I get a very different result when I run these numbers. I’m not from the UK so I may be interpreting the tax rules incorrectly, but here’s the logic chain I used to model it (year one, so that it can be duplicated and logic verified);
If I invest 100,000 and pay the .5% stamp, I actually invest 99502.49
Dividends for the year would be 1990.05, of which I lose 746.27 to tax, leaving 1243.78 for reinvestment
Expected capital gains would be 4975.12 (99502.49 * 0.05)
Reinvesting the dividends of 1243.78 loses 0.5%, leaving 1237.56
Expected value at end of year 1 is 105715.2 (99502.49 + 4975.12 + 1237.56)
At the end of year ten, I expect 182334.10 in my account, which I then sell/crystallize.
The amount of tax I would pay is based on the “adjusted cost base” (google couldn’t answer what term is used in the UK, but basically the amount paid for the shares). I work this out to be 118275.5, essentially buying the dividend-reinvested shares at the expected 5% growth rate during the 10 years. I then subtract the total stamp taxes paid, which I work out to be 580.43. This gives me a tax burden of 182334.10 − 118275.5 − 580.43 = 63478.17. I then deduct the 11,000 capital gains allowance. This results in a tax payment of 52478.17*0.28 = 14693.89.
Final net value of the sale is therefore 182334.10-14693.89 = 167640.21
In real terms, this is 134996.70, or a real rate of return of 3.2%
I believe the major difference in our numbers comes from the tax rate on gains.
In terms of sensitivity, I get a return of 4.84% with zero taxes (dividend and capital gains), whereas an increase to 9% (each div and cap rates at +1%) expected return gives 4.2%. This is under the assumption of the worst possible tax rates and scenarios (full sale at maximum rates). There are lots of timing methods to reduce the tax impact.
Granted, this is based on my knowledge of Canadian taxes, but I verified the UK equivalents as best I could and the differences are primarily in the stamp taxes. Most of the data is from https://www.gov.uk/tax-sell-shares/work-out-your-gain (and the related links).
This may be long for a stupid question… and it’s not really one question… but it seems like a safe first post kind of place! It has just been on my mind a lot the last few months.
I was recently doing a review of my workplace’s management system and used personal life examples to demonstrate why the management system is (/would of been) effective. Instead of convincing anyone else, I convinced myself my life would be better off if I had a personal management system.
I’ve googled high and low and found nothing that I could draw on. The amount of self-help and motivational books I waded through though… that was impressive. I find it particularly interesting that it doesn’t seem present regardless of culture, even for procedure-heavy ones like Japan and Korea (at least in business) or more direct/rigid like Germany. Life just happens and you muddle through.
After putting pen to paper, I realised many “deficiencies” in my own life. I don’t have a records “policy”—my files are on hard drives, NAS’s, couple of clouds and a drive in a bank deposit box. I have no idea how many copies of my tax returns are floating around out there. I used to track expenses, but when I wanted to see my cashflow I realised I had no data for the last 2-3 years. I recently had to run out and buy some cleaning supplies because I ran out—that sums up my inventory system. That’s a major barrier to cooking at home. I’m not sure what I have for emergency supplies either. I certainly don’t plan (schedule or monitor) activities in my life at all. Risk management? I think my household insurance auto-renewed but not 100% sure.
Yet, I’d be considered decently organized among my peers. That seems terrifying.
Life isn’t a project, or a company, but I think the “management system” approach would be beneficial because;
It engages system 2 thinking, resulting in (presumably) better plans
It allows optimization though sharing and iteration (assuming some common approaches develop)
It helps communicating and being held accountable, least for a certain set of relationships
It helps manage change, like the move from portable drives to cloud storage, or changing insurance coverage
It increases transactional memory, where you can put trust into a system to avoid having to keep a mental maps (of files, of money, of contingencies)
It allows outsourcing since the process is relatively well defined, such as to (virtual) assistants or maid services (I believe it’d be a net economic boom)
It can help be pro-active, like staying in touch at regular intervals—both prompting and prioritizing (more to do with how you approach life)
However, my prior is that almost no one does this. The most I’ve seen are individual components—some people run very good household budgets. It just doesn’t exist as an overall framework.
Why? Is it because it doesn’t work and/or isn’t a suitable approach? A lack of definition to “life” to structure around/optimize towards? Is it more emotional, not giving up control and flexibility? Not taught/not socially acceptable? Does System 1 not bother with it, leading to failure?
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I’ve spent some time working on this but it’s tough and I’m really not sure the effort would be worthwhile. The trigger to take it seriously was a long chain of events that led to a life achievement list. It’s still in brainstorming mode, but getting huge and it seems to me that I need to put a lot more effort into optimizing for it.
Just to be clear, a lot of the answers I have gotten in person have been along the lines of “pick what you want and focus on it”. I think it misses what I’m trying to convey—how do you manage everything you don’t focus on? Why do you do things a certain way? I want to know what to do with my copy of my taxes next time I file. I want to do it because I should and I want to know why I should. The system offers an imperative, built on the foundation of having thought it out and deciding “this is how it should be”.