How I Am Investing Money Through This Crisis

Investing in crisis

In personal finance, everyone knows what they need to do.  The theory is crystal clear: save money, invest regularly, rebalance, buy the dips and so forth.

And yet, the reality is that you’ll struggle to find anyone who follows all the rules in the book.  Theory always loses to behavioural biases and personal circumstances.

In today’s post, I want to recap how I have been managing our family’s finances over the past three months – and the reasons for doing so.

Hopefully, it will serve as a helpful bridge between some of the more theoretic concepts and what actually happens in real life.

See No Evil, Hear No Evil…

As a starting point, a reference to how our family actually tracks our net worth.

The last time I updated our net worth file was at the end of January.  I had just seen my annual bonus clear into my bank account, so it felt like a good time to update the spreadsheet.  With the stock markets flying high, things were good.

Since then, I haven’t yet done another update.  I also haven’t checked our brokerage accounts aside from logging into Vanguard last week to open a new ISA (more on that below).

Early on in my journey, I used to update our net worth file on a monthly basis.  Once we’ve got things on autopilot, we switched to quarterly – and no amount of stock market volatility will change that.

The beauty of being 100% invested in index funds is that you always know where you stand.  Take your last portfolio value, add/subtract the market’s overall performance and voila!  No spreadsheets required.

In addition, the less time you spend staring at your brokerage account balance, the less likely you are to waver and do something stupid.  When it comes to building wealth, you win half the battle right there!

Staying Alive Aligned

Having your significant other on board in your financial independence journey is important.  At times of market dislocations, it becomes absolutely crucial.

Keeping your composure when your investments are plummeting in value is tough enough.  This isn’t the time you want to start convincing your significant other about the merits of staying the course.

Even though I am the one managing our family’s finances, my wife is fully aware and up to speed on everything I am doing.  Transparency is critical.

Not only it helps avoid any awkward questions (our investments did what?), but it also gives you a helpful sounding board if you happen to start doubting some of your earlier decisions.

If you haven’t yet had the talk, the recent relief rally may be a good opening to do so.

Business As Usual

Here’s a recap of my stock market activity over the past few months.

I kept investing roughly £1k/month in my workplace pension.  Despite Javid being gone, the trajectory of pension tax breaks for high earners is clear, so I am taking full advantage of my £10k annual allowance.  It won’t last.

We’ve also been investing roughly £2k/month into my wife’s workplace pension.  It works out to a pretty silly percentage of her pay but makes sense at the household level.  It pays to maximize your wealth as a family.

We have also been careful to avoid getting hosed by our workplace pension providers.

While my wife’s workplace pension provides for a good array of low-cost investment options, I sadly cannot say the same for mine.  Thus, I’ve opened up a pension account with Vanguard UK and transferred a big chunk of my workplace pension to it.

Buying The Dip

When the stock market started declining in February, I bought the initial “wobble” to the tune of £1k of cash I had accumulated in my SIPP account.

The market has subsequently tanked another 30%.  Do I feel silly?  Absolutely not.  It was the right decision to make at the time.  You can’t blame yourself for not having a crystal ball.

I held off putting more money to work until last week.  Not because I thought I can predict where the stock market is going, but because I was waiting for the beginning of a new tax year.  You can’t beat tax-efficient investing.

The evening of April 6th, I opened a new ISA account with Vanguard, deposited £10k and bought VUSA (S&P 500 ETF) for the full amount.

Between my wife and me, we have another £30k of ISA room remaining for the tax year.  My plan is to fully utilize it by end of May.  As part of that amount, £8k will go into our Lifetime ISAs, enabling us to get a £2k bonus from the government.

In theory, we should have dumped everything into the stock market on April 6th.   Over time, lump-sum investing always beats dollar-cost averaging.  In practice, however, the ability to sleep well at night beats both.

Because my job is highly geared to the macro environment, I would rather have a bigger cash pile than chase maximum returns and risk a liquidity crunch.  This time around, this is especially applicable given what is going on in the real estate market.

Real Estate In Times Of Covid

You would have to spend the last month under a rock not to hear about what is going on in the real estate market.

Commercial tenants are going bust while residential tenants are struggling to make rent payments.  Tensions are running high.  It’s not pretty out there.

I have a separate post coming up about what I think will happen to the real estate market going forward.

For the time being, I’ll just say that as landlords ourselves, my wife and I realize that we may have a stretch where our tenant will miss her rent payments.

Are we going to evict her?  Absolutely not.  She has never missed a payment and is an excellent tenant in every respect.

It’s not clear what the ultimate solution will be – but it is clear we may need extra cash on hand to work through the situation.

The one thing we will definitely do is refinance our mortgage.  We are currently on 3.84%.  After the most recent rate cuts, we can probably lock in a 2.5% rate.  Never let a good crisis go to waste.

What I Am Not Doing

Finally, here is what I have NOT done over the past few months – and have no intention of ever doing.

I am not selling in a downturn.  Why would I?  It’s the perfect way to start hating the stock market.

I am not timing the market.  There seem to be plenty of people out there who can (even if they never bother to show any evidence!) but I’m not one of them.

The only factors that dictate the timing of my investments are: (i) availability of cash to invest and (ii) tax considerations.  Nothing else.

I am not buying commodities or precious metals.  Read Buffett’s 2011 shareholder letter for the best summary of why investing in assets like gold isn’t a good use of your money.

And I am certainly not buying individual stocks.  I already own 500 of the best companies in the world.  Why would I need anything else?

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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9 thoughts on “How I Am Investing Money Through This Crisis”

  1. Great post, thanks for explaining your reasoning. The only thing I‘ve changed is that I‘m buying slightly more and more frequently at the moment, other than that I‘m sticking to the plan.

    Funnily, I have this random ‚Technology Index‘ fund I bought about £6000 of at the very beginning (October 2018), before I started sticking exclusively to broader index funds. This is now up almost 25%! Maybe not a surprise given that the whole world is online-only at the moment.

    1. Banker On FIRE

      You’ve got to let your winners ride! The reality is that the S&P would be doing far worse if it wasn’t for the big tech majors which now represent almost a fifth of the index.

  2. Great Post banker. I’ve said I’m trying to build more cash given I only have about 6 months so I’m still paying into my pension as normal (fortunate to still be able to put 40k in a year). About 1800 a month Inc employer contributions

    My isa I’m still depositing 1000 but am reducing the amount I actually invest for now to 300 a month. This leaves me with cash to invest layer while still buying the dip . I realise I could leave on my cash account but I want the psychological benefit of actually putting in my isa so I know it’s for investments long term.

    I was considering selling my 10k of vanguard lifestrategy 40 and putting it back into 100% equities. But the recent rally has put me off Market timing? Absolutely! I just can’t see how it’s not going to go down again although a nagging doubt in my head says the market is far more clever than me and has priced this in so the rally may continue….

    1. I do the same with our ISAs. Once it’s in there, it’s earmarked for investments plus it utilizes all the room available.

      Not sure what to make of the market rally to be honest. You are right in saying that the market always knows more than we do. I’d be delighted if it all turns out to be just a blip and we are back up to 3,300 but somehow I doubt that will happen.

  3. Interesting post, personally I hold gold as a small part of my investment portfolio that I add to monthly. I understand that it has no real value and doesn’t produce anything, but as long as people flock to it during market corrections and crashes then I’m happy to keep it as an asset that has a poor (almost) negative correlation to the stock market. E.g. last year during my annual rebalance I was able to sell some gold high and buy index funds low.

    1. Banker On FIRE

      I like that strategy. Do you hold it through an ETF?

      I do accept gold has a place in one’s portfolio, but with very specific use cases. Monevator’s The Accumulator recently explored the role of gold as a way to hedge sequence of returns risk in early retirement, which I thought was quite nifty.

  4. It’s a strategy I stumbled upon (with gold anyway) through a website called Portfolio charts. It’s a really great resource for testing different portfolio allocations, allowing you to test how different portfolios have performed over the last 51 years. Also shows how they would perform during the drawdown phase and gold has certainly helped there too historically. Probably due to sequence of returns risk as the Accumulator says. I’ll have to check out that article.

    I hold physical gold in a Swiss vault through a company called Buillion Vault. The fees are nice and cheap once you get a few grands worth of gold stored. I’d like to hold it in my ISA through a physical gold ETF, but Vanguard doesn’t offer one. I’m hoping they will by the time I hold enough gold to have to worry about capital gains tax outside of my ISA otherwise I’ll have to change ISA provider so I can start moving the gold into a tax wrapper.

  5. It also helps to have a small portion of your portfolio to be green, that you can focus on when everything else is showing red!

    1. Banker On FIRE

      Many thanks for sharing! I’ve used Portfolio Visualizer before but haven’t come across portfolio charts. Will check them out.

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