How to Get a 62.9% One Year Return on Your ISA - Part 4 of 4
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, Investing, Investment Fund, Wealth Building on 6th August, 2010.
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How would you like to return over 60% in one year?
Do you think that sort of 12 month performance excite you?
If it would, then you are going to love what I have to share with you.
Last week I began sharing with you our secret to how we’ve managed to beat the market over the long-term.
I stated that the answer lay in three key things.
1. Knowing which direction the market is likely to head.
2. Knowing how to find high quality investment funds.
3. Knowing when to buy and sell these funds at the most opportune times.
Last week we covered point 1 on the list, Knowing which direction the market is likely to head and on Wednesday we covered point 2, Knowing how to find high quality investment funds.
Today we are going to cover the third and final point which is Knowing when to buy and sell these funds at the most opportune times.
When to buy and sell
Let’s start by talking about exiting.
By looking at price and volume action, whenever the market changes from an uptrend (bull market) to a downtrend (bear market), you switch out of the market into a cash-based fund.
You do a “switch” from the investment fund or funds you are invested in, into a cash-based fund such as the Fidelity ISA Cash Park.
You then wait in the Fidelity ISA Cash Park until the market is deemed healthy again. This is when the downtrend officially becomes an uptrend.
You determine market health and direction by reading the market’s price and volume action.
Let’s move onto buying.
The first thing I do before even considering buying is to make sure that the market is confirmed “healthy”.
I do this by analyzing charts.
Once I’m happy that the market is in an uptrend, again I’d only consider buying if the fund can then successfully break out past its “pivot” or ideal buy point.
When you are buying a fund, you can keep commission and switching costs extremely low by using a fund supermarket such as Fidelity’s FundsNetwork™.
If you don’t go through a fund supermarket you might end up paying as much as 5% in commission fees. That means that your fund would have to go up 5% just to get back even.
When you buy through a fund supermarket such as Fidelity’s FundsNetwork™, it means that you have the option not to use a financial adviser – meaning you save even more commission fees.
This can really help over time because the difference between getting 12% per year and 15% can be huge.
Here’s an example of what I mean.
Let’s say that we have two couples, the Browns and the Smiths.
The Browns and the Smiths both invest in exactly the same investments as one another over a 20 year period. The only difference is that the Browns use an IFA to place all the trades, and the Smiths place the trades themselves using a fund supermarket.
Because of this one difference, the Smiths end up getting an average annual return of 15%. The Browns – because they are paying a 3% commission to their IFA each year, end up with a 12% annual return.
With their 20 year financial plans, both start from zero but make a decision to put in the full £20,400 ISA allowance each and every year. Here’s what happens to their money.
Browns (using an IFA) make 12% per year
Smiths using a fund supermarket make 15% per year.
As you can see, at the end of the 20 year period, the Browns have a pot of £1.7 million.
But the Smiths at the end of their double decade period have £2.58 million.
Even though the two couples invested in exactly the same investments, because one couple used an IFA, the difference is close to eight hundred and eighty thousand pounds – or an average of £44,000 in commissions per year.
The lesson is clear. Using a fund supermarket can help you fight for every single percentage point, which in turn means more money in your pocket instead of an adviser’s or brokers.
What I love about FundsNetwork™ is that you can buy into an investment fund for just 0.25% and you can switch into their ISA Cash Park for no charge at all.
So now you know how we managed to get a return of 62.9% in 2009 when the average wealth management company returned 21%.
Until next my friend.
If you would like to know more about how we manage to beat the market over the long-term, and request a FREE Telephone Consultation (£1,997 value) or obtain a FREE copy of my book Liquid Millionaire, get in touch.
You can email us or call 0870 757 8554 if you prefer.
In both cases you are under no obligation to do anything, buy anything or sign up for anything.
