Business & Investment

Easy Road to Wealth 3-TRF, Vanguard, Tax Shelter

Today’s post is JL Collins’ third visit to The Simple Path To Wealth.


Chapter 16 is about the Target Retirement Fund (TRF).

  • These are the funds that will change you automatically assets Allocations (addition of bonds and acquisition of shares) are made as the age approaches the predefined target retirement age.

I am not a fan of TRF, which reflects the philosophy of “The Age of Your Bonds”.

Without much diversion of this article to the retirement debate, what people were doing when they quit their jobs was the pension pot. pension (Exchange current cash for future recurring payments).

  • What is this in fact DB And so is the state-owned pension, but in these cases, pension Undertaken by your provider (state or your ex-employee).

Because of this, fluctuations in the value of pension pots around retirement age can be very detrimental, and people were switching from stocks to bonds for protection.

In the real world pension Fees are associated with connect Yield is interest price.

  • After starting my career interest Fees have collapsed and pension prices have skyrocketed.
  • pension These yields are collapsing because prices are usually expressed as returns on fixed size pots (typically £ 100,000 in the UK).

If the yield falls below my long-term return target (real 3%, minimum), I lose interest In the product.

  • When I was writing this, the index-backed (actual) yield was pension For a 55 year old man it is 1.63%.

So don’t buy pension – They offer terrible value.

Even if you haven’t purchased pensionYou may want to reduce your exposure to stocks around retirement age to protect against sequence risk.

  • This is the risk that the fund will not be able to recover from the market crash at the beginning of retirement.

Still, I don’t use TRF for this-you assets Assign or glide pass in the first place.

  • connect Please manually perform the “tent” around the retirement age.

Now let’s see what Jim says about TRF.

He seems to like them and will guide you through the options Vanguard offers.

From 2020 to 2060, TRF owns only four funds each.

  • Total Stock Market Index Fund
  • total connect Market index fund
  • Total International Stock Market Index Fund
  • Total International connect Market index fund

These four funds include the TR 2010, 2015, and 2020 funds. Short-term inflation protection securities index fund.

If you don’t like the glide pass, Jim will also suggest a workaround.

If you need a more conservative (higher percentage of bonds) approach, choose a date before your actual retirement. If you need to be more aggressive (increase your share), choose a later date.

Jim states that TRF is often required in the workplace pension system.

Vanguard alternative

Chapter 17 describes VTSAX and VBTLX alternative funds.

  • Most of this is focused on the United States and few interest to us.

Chapter 18 explains why Jim is so enthusiastic about Vanguard.

  • Let’s be honest – there’s nothing special about Vanguard.

When using ETF Sometimes it’s the cheapest, like me, and sometimes it’s not.

  • ETF It’s okay from iShares, State Street, etc.

Vanguard platform It’s cheap when you’re starting, but it limits you to Vanguard funding.

  • There are better options when you have a larger pot.

I own some vanguard ETF, But I have never used them platform..

The point of Jim is that Vanguard is customer-owned (specifically, owned by the fund’s shareholders).

  • This makes no difference to the funds you buy, and is not true even if you live outside the United States (only American funds own the company).

On average, Vanguard funds are cheap, mainly because they don’t offer some of the most expensive funds.

  • We are not buying the average one, so choose the cheapest fund that meets your needs.

Sometimes this will be a vanguard fund.

  • In many cases this is not the case.

Also, in general, it’s a good idea to spread your investment across counterparties.

  • So if you say more than 33% of your money is in Vanguard, move some of it.
Tax shelter

Chapter 19 describes 401 (k), 403 (b), TSP, IRA, and Roth buckets.

  • These are US constructs, so let’s talk about British equivalents instead.

There are only three things to worry about: workplace pension, SIPP, and ISA.

  • Young people who haven’t bought a home yet can take advantage of government savings schemes such as Help to Buy and LISA, but these are not investments.

Your employer is forced to donate 3% to your pension (with income between approximately £ 10,000 and £ 50K) and you must donate 5% yourself.

  • This 8% isn’t enough, and we’re aiming for at least 15%, so if your employer offers more matching (also known as free money), take advantage of it.

The next port of call is SIPP, which can be donated £ 40,000 per person (minus workplace pension contributions).

This is an invincible savings product as it is exempt from tax on SIPP contributions (similar to workplace pension contributions).

  • We will do our own research on the comparison between SIPP and ISA, but it is impossible for ISAS to precede (Start here).

There are only three reasons why you do not meet the SIPP allowance each year.

  1. I don’t have any spare money
  2. You are afraid to keep your money out until you reach 55 (in which case you may not be suitable for long-term investments)
  3. It is projected to reach SIPP’s Lifetime Allowance (LTA) (currently £ 1.07 million).

LTA is an abomination. This is because contributions are already restricted along the way and there is no way to know how much future benefits the pension pot will bring.

  • Therefore, you need to weigh the risks yourself.

Personally, I continued to contribute to the network, hoping that a future market crash would bail out me.

  • Values ​​are evaluated when transitioning from cumulative to drawdown, so moving when the value is low can be useful.

When you’re done using SIPP, put the rest of your spare cash into the ISA (current annual allowance is £ 20,000).

  • Once the SIPP is full, there are other tax shelters to consider (mainly VCT and EIS).

And each of us has an annual allowance of £ 2K dividend A capital gain of £ 12.3 thousand to support a taxable equity portfolio of approximately £ 100,000.

Not only protects capital gains dividend, SIPP and ISA have another big advantage. There is no need to save (cumulatively) documents as they are not listed on your tax return.

  • Pension drawdowns are a bit more painful, but there is currently no way around them.
American stuff

Chapter 20 describes the minimum required distribution (RMD).

  • These are the mandatory amounts that must be taken from the retirement pot and there is a 50% penalty for violations.

They start at the age of 70, which increases as you grow older, with the goal of bringing your pot as safe as possible before you die.

Although not in the UK, a similar consideration is the tax assessment of pension pots at age 75.

  • It makes sense to withdraw as much mash money as possible tax-effectively before that age.

Chapter 21 is about Medical Savings Accounts (HSA).

We have socialized medical care here in the UK, so you don’t have to worry about funding your own health care.

  • Instead, worry about paying for your unhealthy friends and neighbors.
Case Study

In Chapter 22, we’ll look at a real-world reader case study from Jim’s blog (under “The Smoother Road to Wealth”).

  • Again, this is unique to us.
Investment adviser

Chapter 23 explains why Jim hates investment advisers.

  1. They don’t get better results
  2. They make things too complicated
  3. They are expensive
  4. They have a conflict interest (Best results for them – good commissions – may not mean best results for you – good returns)
  5. The industry attracts people who want access to other people’s money
  6. Learning to choose a good advisor is as much work as learning to invest for yourself (if any)

Here in the UK, IFAs (Independent Financial Advisers) are very expensive (thousands of pi = pounds in hours of work).

  • More importantly, they are not really IFAs.

Their training focuses on regulation and client management rather than focusing on investment principles.

  • Many of them outsource their investment in the platform and assets The manager is more like a car salesman than a surgeon.

And due to regulatory bias (fear of disciplinary action), they are too conservative.


Today again, we have covered a series of interesting chapters.

  • There was little objection, but it was only relevant to US investors.

I’m currently reading three-quarters of the book, so there’s another article and summary in this series.

Easy Road to Wealth 3-TRF, Vanguard, Tax Shelter Easy Road to Wealth 3-TRF, Vanguard, Tax Shelter

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