifetime allowance.) Two of us with no debt and a house can exist on this. It leaves me almost £25k short of the 40% tax band.The rest in a SIPP, will be drawn down using UFPLS at a rate of £30k/annum (25% tax free) taking me up to the £45k threshold without going into the 40% tax band, to make life comfortable and reinvest in ISAs.The trouble with early retirement is it does mean that there is more time to use up the lifetime allowance, reducing scope to use pensions to reduce inheritance tax. Once I have sufficient funds generating income in ISAs to fund my lifestyle, I will cease withdrawals from the pension leaving it in reserve, and as an IHT reduction vehicle.Having benefitted from 40% tax relief on the SIPP (no employer contributions) I will now pay 20%. So the immediate benefits of benefits cannot be faulted and still provide both substantial and undeniable benefits.But with hindsight, more could have been placed in ISAs which could now be drawn tax free. This would leave the pension smaller with the benefit of more scope to reach the lifetime allowance and less chance of exceeding it. Fewer withdrawals, would use less of the remaining lifetime allowance leaving greater room to use it as a potential tax free inheritance haven.One other thing to clarify, much use of percentages has been used. They are the units HMRC uses to measure the lifetime allowance. Currently each £10,000 withdrawn from a pension against the current £1,000,000 lifetime allowance is equal to 1% and once taken it is gone forever. However as the allowance fluctuates the £/% rate value will also vary. For example, should the allowance ever reach £2,000,000 the same £10,000 withdrawal would only use up 0.5%.

In reply to by anonymous_stub (not verified)

I agree with most of that strategy and have already decided on largely doing the same, I'm just waiting for the ISA to refresh itself now since I'm maxed out for this tax year, that gives me plenty of time to do my homework too and create a shortlist of suitable Funds so that in April I can quickly get started. I'm not sure I'll do monthly deposits however since I'm intending on holding the positions for at least six years I was discussing this with some peers and there seems to be a consensus that the broker fees applicable on each of the monthly deposits plus the long term focus offset the benefits of cost averaging so long as one is confident (albeit never certain) of the Fund being well managed as the Fund manager will (effectively) be doing the averaging. But I'll definitely be adding some emerging market Funds to my portfolio next year, mine is still young and incomplete so I totally missed out on the profitable 2017 for these markets but I'll definitely be getting in from next year. I was quite disappointed that the Chancellor did not announce an increase in the ISA allowance for next year but what I have learned from this year is to avoid using it all up immediately because in the second half other opportunities may present themselves and you're forced to either hold them in a normal dealing account without the tax advantages or wait and hope that it is still an attractive opportunity the following April since I believe it isn't possible to transfer into a new ISA securities that are previously held outside an ISA. I shall be taking a look at Mr Hardenburg's Funds too on the back of your commendation of his work ethic and strategy and perhaps I'll be the one singing his praises in future! Thanks for your article it was very interesting to read your opinions and 2018 investment goals and I wish you all the best in hitting your targets.

In reply to by anonymous_stub (not verified)

It mystifies me why you recommend these funds but do not mention their fees compared to ETFs with which you can get the same exposures. Few fund managers outperform after fees!

In reply to by anonymous_stub (not verified)

Sage advice Jeff,It sounds like you're following a similar mantra to that which I followed. When the mortgage is paid off that's when you can really start to save. The scope wasn't there for large ISA savings until too late for me, but I had a company pension and saved as much as I could into a SIPP, before retiring aged 53, two and a half years ago.The Sipp had been ticking along at an average 5%, But since being actively managed in retirement, with gains over 30%, it has spiralled out of control and I fear I will now soon do what I thought was impossible... Breach the lifetime allowance and be hammered for tax. (Despite the 2016 lifetime allowance fix.)Had the ISA allowances been available to me, I could have avoided this for much longer, even indefinitely. So I mention it as a cautionary tale.I wish you well in your quest, retirement comes highly recommended.., if you've put in the preparation. Though don't expect to fully settle into it much before two years is up.Mount Ngauruhoe sounds like a nice idea for Christmas next year, I'll take your recommendation, thanks!A prosperous 2018 to you, and all at Moneywise.Jon

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