I don’t know about you but I breathed a sigh of relief when the cash-like asset rules for stocks and shares ISAs were announced. They were nowhere near as bad as I feared.

Money market funds (MMFs) are the only investment HMRC has defined as a cash-like asset.

The post How cash-like assets perform in a stocks and shares ISA [Members] appeared first on Monevator.

What caught Frugalist’s eye this week.

The post Weekend reading: Don’t sweat the details appeared first on Monevator.

Congratulations! You’ve just inherited £100,000 from Great Uncle Bertie.

Good old Bertie. Always liked him.

Naturally, you’re going to invest this for your future financial well-being. The pleasantly unexciting Vanguard LifeStrategy 60 will do nicely.

Your tax allowances are already spoken for. So, at least for now, you’ll need to resign yourself to paying tax on your gains in a General Investment Account (GIA).

You also know that investing everything ASAP is statistically the best approach.

However, (our hypothetical) today is the 31 March and the fund goes XD tomorrow.

Should you invest today or wait until tomorrow? What is XD? Does any of this even matter?

If you don’t want the detail, then the short answer is it matters a bit in terms of tax but for the most part you can ignore it.

But if you don’t want the detail then why are you reading Monevator?

Let’s get into it.

Dividends

Most funds generate regular dividends. They could be paid annually, bi-annually, quarterly or monthly.

The dividends are either paid out to you in cash if you hold the income (inc) unit class or are rolled up in the fund if you hold the accumulation (acc) class.

Dividend dates

There are two key dates associated with a dividend payment:

• The XD (ex-dividend) date
• The payment date

If you buy before the XD date, you are entitled to the dividend payment. Whereas if you buy on or after the XD date, you must wait for the next cycle to receive your first dividend.

The payment date, when the cash is paid out, is usually a month or so after the XD date.

The unit price of the inc class will usually drop on XD date to compensate for the cash payout. Thus, the inc and acc unit prices will gradually diverge over time – even though the total return is the same.

Vanguard’s LifeStrategy 60% fund pays a dividend just once a year, currently of around 2%. The last XD date was 1 April and the payment date was 29 May.

Tax

I’ve been liberally using the term dividends, but the specific tax classification of income distributions depends on the type of fund:

• Distributions from funds investing predominantly in equities are taxed as dividends.

• Funds holding more than 60% of their assets in interest-bearing investments, such as bonds or cash, instead pay interest distributions, which are taxed as savings income.

Your LifeStrategy 60 distributions will therefore be taxed as dividends.

The tax treatment of inc and acc classes is the same. You still pay the same amount of dividend tax – regardless of whether you get paid the dividend in cash or it gets rolled up in the fund.

Many investors choose to hold the inc class in a GIA. It’s easier to see what’s going on and, if you must pay tax, it’s nice to have some cash hitting your bank account.

Of course, if you have all your investments in ISAs and pensions then you don’t need to worry about dividend tax.

Equalisation

Now, those fair-minded fellows at HMRC recognise that if you only bought the fund just before the XD date then it would be a bit mean to charge you tax on the whole dividend payment.

In effect, you are just getting some of your own money back with the dividend – a return of capital as it’s known.

So your first dividend payment on a fund holding is part ‘equalisation’ (on which you don’t pay dividend tax) and part dividend (on which you do).

You will see this distinction in the annual consolidated tax certificate from your platform.

But you’ll need to take the equalisation amount off your purchase price when you come to calculate capital gains on any disposals.

In other words, equalisation just means you pay a bit less dividend tax but a bit more capital gains tax. The tax man will get you one way or another.

Note that equalisation applies to UK authorised funds – for example, OEICS and unit trusts – but not generally to ETFs.

Group 1 and Group 2

You may occasionally see reference to Group 1 and Group 2 units.

Group 1 units are those you bought before the current dividend period began. (The dividend period runs from one XD date to the next.)

Group 2 units are any bought inside this period.

Once the XD date is reached, your Group 2 units become Group 1 units.

The equalisation rate per unit is calculated by the fund manager based on what they reckon Group 2 holders on average paid for the accrued income versus Group 1 holders.

But this is just an average. Every Group 2 holder gets the same equalisation rate regardless of when they bought the units.

So the equalisation for investor A who bought on the last XD date is the same as the equalisation for investor B who bought the day before the current XD date.

Back to Bertie’s money

Finally, back to the original question. Does it matter if you invest pre-XD or post-XD?

The table below compares the two scenarios: buying pre-XD and buying post-XD.

We’ll assume an investment of £100,000, a distribution yield of 2%, an equalisation for Group 1 units of half the total distribution, an initial price of 100p, and a final price of 103p:

You end up with roughly the same returns in both cases: Pre-XD gets some income, but post-XD gets more capital gain.

The extra £100 gain for the post-XD case is offset in the pre-XD case by the early £2,000 distribution in dividend and equalisation, which can be reinvested elsewhere for most of the following year.

In tax terms, the difference between the scenarios looks like this:

The pre-XD taxable capital gain is £4,000 because the £1,000 equalisation must be deducted from the purchase price.

In summary then, there is negligible difference in the returns you get, but when investing pre-XD you are swapping some capital gains tax for dividend tax.

Does that make much difference? Depends on your tax situation.

Tax impact of going ex-dividend

The table below shows the approximate difference in the tax you pay for various tax situations. (There is no case for 0% capital gains tax as the £3,000 capital gains allowance is more than used up by the gains in either scenario):

I’m using the new 26/27 dividend tax rates as dividends are taxed in the tax year in which the payment falls and not necessarily the XD date.

(As an aside, who decided we needed tax rates specified to two decimal places?)

If you’d held on to the investment for longer, then there would also be a difference in when you pay the tax.

The initial dividend tax must be paid for this tax year whereas the capital gain tax could be deferred until later tax years by not selling.

Price fluctuations

There’s a lot of detail I’ve glossed over.

Most notably, I’ve assumed that, on the XD date, the unit price of the fund drops by the same amount as the dividend paid.

In reality, it will not be the same, as it will also be affected by fluctuations in the prices of the assets in the fund.

In scenario two you are buying a day later. Might the price change on that day have a bigger effect than the different tax rates? Who knows.

Or maybe the price goes down over the year, so the bigger capital gain becomes a smaller capital loss.

So what?

Some of you may enjoy the thought of saving a few quid in tax with some judicious ex-dividend timing.

I suspect that most, though, will be thinking that this is all just noise when considered against investment returns – and you’re probably right.

So whilst it’s worth knowing exactly how you’ll be taxed on dividends if you have assets outside of a tax wrapper, it’s probably not a good idea to spend time trying to game the tax system at the risk of losing investment gains.

But, looking on the bright side, I think we can all agree that stuffing all the investment fun stuff – dividends, tax, and equalisation – into just one short article is a joy to behold.

You’re welcome!

The post Pre-XD vs post-XD: Does dividend timing matter? appeared first on Monevator.

I‘ve read many personal finance articles that claim you can save big by ditching your car and jet-packing, hover-boarding, or *shudder* walking everywhere instead.

Monevator published a good one recently, which prompted car-swerving frugalista The Investor to claim he could have spun his savings into £300,000 to £450,000, just by ploughing them into a global equities tracker these past 30 years.

If that’s right, then hopefully he’s gonna cut us in because The Accumulators regularly ferried TI and his glow-sticks around sundry West Country amenities during the 1990s. If you’re thinking the bear-baiting and badger hassling, well, I can neither confirm nor deny.

So how big a payout did I forgo by keeping my pedal to the metal instead? Can you really rake in nearly half a mil in exchange for 30 years of hanging about for buses?

Put another way: can you buy yourself a nice house by investing your car money instead?

Real numbers

Let’s do the sums. Except this time, let’s use some proper hardcore FIRE numbers. We’ll skip the silly money that most finance bloggers claim Joe Average throws at their transport problems.

Monty Mercedes or whoever does not read FIRE blogs. Only aspiring money mavens are into FIRE, and they’re unlikely to be subsidising the car industry in the first place.

Instead, those pursuing financial independence on wheels will do savvier stuff:

• Buy used motors with a reputation for reliability and a global surfeit of spare parts.
• Avoid dick extensions that command a premium just for the badge.
• Drive ‘boring’ cars if needs-be. We’re on a mission here!
• Profit from other people’s depreciation.
• Drive the thing for as long as possible so you don’t keep resetting the depreciation curve (but getting rid once bits start falling off.)
• Don’t buy more car than they need. No armoured vehicles, no automated parking, no lane assist, no heated seat subscriptions. Just own a car you can actually drive, and stay on the right side of tax and insurance costs.
• Reduce their car habit by turning to alternative remedies like walking, cycling, and catching the bus, where possible.

All of which keeps costs down to a degree that can surprise hand-waving automobile avoidants.

So with the stage set, what can you really save if you don’t own a car when two budget ninjas ¹ enter the ring?

In the red corner

Introducing the West Country Wonga Worrier: The Accumulator-tor-tor!

…Weighing in with annual car costs of 3,312 pounds.

Vital statistics:

• Mileage: 6,000 p.a.
• Next car cost: £1,000 p.a.
• Taxes, fines, breakdown cover: on request

In the blue corner

It’s the lift-cadging, thrift-meister himself: The Invest-oooooor!

…Weighing in at 1000 to 1500 pounds per annum.

Vital statistics:

• London Transport: A mystery
• National Rail: A mystery
• Global city home ownership premium: Let’s not worry about that
• Shoe leather: Sunk costs!

Judge’s ruling

The Accumulator’s annual poundage is a fully itemised, all-in figure. It’s the average of the last three years of car-related expenses, rebased to 2026 prices.

The Investor’s costs, meanwhile, are as impenetrable as the mask he wears.

A fully-qualified member of the finger-in-the-air school of expenses-tracking, we’ll just have to rely on TI‘s best recollections. He assures me he has an excellent memory.

Sounds reasonable. Ahem.

What I’ll do then is calculate the match-up as a range of outcomes and leave it to the reader to decide which is closest to the truth.

Fight!

Round One

TI’s car-free costs are deducted from TA’s motoring bill:

• £3,312 – £1,500 = £1,812 annual savings go to our Shanks’ Pony jockey at 2026 prices.

(I’ll do the top-end of TI’s range first, then come back.)

Round two

Calculate the saving in 1996 prices. Or rather outsource the task to the Bank of England via its excellent inflation calculator.

• £1,812 in May 2026 = £877.46 in 1996.

Okay, so horseless carriage hater TI would have trousered £877.46 some 30 years ago with his strap-hanging ways.

Round three

How much then would TI be sitting on now if he’d committed the inflation-adjusted equivalent of £877.46 per year for 30 years into a global tracker fund?

• £74,298.77 at 1996 prices

That number comes from dividing the annual saving by 12 to get a monthly contribution of £73.12.

Compound that by 6.06% for 30 years.

6.06% is the 30-year real annualised return of the MSCI World GBP. ²

The final round

Now we have to pump up £74,298.77 to 2026 prices to goggle at the size of TI’s treasure chest in today’s money. ³

• £74,298.77 in 1996 is worth £153,429.98 in May 2026.

Or, if TI’s low-ball £1,000 annual costs are accurate: £195,774.30.

Post-match analysis

It’s not quite the jackpot The Investor imagined. On the other hand, who would say no to an extra £150,000 to £200,000 in their account?

Driving is the norm in the UK so few people are likely to consider designing a lifestyle that squeezes it out.

But what if a wizened savings sensei told your younger self that a tidy six-figure sum was at stake?

Maybe they could make it work?

Take it steady,

The Accumulator

Bonus caveats

The Accumulators’ costs are shared between two. In theory that means TI’s savings are only worth half as much per person in a two-person, single-car household.

Then again, if TI diverted the dosh into his pension pot he’d earn tax relief unavailable to the rubber-burning Accumulators.

TI’s commuting costs were low to minimal for most of his life but so were The Accumulator’s. Let’s say that balances out.

There surely is a premium to pay for living in an area well served by public transport. (On the other hand, if you own your home then TI would argue it’s an investment.)

But you may be able to offset that outlay some other way. Perhaps you can dispense with having a garden, or living near great schools, or some other ‘must-have’ lifestyle choice that, for you, just isn’t.

TI would also likely claim a health benefit over most drivers – because his favoured mode of transport is his own fine pins.

FIRE in the whole

The compounded number is much less impressive if you’re dashing for FIRE in ten years. However, the money will continue to compound for so long as you’re saving.

One way to look at it in those circumstances is to divide the saving by your sustainable withdrawal rate, then subtract that amount from your target figure.

For example, car savings of £1,500 per year enable you to reduce your FIRE number by:

• £1,500 / 0.04 = £37,500 (Assuming a 4% withdrawal rate.)

How dependable is the investing route?

Inflation-adjusted equity returns can vary a great deal – even over 30 years.

The current 30-year real annualised range is 2.4% to 9.9% (1900-2025). The mean average is 5.7%.

For the record

Finally, my full list of car-related expenses includes:

• Maintenance (repairs, service, MOT)
• Insurance (including breakdown cover)
• Taxes (car tax, drivers’ licence renewal, registration fees)
• Petrol
• Parking
• Fines (2023 was a bad year)
• Cost of the next car (£1,000 per year)

Right to reply by TI

The Investor here…

Okay, I hope we’ve all had our fun, but I’m commandeering the reins – perks of the publishing button – to add a final bit.

When we discussed this piece, I asked gas-guzzling petrolhead The Accumulator to include a nod to typical car ownership costs in his attempt to ridicule substantiate my six-figure savings claims.

Looking back, it was a poor sign that he shouted something back down the line about not being able to hear me as Mrs TA had the hairdryer on and by the way he was “off on a mini-break, starting now, bon voyage!” before terminating the call.

So for the record, the latest Pension Living Standard’s report puts ‘motoring’ costs in the range of £4,000 to £5,000 a year.

That’s for typical retirees, remember, not for wannabe Jeremy Clarksons.

Moreover it’s easy to find estimates – such as this one from breakdown cover specialist AutoHome – that put the annual cost of a car in the £5,000 to £8,000 ballpark, all-in.

Now I’m not going to second-guess TA’s figures, nor gainsay his frugality.

I’ve waited too many times in vain at the bar for that – coughing and waving an empty pint glass around while TA has taken an unusually deep interest in his shoes / WhatsApp messages / something in the distance a few centimetres above my head.

So yes, as a globally recognised titan of the FIRE movement, TA’s numbers should look good! And no doubt those following in his footsteps can keep their costs down, too.

But I still stand by my benchmarking against the average car owner, not a savings ninja. That’s what we do when we’re weighing up other FIRE lifestyle choices, after all.

Not owning a car saved me a fortune. Albeit at the cost of some friends’ patience, surely.

Bonus bonus BONUS bit by TA

Somebody forgot they gave me access to the publishing button for “emergencies”, eh?

Fortunately I’m the bigger man around here.

Plus I’m right and TI smells yahboosucks!

THE END.

1. In every sense.
2. May 1996-May 2026.
3. Because we compounded in real-terms, that £74,298.77 does not include the inflation froth that your investing returns actually include. We want to know how much bigger a non-car owner’s investment account would look after 30 years, so we need to add inflation back in.

The post Can not owning a car buy you a house? appeared first on Monevator.

The first Weekend Reading every month can be read by anyone on the Monevator website. Subscribe for free to our email newsletter or become a member to ensure you see the rest.

What caught my eye this week.

Would you be happy handing over the reins of your portfolio to a robot? Given most of you will be regular Monevator readers and email subscribers, I can guess the answer – if not the specific gentle expletive added for colour…

Of course, the typical Monevator reader (rightly) invests passively in index tracker funds. And those funds are managed by software – albeit usually with some kind of human oversight to determine which companies go in and come out of a given index, as we saw with the recent controversy over SpaceX.

However it’s one thing to use software to follow a well-established and diversified benchmark via what’s now very mainstream index fund investing. It’s another to toss the keys to a novel AI agent with a cheery, “have it it, call me if you blow the kids’ inheritance!”

Okay, in practice any self-driving portfolio is going to have guardrails. But even so, you can easily imagine countless robot investing edge cases that are the financial equivalent of a self-driving car facing a hotdog cart trundling into the road, or the driver in front falling asleep at the wheel.

Or consider the market madness proxy of gridlock and traffic jams, when movement (liquidity) evaporates.

Think back to the crazy ride that was the Covid crash. How would a cheapo trading robot cope?

Investing under the AI influence

Naturally, just because we don’t need self-driving portfolios, that doesn’t mean we won’t get them.

Innovation in financial services is driven by what sells, not what is good for us.

Only this week CNBC reported that:

Larger brokerages are moving in [this] direction. Robinhood in May introduced tools allowing third-party AI agents to connect with customer accounts. Brokerage firm Public, meanwhile, is developing AI agents in-house that can automate investing workflows within its platform.

“What this era of agentic is doing … it goes away from just being able to research something by yourself and then make up your own ideas and then trade the way you’ve traded where it’s now becoming automated and where AI agents can actually execute investment strategies on your behalf,” said Leif Abraham, Public’s co-founder and co-CEO.

The article paints a breathless future of AI agents turning private investors into DIY hedge fund managers. There’s nary a mention of fees and costs, though – although to be fair the piece does conclude with caveats about the risks of letting Clippy 2026 trade stocks.

That latter sentiment is echoed by a blog from the CFA Institute, which reviewed the *cough* mixed results from research into trading via LLMs.

It concluded:

The evidence for multi-agent and LLM-augmented portfolio construction is promising. The failure literature does not invalidate this, but it does suggest that the gap between a research prototype and a production-grade institutional system is larger than the paper acknowledges.

The human overseer […] cannot yet take a purely passive safeguard role.

But who am I kidding? The reality is tens of thousands of retail investors are already experimenting with AI trading, whether through financial service scaffolding such as  RobinHood or via the – hopefully judicious – interrogation of their nearest chatbot.

Top gear

As far as I can tell, this era’s Warren Buffett – part-man, part-machine, all alpha – has yet to reveal himself.

But if enough people do it then we’ll probably get an AI-enabled self-made trader billionaire someday, just thanks to the law of averages.

Famously, a few quant shops like Renaissance have smashed the market for years by force feeding gargantuan amounts of data into supercomputers. However that’s very different from Joe Day Trader setting a few rules in an AI-enabled investing account.

Yet even a few traditional stock picking active managers do beat the market, at least for a while, and no doubt so will some AI agents.

The odds have always been against it however – active investing is a zero-sum game – and AI cannot change that.

Have a great weekend.

From Monevator

The Slow & Steady Passive Portfolio update: Q2 2026 – Monevator

A deep dive into FX hedging – Monevator [Moguls]

From the archive-ator: Compound interest can save our pensions – Monevator

News

Chancellor announces his first Budget will be on 28 October [Sigh] – BBC

Bank of England holds rates at 3.75% as inflation fears mount – Guardian

One million more Britons set to pay income tax – Which

Ban foreign stocks from Isa wrapper, says top pensions boss – City AM

BP puts its North Sea business up for sale – This Is Money

London only English region to see population fall – BBC

It now takes 216 days to move home – This Is Money

UK millionaires fall to 442,000, lowest since 2008 – Business Matters

House prices up just 0.1% in July, says Nationwide – Mortgage Strategy

Jim Leaviss, Bond Vigilante, 1971-2026 – FT

We’ve moved from income world to wealth world [Paywall] – FT

Kospi’s boom-bust-boom mini-special

South Korean bubble bursts, erasing $2.2trillion in value – Mugglehead

Minister apologises as leveraged ETF investors suffer deep losses… – CNBC

…while AI fund Situational Awareness dumps holdings to Citadel… – CNBC

…and then the Kospi closed up a record 18% in a day on Friday – Korea Times

It’s all because the AI boom creates a lot of uncertainty – Noahpinion

Products and services

^{Disclosure: Links to platforms may be affiliate links, where we may earn a commission. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.}

Is your annual travel insurance still worth it? – Which

The fake Spotify emails that put you at risk of fraud – Guardian

Paragon Bank cuts five-year buy-to-let mortgage rates – Mortgage Strategy

Get £100 to £3,000 cashback when you open an Interactive Investor SIPP. Minimum £20,000 deposit. Terms and fees apply, affiliate link – Interactive Investor

Does Saga’s best buy interest rate for over-50s live up to the hype? – Which

A sea view could cost you up to £220,000 more – This Is Money

Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley

European wildfires and travel insurance – Which

Save up to 47% on your home by doing the postcode switch – What Mortgage

Charming homes for sale with family gardens, in pictures – Guardian

Comment and opinion

Scotland’s 48p tax rate may be losing money – Tax Policy Associates

Britain has tried War Bonds before, and savers paid the price – CNBC

How to think about the ‘full price’ – Best Interest

What 125 years of data tells us about investing – Behind the Balance Sheet

The wickedness of wealth management – The Net Worthwhile Weekly

Market indicators – Humble Dollar

Now show Japan – A Wealth of Common Sense

The problem with optionality – Of Dollars and Data

Retirement income security and more [Podcast] – Morningstar

Naughty corner: Active antics

IPOs have been a losing bet since 2019 – Apollo

SpaceX, PE, VC, and quacking ducks – The Falling Knife

Investment wisdom culled from old clip outs – Cove Street Capital

Cashing in on Japan’s cross-shareholdings – Verdad

Copart: from scrap to scale – Fiscal.AI

Picking stocks in a bloodbath – A Wealth of Common Sense

When size falls short – Novel Investor

Kindle book bargains

What They Don’t Teach You About Money by Claer Barrett – £0.99 on Kindle

Taxtopia by The Rebel Accountant – £0.99 on Kindle

The Savvy Spender by Megan Mickelwright – £0.99 on Kindle

The World for Sale by Javier Blas and Jack Farchy – £0.99 on Kindle

Or read one of the all-time great investing classics – Monevator shop

Environmental factors

New solar panels in Great Britain at 15-year high as fuel costs soar – Guardian

French climate lawsuit a window into next global legal fight – The Conversation

AI, authors, and writing mini-special

How AI books sneak their way into stores – New York Times

ChatGPT is blocking requests to copy an author’s style – Ars Technica

AI has made the ‘dead Internet’ theory come true – Futurism

Robot overlord roundup

Anthropic’s soaring AI revenues compared to some famous other brands – Axios

What will more intelligence actually do for us? – Noahpinion

How to lose AI in ten days – Spyglass

Not at the dinner table

The US economy is just a VIP list now – Your Brain on Money

In defence of gerontocracy – The Argument

The masculinity scam – The Atlantic [h/t Abnormal Returns]

Donald Trump keeps losing the Iran War – Drezner’s World

The Putinization of the American military – Paul Krugman

Off our beat

Could a single pathogen bring down civilisation? – Next Big Idea Club

How a near-death experience led to finding sea dragons in Wales – Guardian

Sell the company for $400m? He’s giving it away instead – N.Y.T.

Why America’s super rich have embraced British football clubs – CNBC

The light narrows – Aeon

Poor countries are aging fast but can’t keep up with the cost – W.S.J.

Scientists rethink sun exposure risks and benefits – Scientific American

An uncomplicated man [On The Odyssey movie] – London Review of Books

How to exist – Raptitude

Who dares ridicule Gianni Infantino? – Guardian

And finally…

“Stop thinking about what your money can buy. Start thinking about what your money can earn. And then think about what the money it earns can earn.”
– J.L. Collins, The Simple Path to Wealth

Note this article includes affiliate links, such as from Amazon and Interactive Investor.

The post Weekend reading: Buckle up for self-driving portfolios appeared first on Monevator.

All investors with holdings in foreign assets are doing macro investing – but very few have decided which macro trade they are actually running. So argues long-time Monevator reader and commenter Ho Simpson in this special guest Moguls post on FX hedging for retail investors.

The post A deep dive into FX hedging [Members] appeared first on Monevator.

I forgot to update the portfolio! I’ve been leaning so hard into my passive investing persona that I fell asleep at my spreadsheet and didn’t twig when the 1 July Q2 deadline sailed by.

The markets are a distant background rumble to me right now. Oil price up, oil price down. Another day, another prophecy of AI doom.

It’s not that I don’t care. It’s just that the question being asked, it cannot be answered.

The question? Always being some variant of, “What’s the next big thing?”

Answers on a postcard

Here’s the story of the year so far, told in straight lines:

Data from justETF. The chosen ETFs are proxies for the Slow & Steady portfolio’s holdings, plus gold and commodities.

Gold is the loser year-to-date, commodities the winner.

Meanwhile, previously unloved emerging markets and property are the cream of the equities crop.

Who had that marked on their card for 2026?

Here’s the story again, told in wobbly lines of uncertainty:

Gold (red line) hit a new high in early March before dropping 23%.

Buying opportunity or time to get out?

Commodities (grey line) looks like it’s commanded by the Grand Old Duke of York. The changeable duffer perpetually marching his hard assets up and down hills. You want some?

Emerging markets (blue line) have now beaten the MSCI World over the last three years. That’s a comeback worthy of the WWE, given how the new challengers had been roundly pummelled by the developed market champs for 15 years following the Credit Crunch.

Me? I’m happy to own it all and let the chips fall where they may.

Portfolio-o-vision

Here’s the portfolio holdings and long-term annualised returns since kick-off in 2011.

The Slow & Steady is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,360 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults. Last quarter’s instalment can be found here.

All returns in this post are nominal GBP total returns unless otherwise stated. Subtract about 3% from the portfolio’s annualised performance figure to estimate the real return after inflation.

The full growth picture looks like this:

In real-terms, the portfolio is still 2.6% below its December 2021 peak. Another quarter or two of progress could push it to higher ground once more.

It has to be said though that we’re coming up for five years underwater since inflation spiralled. By contrast, recovery from the Global Financial Crisis took less than three years for a 60/40-type portfolio.

Unfortunately, trad 60/40 portfolios have a history of suffering like this during severe bouts of inflation. Consider adding some additional protection to yours.

New transactions

Every quarter we plough another £1,360 into the market’s black earth and hope we’ll harvest plenty of corn later. Our stake is split between our seven funds, according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.18%

Fund identifier: GB00B84DY642

New purchase: £108.80

Buy 40.8946 units @ £2.66

Global property

iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%

Fund identifier: GB00B5BFJG71

New purchase: £68

Buy 25.5016 units @ £2.67

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £503.20

Buy 0.5631 units @ £893.61

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £68

Buy 0.18 units @ £377.84

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £68

Buy 0.1189 units @ £572

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £285.60

Buy 2.1189 units @ £134.79

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £258.40 + £118.92 dividend

Buy 343.9562 units @ £1.097

New investment contribution = £1,360

Trading cost = £0

Average portfolio OCF = 0.17%

User manual

Take a look at our broker comparison table for your best investment account options.

Or learn more about choosing the cheapest stocks and shares ISA for your situation.

You might also enjoy a refresher on why we think most people are best choosing passive vs active investing.

Take it steady,

The Accumulator

The post The Slow and Steady passive portfolio update: Q2 2026 appeared first on Monevator.

What caught my eye this week.

The post Weekend reading: Roll with it appeared first on Monevator.

I often wax lyrical about bargain hunting among investment trusts trading at a discount – that is, trusts whose shares trade for less than Net Asset Value (NAV).

Think buying £1 coins for 90p.

We’ve also written reams over the years on investment trusts as a potential source of steady income.

Former Monevator contributor The Greybeard had a lot to say about it – although he grew frustrated by the relentless pushback from hardcore passivistas.

More recently I’ve launched an investment trust income model portfolio for Moguls members.

I won’t rehash the whole active/passive debate with respect to income today. If you’re a passive investor but you have an open mind, I’ve written a Mavens post on using ETFs to do much the same.

But if you’re a global equities tracker and drawdown diehard, probably best to wait for the next article!

Give peace a chance

Just briefly for those on the fence – or simply confused – I’m not saying the average person would do better stock picking investment trusts to grow their capital.

I’m not even saying they would do better – certainly not that they’d see higher total returns – living off the natural yield from income investment trusts in retirement.

Rather, I see advantages to an actively managed income approach (less stress and income volatility, no planned capital depletion, lower infirmity risk) that make it worth considering. To the extent that I’ll probably go down this route myself when I do throw my portfolio into decumulation mode.

Okay, enough said. Let’s now consider where my hobby of investment trust dumpster diving could dovetail with an investor’s income goals.

Discounts and income from investment trusts

Firstly, a quick reminder about how discounts work:

It’s often the case that the share price of an investment trust trades at less than its NAV per share.

Remember, the NAV is – in theory – the best estimate of what the trust owns, minus any debts.

Clearly, buying shares for less than they are worth may present an opportunity. Price is what you pay but value is what you get, to quote Warren Buffett.

For instance, the fictitious Monevator Investments plc may trade for £1.20 a share, despite its NAV per share being £1.60.

In this case, a buyer is getting £1.60 of underlying assets for just £1.20.

Bargain! The share is trading at a discount to NAV:

The discount is (£1.60-£1.20)/£1.60 = 25%

In principle, you get more for your money when you invest at a discount. Hopefully in time the discount will narrow, pulling the share price back up towards the NAV and amplifying your returns.

So much for – fingers crossed – capital gains from discounts.

But what about income?

Yielding to the discount

The crucial thing to grasp is that any cash paid out by a trust is unaffected by the discount. ¹

Let’s say Monevator Investments has a NAV of £1.60 per share, as above, and that it pays an annual 8p per share dividend.

If you were to calculate the yield based off the NAV, this represents a yield of 5%:

• Dividend/NAV = 8/160 = 5%

However this trust is trading at a 25% discount. We can buy the shares for £1.20.

Yet the dividend payout is still 8p per share. So for someone buying the shares today in the market, the yield they’ll get on their investment is:

• 8/120 = 6.7%

All things being equal, this higher yield is locked in. Provided the cash payout remains at least 8p, then this investor’s annual yield on cost of their Monevator Investments shareholding will be 6.7% – regardless of whether the share price rises or falls, or whether the discount closes.

Of course, dividends from decent income investment trusts tend to rise over time, as do their NAVs. Though sometimes dividends can be cut, too.

That’s a discussion for another day. The point is the chunky discount here has boosted the purchasers’ starting income yield, compared to if they were buying the shares at NAV – let alone a premium.

Note that in both cases – whether the shares are priced at NAV or at a 25% discount – the underlying assets (represented by the NAV) generate enough income for the trust to pay an 8p dividend per share.

When you buy for only £1.20 due to the 25% discount to NAV, you are getting the same 8p at a cheaper price. But because each share costs only £1.20 instead of £1.60, the same lump sum investment would buy more shares – and therefore more of those 8p dividends.

For example:

• No discount (£1.60): £10,000 buys 6,250 shares × 8p = £500 income
• 25% discount (£1.20): £10,000 buys 8,333 shares × 8p = £667 income

Happy days.

A striking hypothetical example of higher income returns

Generally investment trusts trading on discounts don’t draw attention to the fact. Their annual reports will wave their hands about what they’re doing to close the gap, and direct your attention to graphs of rising NAVs over time, or photos of employees from portfolio companies curing cancer or drilling for oil.

So the following illustration in a recent presentation from an investment trust I hold – Canadian General Investments Trust (LON:CGI) stood out:

Source: Canadian General Investments

For a cluster of reasons we don’t need to get into, Canadian General’s whopping 40% discount to NAV is pretty much out of its control. ²

While CGI has sometimes traded at NAV – usually during commodity booms – a big discount is typical.

Hence management has a reason to turn this bug into a feature with this table. And what it’s illustrating is exactly what I’ve explained above.

The table simplistically assumes a 10% annual return – high but less than CGI’s long-term track record – split between 7% capital gains and a 3% dividend. All the income is presumed to be paid out.

If you were to buy $100,000 of Canadian General as a hypothetical open-ended / mutual fund – that is, with no discount – then for your hundred grand you’d get $3,000 paid out as a dividend income.

• That is, 3% of $100,000 = $3,000

However at a 40% discount to NAV, your $100,000 is buying you $166,667 of Canadian General’s assets:

• 3% of $166,667 = $5,000

Your income is higher from day one, just as we’ve already seen in my example above.

From there, the company compounds NAV at 7% and holds the 3% payout (of NAV) steady. The discount stays at 40%:

By year 20:

• 3% of $602,775 = $18,083

We can also work out the ongoing yield on cost of your initial $100,000 investment:

• $18,083/100,000 = 18% on your original purchase price.

A very nice income if you can get it.

Discounts are a bonus for income investors

There’s plenty of slips betwixt cup and lip and all that. Dividends can be cut. Canada is an odd place to put a lot of your money. Canadian General’s exposure to US assets muddies the picture.

But that’s all for another discussion. Here I’m just focused on the mechanics of discounts and income.

You see, readers often ask me why I should expect a discount to close.

The simplest answer is that most usually do, eventually, at least for a time and in the absence of structural impediments such as those at Canadian General.

But the point here is that if you’re an income investor after natural yield, then it doesn’t matter. You can simply aim to buy and lock-in a high starting yield and then let the income roll in. (Touchwood!)

Buy in the sales

Unfortunately, the top flight of dedicated UK equity income trusts rarely if ever trade for anywhere near 25% discounts. Their income underpinnings, steadier investments, and decent long-term records tend to curb such extreme dislocations.

However they can reach discounts of 10% or so when out of favour, or in wider times of distress.

Still, the same income-enhancing argument holds for more specialist trusts, too, where we have seen much chunkier discounts.

For years even income seekers bought infrastructure trusts on a premium, for reasons I never understood. However as I covered on Moguls, in early 2025 they were trading on 25-30% discounts. That meant income yields of 8% or more for new money buying the likes of HICL (LON: HICL).

Such super-wide discounts have now closed, though you can still bag HICL at a 15% discount. (Disclosure: I hold.)

Property trusts and many REITs are still on big discounts to NAV, for what that’s worth.

And there remain a few – troubled – renewable trusts on big discounts touting very high yields for the brave.

Despite misgivings, I’ve dipped a little toe in with Greencoat UK Wind (LON: UKW), currently on a 22% discount and yielding 10%.

Looking to the long-term

Infrastructure, property, and even renewable investment trusts have all traded at premiums to NAV in the past. I’m not saying they will again (especially not renewables). But as we’ve seen, for braver income seekers that might not matter, just so long as the dividends keep flowing.

Still, I’m more confident about the very long-term with Ye Olde UK equity income trusts – those of the much-vaunted (and debated) Dividend Hero variety.

Anything else is a bit of a special situation when it comes to long-term income.

And yes, to belabour the point: this is active investing. Nobody needs to pipe up that a global tracker will outperform in the long run or that discounts might be flagging bigger risks or mention Neil Woodford.

I get it and I mostly agree. So should anyone who goes down this path. Do your own research!

But personally, I’m starting to think I might smooth the transition from accumulation to decumulation by opportunistically buying – and then looking to hold – these income trusts as I head towards drawdown.

That would probably be much less stressful than switching overnight from an accumulation to decumulation portfolio – albeit likely at some cost to my returns.

Indeed as I get closer to the end than the beginning, I have started making tentative stabs at building up a natural yield again. Ironically this takes me back – philosophically – to where I started as an investor.

True, I’m still finding it hard not to trade when the discounts close, or some other shiny object pops up…

But as I transition at least a chunk of my portfolio towards income, maybe that illustration from Canadian General will help me stay my hand.

1. As a rule. A board might raise or cut dividends for reasons related to a persistent discount, but those are second-order effects.
2. Think: Canadian taxes limiting buybacks, huge insider ownership, small free float.

The post How investment trust discounts can boost your long-term income appeared first on Monevator.

Much as we love investing at Monevator, even we believe saving for an emergency fund comes first. Building a cash stash to bubble wrap you against life’s bad breaks is probably the most important financial move you can make – after clearing bad debt, of course.

Stuff happens, as they say in polite company, and that’s the starting point for why you need an emergency fund.

Why you must have an emergency fund

When you’ve got a job and good health and your income exceeds your outgoings, setting cash aside might not even occur to you.

But without savings, you’re walking a tightrope. The smallest shove can send you into the abyss.

You might not be hit by one of the life-changing shocks that kicks people on to the streets. But there are plenty of smaller things that can go wrong:

• Your income may drop unexpectedly, and no longer cover your essential expenses.
  

• A member of your family could get ill, and you want to hurry forward treatment.
  

• Something might blow up – from the archetypal boiler to a car engine.
  

• The roof could literally fall in.
  

• A far-flung relative could get married or get cancer. Either way you might want to fly out to be with them.
  

• Your investment platform could go bust, leaving you in need some other source of cash to live on while the administrators clean up the mess.
  

• Your bank might even freeze your current account for some reason.

A sudden divorce, job loss, illness, or a lurch into debt can push any of us into a downward spiral.  But having a good emergency fund on standby helps ensure that you never enter that parallel universe. 

At the very least, you’ll feel better just knowing your rainy day savings are there. 

How much emergency fund should I have?

Save at least three to six months’ income.

Having this amount on hand is a good starting point. It’s not a magic number but a balance of considerations.

Obviously, there’s no limit on how much you could save for a rainy day. You could argue that a plumper cash cushion is best. Indeed, why not save to cover one year or even two?

Your personal situation matters here.

If you’re a single self-employed pigeon fancier, you might want to retain a few months’ more expenses than a couple with full-time roles at long-established companies.

By all means tailor your fund to match your circumstances. But be realistic about how quickly you can save your disaster-dodging dollop.

Set a stratospheric target, and you’ll be directing all of your spare cash into the Emergency Fund, rather than somewhere that does you more good long-term. (Think paying off a mortgage, or investing in higher growth assets.)

Cut your cloth

It’s better to think about your emergency fund in terms of your monthly after-tax income rather than an arbitrary and set amount of cash. 

A £10,000 emergency fund is obviously superior to having £1,000 in emergency savings, but it’s your monthly burn rate that counts. If the bare essentials cost your family £5,000 a month then even a £10,000 emergency fund won’t last long. 

So first, think about how much money you’d need to pay the bills for a month if you cut back on all the non-essentials you can do without in a crisis. 

A budget planner can really help with this step. 

Now imagine you’re out of work for several months because of unemployment during a deep recession, or due to an unfortunate illness. 

Six months’ income (after tax) should get you through that kind of scrape unless you’re really unlucky. 

In theory, six months’ worth of net income in your emergency fund will last longer than six months on an emergency budget. That’s because your income normally pays for life’s little luxuries, too. 

But that extra wiggle room may be a lifesaver if things go from bad to worse.

Say, for example, your car conks out just before a big job interview. With enough in your emergency fund, you’ll be able to afford an immediate replacement in the nick of time.

If money is very tight, then save three months’ worth of essential expenses (as opposed to net income). That is the bare minimum you should aim to hold in your emergency fund. 

Where to keep your emergency fund (UK)

Keep your savings in instant access cash

Do not be tempted to invest your emergency fund, seeking a better return. 

There’s absolutely no point running the risk that your emergency savings are halved in value – just when you need them most – by a stock market slump.  

Remember that stock market falls are correlated with recessions. 

Covering a period of unemployment is a prime use-case for an emergency fund. That’s more likely to happen when the economy as a whole is in recession – also usually the worst time to be in equities. 

Limit your ambitions for your emergency money to earning the best interest rate you can from an easily accessible accounts. 

The type of emergency matters

Broadly speaking, there are three kinds of emergency you could face:

• You have an emergency – Something goes wrong with your house, health, or job.
• Your bank has an emergency – Software or other technical systems at your bank might fail, preventing you from accessing your money. Worst-case scenario they might go bust!
• Your relationship with the bank breaks – If you’re de-banked for some reason then you could find your accounts locked with no explanation for weeks or months – and ultimately even closed.

In the first scenario, it doesn’t matter much where your savings are located. As long as you’ve gone for safe and accessible banks or building societies – that is, you’ve not locked your money away somehow – then you should have no problem getting your cash when you need it.

In the other two scenarios however, the whereabouts of your money is everything.

Location, location, location

If you put your emergency fund into an unusually high-paying savings account with a slightly sketchy niche provider, you’ll obviously regret it if they go bust – but also if you’re ‘only’ unable to access your money for a time.

This isn’t a far-fetched possibility – there’s a decent chance that your own emergency and trouble at a niche bank could coincide. Think Great Financial Crisis 2.0, where a recession sees you lose your job even as it threatens smaller lenders. (Read up on the Icesave drama for a taste from the last go around…)

One practical response is to stash your emergency cash with two providers with different Financial Services Compensation Scheme (FSCS) licences.

This way you’re covered for losses of up to £120,000 per account. And even if one provider goes bust, you can access your money at the other whilst you wait for your compensation to come through.

From a debanking perspective, though, there’s a further wrinkle to consider.

Lloyds Bank, Halifax, and Scottish Widows do have separate FSCS licences, for instance – but they are all part of Lloyds Banking Group.

Put your money with any two of these institutions and you’ll be covered from an FSCS perspective, thanks to the individual licences. But if Lloyds Banking Group decides to de-bank you, then it might conceivably lock up all your money – your current accounts, savings accounts, and investment accounts – at the same time.

A belt-and-braces way to avoid this? Stash your emergency fund cash across multiple instant access accounts – split across different FSCS licences and not under the same corporate umbrella.

Principles in practice

I’ve distributed my own emergency money across three seperate accounts:

1. An instant access savings account attached to my main current account. This is accessible within seconds, with no punitive limits on withdrawals. It holds one month’s spending money.
2. Around three months’ spending money in Premium Bonds, backed by HM Treasury rather than the FSCS. The income is tax-free and the funds are accessible within just a few days
3. Two to three months more spending money in a decent building society account with a local branch. This is totally separate from the banks I have current accounts or credit cards with.

It’s up to you how complex you want to make things. But if anything nasty ever hits the fan, you could be grateful you took such precautions in advance.

Lead us not in temptation

Ideally, your rainy day savings should be kept entirely separate from the money you’re putting towards a car, a holiday, or your dream of owning a parrot.

Of course if you’re a disciplined sort, you could lump it all together and vow that the first £10,000, say, is untouchable. 

But very few of us are saints. So unless you’re expecting to get your halo in the post, keep your emergency fund separate from your other savings. 

When to use your emergency fund

Spotted a delightful new fridge freezer that you simply must have when out shopping?

Come across a bargain holiday?

Those are not emergencies.

Many people – especially younger folk – are unused to having cash savings. Hence as soon as they’ve saved any money they’re tempted to spend it. It’s even harder if your partner has a different mindset to you.

So decide what is — or what isn’t — an emergency at the outset.

You might even want to write down your definition. At least that could avoid the arguments later. Then start saving for anything else after you’ve built up your fund.

We offered some suggestions for valid emergencies near the top of this article.

Review your emergency fund regularly

The money you saved when you first graduated from college won’t be sufficient when you’ve got two kids, a spouse, and a house. 

Make sure you review your fund at least annually. Expenses, liabilities, and inflation all creep up at least as fast as salaries rise. Top-up as appropriate.

It goes without saying that should pay back any cash you withdraw ASAP, once the emergency has been dealt with.

Think about insurance for some emergencies 

Don’t mistake emergency savings for financial invincibility.

Big hits to your property, income, or health can dwarf your emergency fund.

The best protection is a mix of cash buffer zone for smaller mishaps, plus insurance that covers you and your family from catastrophic loss to life, limb, and property.

Check out our useful articles on making the best use of insurance. 

Bear in mind that insurance companies can take a while to pay out, or even fail to do so. Yet another instance in which an emergency fund can be a lifesaver. 

Emergency fund UK: don’t use debt!

A lifestyle that habitually requires you to dip in and out of debt is the type most likely to get derailed by a cash call.

If you bought your kitchen on credit, there’s a strong chance that you’ll try to fend off any unexpected outgoings with your credit card or a personal loan.

But what if your particular emergency is a cut in your income? Increasing debt payments in the face of a falling income is about the worst thing you can do. Short of selling a kidney.

Avoid this at all costs, by saving cash in advance and shunning debt. Even if your salary is secure, increasing debt payments will leave you more vulnerable when fate deals you a blow.

Companies go bust due to cashflow struggles. Debt is often the multi-tentacled monster that drags them under. People are the same.

Get out of debt, and then start saving into your emergency fund.

Emergency money gives you confidence

The final reason you should build up your emergency cash reserves is because it will give you the security to (separately!) invest in the stock market – and ultimately enable you to meet unexpected expenses without liquidating your equities when they’re down. 

With a sufficiently big emergency fund in place, you’ll find it easier to develop the lofty disdain necessary for long-term investing.

Marie Antoinette offering cake from within her palace walls when the rioters are at the gates should be your role model when investing. Not Corporal Jones in the BBC classic Dad’s Army, panicking at the first hint of trouble. 

Cash on hand gives you that security. With an emergency fund saved to cover your unforeseen expenses, you needn’t worry when the stock market wobbles. 

Start with an emergency fund

Need a last nudge to build up an emergency fund? Here you go: it gives you the bug to save and invest much more.

That’s certainly what happened to The Investor.

And I’m confident that if you’re a saving virgin, then you too will get a buzz from seeing your net worth steadily going up instead of down.

Before you know it you’ll be wondering how to start investing!

The post Emergency fund (UK) – how much to save, where to keep it, and when to use it appeared first on Monevator.

What caught my eye this week.

The post Weekend reading: Will the last company to leave the LSE please turn off the lights? appeared first on Monevator.

Look out of your nearest window, and there’s a good chance you’ll see several expensive tonnes of metal, glass, and plastic sitting idle.

In fact, I am doing that right now.

It wasn’t always this way for me. In the early phases of my investing journey, I managed to avoid the expense and responsibility of owning my own car.

But I could only hold out so long. And between work trips and the need to transport kids quickly and safely, the debate now isn’t whether we need a car – it’s whether we need a second.

Unless you live in a big city with a spiderweb of public transport routes, car ownership can feel mandatory.

But I’m employing every strategy I can think of to avoid ponying up for an extra vehicle.

And with all the app-based doorstep deliveries and on-demand transport options around now, that’s much easier than in the days of the Littlewoods catalogue and the milkman.

A car costs more than the metal

Cars are deeply personal. One person will swear by their 17-year-old Nissan, while another will insist it’s irresponsible to drive something without a top Euro NCAP safety rating.

So to figure out the cost of car ownership, I’ll have to make some broad assumptions.

This won’t match every Monevator reader’s particular needs – or their adeptness with an oil can and socket set. 

But we must start somewhere, so let’s start with the key spending categories:

• Depreciation – The stealthiest cost of all. If you buy a car for £40,000 and sell it two years later for £28,000, you’ve spent £500 per month through depreciation. With leases, the depreciation is baked into the monthly fee
• Opportunity / financing cost – If you put £20,000 into a car in preference to filling your S&S ISA, you’re also missing out on investment growth. Borrow £20,000 to pay for it and you’ll be paying interest on the finance deal
• Running costs – MOTs, servicing, and fresh tyres. (Here’s your reminder to check your tread depth if you haven’t recently!)
• Tax – Vehicle excise duty depends hugely on the age and type of car. Pay-per-mile charges are on the way, too.
• Insurance – Particularly costly if you’re young.
• Fuel – Whether you pump it or plug it, the price of powering your motor adds up.

What’s the price of a Polo, anyway?

Let’s introduce two hypothetical investors. Both want to own a Volkswagen Polo. But they have very different driving habits and financial tolerances.

So how much financial damage can a modest German hatchback actually inflict?

Alice and the new car premium 

Alice has a long commute – 10,000 miles a year – and she can’t afford to be late for work, so she values the reliability of a new car and a warranty.

She decides to buy a brand-new Polo for £20,000 outright.

• Depreciation: £3,000 (new cars shed value like a wet dog sheds water)
• Opportunity / financing cost: £20,000 at 5% is £1,000 per year
• Fuel: £1,500
• Running costs (including tax and insurance): £800
• Alice’s total annual cost: £6,300

Alice’s total commitment to her car is £121 a week. Every week. All for the privilege of driving 10,000 miles a year.

Note that opportunity cost reflects the investment returns you forgo on the money tied up in the car while you own it. Some of that capital can be recovered when you sell.

Gary and his sensible secondhander 

Gary can get the bus to work if necessary, so he’s less worried about a new car warranty. Hence he buys a three-year-old Polo for £10,000.

Gary mostly uses it for errands and weekend trips, and clocks just 7,000 miles a year.

• Depreciation: £1,200
• Opportunity / financing cost: £10,000 at 5% is £500 per year
• Fuel: £1,050
• Running costs (with tax and insurance): £1,000 (older cars need a bit more TLC)
• Gary’s total annual cost: £3,750

Gary is paying £72 a week. Vastly cheaper than Alice’s shiny new motor.

How about skipping the car altogether?

We can do better!

Jess the car avoider

Jess took a close look at the purchases made by her friends Alice and Gary, and she decided she wants to forgo owning a car entirely.

She also realised she doesn’t want to spend a chunky chunk of her day chugging through traffic jams. Getting a job within walking distance of where she lives solved that problem.

Jess earns £25,000 per year. That gives her £21,521 after tax.

And when Alice points out there’s a vacancy paying a much higher £35,000 at her own workplace, Jess runs through the numbers:

Jess would effectively only earn £900 per year more with the new job – albeit she’d also be treated to the joys of being stuck in traffic twice a day, thanks to its commute.

Now let’s acknowledge that Jess could find a cheaper car, just as Gary did. 

But equally, many of the best-selling cars in the UK are more expensive than a Polo!

So clearly there’s a lot of people out there who either don’t do these sums, or who think it’s worth paying a premium for that new car depreciation smell.

Car ownership costs compound

Inspired by Jess and her savvy ways, Alice decides to do better.

Somehow Alice is able to ditch the car without losing her income. (Perhaps she found a different job, or moved to another city. Or she convinced her employer that working from home is trendy again…)

Alice is now spending £6,300 less per year (£525 per month) without a car. The money that previously went on motoring she can now plough into an investment ISA. Over a period of 20 years with a 5% return, she’d end up with £213,915.

Nearly a quarter-of-a-million quid, which could easily be the difference between retiring early or having to continue to slog away at the 9-to-5 for a few more years.

There are downsides

Not everyone can do without a car. You might have medical reasons for needing one, or children that have to get to a distant school. There are myriad other scenarios.

But often car ownership is more of a choice. 

Our family already has one car. Our debate is whether we can manage without a second.

And I’ve found there are lots of options these days that lessen the need to have two Frugalist household vehicles doing the rounds.

Instead of driving to the supermarket, I can get an annual subscription for free grocery deliveries. Most supermarkets offer passes for around £40 per year. Adding on Amazon Prime (including Deliveroo) for £95 per year gives access to still more delivery options.

I could budget for an emergency £20 taxi ride every month. Between the local cab firms and Uber, I’ve found it’s pretty easy to find a ride.

A taxi won’t work for a week-long jaunt to the countryside though. So I could also budget to hire a car for one week a year at £200. There are a couple of traditional car hire places where I live. Turo and Enterprise Car Club are other options, depending on your needs and location.

Added up, these alternatives still only cost £570.

The point isn’t that all of the above are essential if you don’t have a car.

It’s that you can afford to splash out on some apparently extravagant services, because compared to spending several thousand pounds per year on a car, they no longer look so extravagant.

Your mileage may vary

For some people driving is a hobby first, and a mode of transport second. If driving and maintaining your car is something you love, then clearly money won’t come into it.

Or perhaps you have access to an excellent company car scheme. With due consideration of the Benefit In Kind brackets, you can enjoy some very cheap motoring.

But most of us are definitely forking out a pretty penny for every mile travelled and every month of ownership, even if we don’t have to feed coins into a dashboard to stay on the road. So it’s worth working out how much we’re spending and why.

How much would your life change if you didn’t have a car? Would your job become impossible? Could you find another employer closer to home?

Which parts of your life rely on having a vehicle, versus where it’s just nice to have? Could some of the challenges be offset with a bit of targeted spending elsewhere?

If you must own a car (or two)

Obviously staying away from the new car dealerships is the best way to reduce the hit to your future net worth.

Modern cars are so well made that many buyers can realistically keep even a used one on the road for a decade.

Pay cash if you can to avoid financing charges.

Finally, buy the smallest car that’s practical for your situation. It’ll usually be cheaper and it will reduce all the ongoing costs, too.

Buy a fancy pair of shoes if you want to show off. They’ll cost you £20,000 less in the long run.

Every little helps

I was talking to a neighbour recently who bemoaned their frustration at having to drive to the big retail park every time they run out of milk.

Somehow they were completely unaware of a small supermarket that’s within walking distance.

I suppose if I’d been driving myself – rather than walking back from said supermarket – then we’d never have even stopped to chat.

We’re all different. Personally though, I feel a bit richer by reducing my car use.

Not just financially, but physically and mentally, too.

Car ownership is still treated as almost a rite of passage. But if you can swallow your ego and buy a smaller used car, walk around more, and actively try to design your lifestyle around the newer alternatives such as supermarket deliveries, then you might just hit that more important milestone – early retirement – many years sooner than you expected.

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