From the last few years of monitoring, I can see I've been
saving around 50% of my income, most of which is now added to the pot on a
monthly basis.
At current valuations, the pot has grown to the point where
my monthly additions increase the pot value by only a fraction of a percent
each time. This is well within the
expected volatility range of the combined investment pot, even in the most
stable of market conditions.
So does it make any sense to continue to add to the pot, or
should I put a stop to the monthly contributions and just accept the market
return without adding fresh money ?
Now, I'm not about to start wild spending on things I don't
need, so you might well ask what's the advantage here, since there's a monthly
surplus anyway and therefore doesn't it count as savings if it's not being spent
?
However, the rules have now changed with the introduction of
the new dividend tax, so it might make more sense to reduce the total amount taken
from the company, simply by taking an axe to the dividend and halving my income.
This will have the effect of reducing my personal tax bill
since the annual dividend component will be much lower, and it will also increase
the length of time I could continue to withdraw funds from the company - things
have been very slack over the summer months, so the worst-case scenario is that
the company could have zero revenues going forward, although I don't really
expect this will be the case.
So in effect, reducing my income is still a form of personal
savings, I'd just be postponing the withdrawals.
Maybe it's worth an experiment - I can't really see too much
of a downside here, because I could always reinstate the full dividend at any
time to get me back to my current income level, albeit with an increased tax liability. This might be necessary if the markets should
really tank, a la 2008, and it made sense to pile in again ...
Your strategy seems sound
ReplyDeleteWill the money you leave in the business continue to grow? If not is it becoming less valuable?
ReplyDeleteNo, I wouldn't have said it would grow in real terms at the interest rate I can get in a business savings account, but I don't necessarily share the FI community's typical view that holding cash for longer periods is a bad thing.
ReplyDeleteReturn of capital is as important to me as return on capital...