April 2017 – End of Year Finances

The end of the financial year in the UK was on 5 April 2017. For me, this is the time to take a look at my year end finances and review how my investments performed. It is also a time to sit down and start getting the paperwork ready for the UK taxman…..

DISCLAIMER : I am not a financial adviser. This is not meant to be an investment or a tax guide, just a reminder to go off and do your own research and/or speak to a tax  / financial adviser as appropriate.

Apologies to my US readers, but this post has pretty much a UK focus.

Reviewing my investments

How have my investments performed?

I use the end of the tax year as well as the calendar year end to review how all my investments have performed.

• As the year goes on, I maintain a spreadsheet of all my share purchases, when they were bought, what they cost (including fees), what they were sold at and when. If I haven’t sold them, I record what they are worth at year end.
• I include any dividends received, because I reinvest them rather than withdraw them.
• For the purpose of Capital Gains Tax, the Inland Revenue is only interested in the difference between the bought value and the sold value. (See sample sheet below). When it is greyed out, it means I have sold it.

• So, when I did my final sums tonight, I found that my portfolio had returned a fairly respectable 15.42%. Last year I lost 8%, so I am relieved to see my portfolio recovering

My style of investing has changed over the last couple of years. I started keeping detailed records from January 2012. My first year or two were essentially stock-picking with good results, but then my returns dropped significantly. I was going mainly for dividend shares (High Yield Portfolio), and while the dividends were good, the capital value of the shares were dropping too fast for my comfort.(think Mining shares) So during 2015/16, I cleaned out a lot of loss making shares, which was why 2016 was so bad.

Essentially I reset my focus. If it was good enough for Warren Buffet to suggest that his wife’s portfolio should be invested in index funds, it was good enough for me!

So How do I invest now?

Note: Again this should not be taken as financial advice, it is just a statement about what I did/ am doing…

• According to all the advice I have read, I should be going for low-risk investments because I am retired, and aged 61. However I am taking the long term view, that says I will live another 30 years, and 2% returns will not provide enough growth over that period. So I will continue to have a high equity portfolio.
• Having sold most of the shares in the ISA’s I had set up between 2012 and 2015, I re-invested these 6-9 months ago, in tracker ETF’s, mainly Vanguard low-cost ETF’s. A mix of UK and worldwide.
• 2015/16 ISA was put into five managed funds, which just broke even by March 2016, however the change in the value of the dollar in June 2016 (Brexit Vote) bumped these up significantly, which boosted this year’s performance. The best performing one has been Scottish Mortgage Trust which is up 40% since I bought it. Personal Assets Trust is the lowest return – up 14% in the same period (about 20 months), which is far from shabby.
• 2016/17 ISA was invested in Vanguard LifeStrategy 80% equity, which have returned 6% in about 6 months.
• I do have a small amount invested in bonds.
• I have some money in a couple of Woodford Funds. His Equity Income Fund has done OK, but I am still down on his Patient Capital Fund. Patient is obviously the word!
• I still have a few individual company shares, but they form a fairly small proportion of the overall total. (e.g. Unilever, my grandad owned them, as did my Mum, now me, and they’re still doing OK!)
• The investments I refer to in this post are in my name, and essentially, I allow myself to take a few risks with them. My husband takes a ‘safer’ approach with his investments. So my ‘risks’ are balanced out.
• I have a decision to make in the next few weeks. Will I use Vanguard Equity funds, or the Moneyweek recommended funds, or back to ETF’s. The only thing I know for sure is that I wont be investing in individual company shares. I have bowed to the inevitable. I had a great couple of years, but ultimately a small stock picker like me is unlikely to beat the market long term

The benefit of my current style of investment

• The really big thing I have noticed over the last few months, is that I hardly watch what is happening with individual company share prices. I still read the financial papers, but I am no longer interested in individual shares
• I no longer trade. I only used to buy once a month. But I no longer need to worry ‘should I sell?’, or try to ‘time the market’. This has not only freed up time, but also removed a lot of angst. It is a ‘Buy and Forget’ approach!
• I take a very long term view. I do work out what my investments are worth every month, but only because I like knowing my net worth. Individual ups and downs cease to have any impact.
• As the vast majority of my investments are now in ISA’s, I have less and less paperwork to produce at year end. I do miss the dividends popping in though. They always made me smile.

As for my Tax Return (Again UK  – ignore if you are based elsewhere…)

I’m collecting all the Paperwork

At the minute, I don’t have any self employed income, which simplifies matters.

• My P60 arrived the other day from my pension scheme, but my husband is still waiting for his
• I’ve started to trawl through all our savings accounts, and print off the Certificates of Interest. RBS lets me do them online. Nationwide do give you information on the screen, but I have requested paper copies as well.
• Electronic Files. I set up an annual folder each year. In it goes the electronic versions of the statements for all our accounts, the electronic Certificate of Interests, the spreadsheets of share dealings etc. You can get the last 7 years online at RBS, Nationwide only show 3 years…
• I have kept a spreadsheet of all dividends as the year has gone by. However as all my non-ISA shares are now held electronically, it is really easy to print off the Dividend reports. I’ll set aside a day shortly to do that.
• I keep a record of all share purchases / sales. All non-ISA ones need to be passed on to the tax man, because of potential Capital Gains. (Any Capital Gains over £11,100 are taxable, either 18% or 28% depending on your income. You can get all the details here.)
• I don’t have any investments abroad, or additional income that hasn’t been taxed. So that bit is simple!
• Pension payments. I make a single payment each year into my ‘pension pot’. I am allowed to put in £3.600 even though I am not earning, so this has to be recorded separately. Effectively it is a free gift from the tax man, you pay in net of tax (£2,880), you get  the tax added back into the investment, so your investment grows by the tax amount. 20% immediate return. (£3,600) Result!

Completing the tax return

• I am a total fan of the online Inland Revenue system. It is so simple and straightforward. If you have all the paperwork in place, you can easily do it in an afternoon. The trick is being organised! (If you’re not already registered to use the online system, first you need a Government Gateway ID. You can get information on it here.)
• I aim to get my return submitted no later than July. By that time, I will have acquired all the paperwork, had time to sort out my spreadsheets, and then I can go on my summer holidays with a clear conscience.
•  I recommend printing the summary. It really helps to have something to refer to.
• The system automatically calculates how much you owe or if you’re lucky – get back! Sadly, mine only seems to work one way!

So nearly there for another year!

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