February 2025
WELCOME
Welcome to The Crazy Plan where our mission is to show that anyone can create unimaginable wealth.
Each month, we publish a blog providing readers with the financial education needed to set out on their own journey to a bright financial future. We do this by following two plans, our Monthly Plan saves £50 a month for 10 years and our Lumpsum Plan starts with a one-off £10,000. Our aim is to turn each plan into $1 billion in one or two generations.
At first, making $1 billion seems crazy but once you realise it’s a journey then things change. We’ll save our first £50 and from there our wealth will build to $1,000, then $5,000, then $10,000 and then $50,000. One day, if we’re patient, we’ll have $100,000 and then we’ll be looking at $1 million. From there it will be onwards to our $1 billion goal. This journey of small steps is how what seems impossible becomes possible.
You can dig-in to our posts however you like or if you are completely new to investing, you may want to start with “1.0 Liftoff!” and go through them in order which is how we build the education. We hope to provide you with the knowledge needed to set out on your own journey to a bright financial future if you choose. You can also visit the “About” page on our website to learn more about our plan.
All readers must read and agree to our Terms & Conditions, including the Disclaimer, which can be found on the T&C page of our website: https://thecrazyplan.com
ON WITH THE PLAN
Our Lumpsum Plan will be worth $1billion in: 79yrs 1mth
Our Monthly Plan will be worth $1billion in: 88yrs 5mths
Last month we talked about rebalancing a portfolio to bring our investments back to equal weights when they change as share prices move and we decided to do this annually to keep the workload and costs down. The main purpose of rebalancing is to avoid a disaster from having too much money in a single investment. We went through four steps to rebalance a portfolio: valuing each investment and the portfolio using live prices; estimating the trades needed to rebalance; working out the order to execute the trades in so that we invest as much money as possible; and executing the trades.
This month we’re going to start to explore the “Employ a Professional” part of our plan and see what options are available. First we’ll take a quick look at Wealth Management and Financial Advisers before introducing Funds.
WEALTH MANAGEMENT AND FINANCIAL ADVISERS
Wealth Managers and Financial Advisers are professionals who manage the wealth of clients and advise on the best solutions to meet clients’ future financial dreams. They know all the tax rules and products available and sit down with clients to come up with a plan to meet their goals, taking into account their risk tolerance. This plan will detail how much money to save and what to invest in such as Equities or other assets like cash, property and bonds (these are just loans that pay interest and we’ll talk about them in another post). Once the plan is agreed, they will invest the money for the client and will have periodic meetings to discuss performance and whether the plan is on track, revising it if needed. Clients have to do very little and we like the sound of that!
Unfortunately, though, there are a couple of problems and the first is that you normally need to be rich to have a Wealth Manager or Financial Adviser, which means £100,000 to invest or even £250,000 or more. The second problem is cost, as even basic services from a Financial Adviser are not free and might cost too much if you are saving as little as £50pm or £10,000 as we are. At the moment, we’ll not be using these services but as we become wealthier we can re-look at these options and we expect one day to use some of their services.
FUNDS
Right at the beginning in post “1.1 The Deep End” we said “A fund is just a pool of money from lots of different investors. Someone called a Fund Manager then goes off and invests all the money on behalf of the investors.” Part of our plan is to Employ a Professional and so all we need to do is find some good, professional, fund managers and invest in their funds and this really is the core of our plan. We’ll then carry on doing our research, trying to find better fund managers whilst they make the money for us.
Funds really are that simple and there are three types of fund that we’re going to look at and they are Unit Trusts (known as Mutual Funds in the US), Exchange Traded Funds and Investment Trusts. This month we’re going to look at Unit Trusts / Mutual Funds.
UNIT TRUSTS (“UTs”) / MUTUAL FUNDS
We already know an awful lot about UTs as in post 1.1 when we set up The Crazy Fund we said “We put our money into a fund by buying something called a “unit” and the price of a unit is simply the value of the fund divided by all the units the Fund Manager has sold.” Over the last year we’ve watched as the unit price of The Crazy Fund has gone up and down each month as the share prices of the investments it owns move up and down.
A unit trust is a just different type of legal entity to a company and it has a legal structure specifying what it can and can’t do just as a company has. Investors put their money into the trust and the assets of the trust are looked after by a financial institution called a “Custodian” that protects them from theft. Someone called a “Trustee” acts on behalf of the investors and makes sure everything is run properly and so the investors are placing their “trust” in the trustee. The fund manager then invests the assets on behalf of the investors but the assets of the trust are never given to the fund manager, they remain with the custodian. We won’t say much more as it will get very complicated very quickly but there are a few things we should now about UTs.
Open-Ended
When we buy or sell shares in a company, we buy them from, or sell them to, another investor on a stock exchange as we’ve already discussed in previous posts. The company whose shares we buy or sell has nothing to do with the transaction and does not have any more or less money afterwards (ignoring rights-issues and share buy-backs discussed in post “1.7 Some Things Companies Do.”) The money simply goes from one investor to the other.
This is not what happens when an investor buys or sells units in a UT. When an investor buys units, the investor actually puts their money into the fund and receives units. This means the fund has more cash and gets bigger and so the fund manager can go off and invest this cash on behalf of all the investors in the fund. When an investor sells units, the investor receives cash from the fund and so the fund gets smaller and the units are cancelled. If someone sells a large number of units, say £1million worth, there is a problem if the fund only has £250k of cash. In this case the fund manager will have to sell some of the investments in the fund to raise the extra £750k of cash needed to pay the investor. Funds often keep a cash buffer so they don’t have to keep buying and selling the underlying investments in the fund which takes time and incurs costs.
So, as people buy units in a UT, the amount of money in the fund goes up and as they sell units, the amount of money goes down. The is called an “Open-Ended” fund which simply means the amount of money in the fund can vary from day to day, the fund is “open” for investment.
Accumulation / Distribution Units
Let’s say our UT owns lots of stocks listed around the world and receives dividends from them throughout the year. The fund manager can either re-invest this cash and buy more shares in the companies the fund already owns (or in completely new companies) or it can pay the cash to its investors. When it pays out cash, this is called paying a “Distribution.” So, companies pay dividends and UTs make Distributions.
UTs can have two types of unit. The first is called a Distribution Unit and if you buy these, when the fund makes a distribution you’ll receive cash just like you receive dividends from a company. The second type of unit is called an Accumulation Unit and if you own these, you won’t receive a cash distribution but it will be re-invested into the fund and so the value of your units goes up instead. There might be tax reasons why someone might want to own Distribution or Accumulation units and also, if you’re a long-term investor you might prefer to have your cash re-invested and let compounding work its magic.
Leverage
Some funds might borrow money to invest as well as just investing the money from investors. If a fund can borrow money at 5% and make a 10% return, then it can make sense to borrow. This is called leverage which means borrowing and then investing more money than the investors have in the fund. If things go wrong this can be disastrous as the losses will be bigger than if there was no leverage. For example, if investors put in £10,000 and the fund borrows £2,000 then it can buy £12,000 of investments and this would be called 20% leverage.
If the investments halve in value (a 50% loss) the fund loses (£6,000) which is 60% of the investor’s £10,000. Funds therefore have strict limits on how much they can borrow and a lot of funds will not be allowed to borrow at all. Of course it works the other way too, if the fund makes money the investors will get a greater return compared to not using leverage.
Net Asset Value (“NAV”) & Unit Price
The NAV of a fund is simply the total value of all the investments and cash in the fund net of all borrowings if the fund has borrowed money, for example to leverage. The fund manager simply gets the live prices of all the investments it owns and calculates the value of each investment and adds them up. They then add on any cash which has not been invested and take off the value of any borrowings and this is the total value of the fund, known as the NAV. If this is divided by the number of units the fund has issued then you get the unit price.
Where to Buy UTs & Costs
Traditional UTs (next month we’ll look at a different type called an ETF) are not listed on a stock exchange but you can buy and sell them in several places. The most common places are either: directly from the fund manager on their fund website; through your stockbroker or investment platform; or through a Wealth Manager or Financial Adviser. We don’t want to go over all the fees and costs in detail but there are three broad types to be aware of and they are: upfront fees; annual holding fees; and fund costs.
You might pay upfront fees when you buy units in a fund and these can be anywhere from 0% to 5% of the money you invest. If you use a Wealth Manager or Financial Adviser these fees can be lower but you’ll have to pay the Wealth Manager or Financial Adviser fees as well and so you’ll probably end up paying the same.
Annual holding fees of 1% or more might be payable as well, either to your Wealth Manager or Financial Adviser or to the investment platform that you use to buy and hold your units. These are sometimes capped depending on how much money you have invested and for some funds there are no annual holding fees.
The fund costs are the costs incurred to run the fund and include the costs of the Trustee, Custodian and Fund Manager. The total costs the fund charges are called the Total Expense Ratio (“TER”) and these can be anywhere from 1% to 2.5% of the NAV of the fund. Don’t be alarmed by this, it’s no different to buying shares in a company. A company has costs associated with running the business such as staff costs, rent, electricity, marketing, etc and the TER is just the same.
So, there can be a lot of fees and costs and we need to make sure they are worth it, which they can be. When we look at the return of a fund and calculate its CAGR and compare it to other funds, the CAGR needs to be after all of these fees and costs as this is the return we’ll earn as an investor. If this is sounding complicated we’re not surprised as it can become difficult to get all these fees and costs in an easy, comparable format.
Investor Information Document
So, what can the fund manager do with the investors’ money? If you want to know what a fund invests in you can look at the fund’s investor information document which is a short document that details all the important information about the fund. This might be called the “Key Investor Information Document” or “KIID” for short or another name depending on which country the fund you’re looking at is based. It will include the investment policy of the fund, a risk and reward profile, what the charges and costs are and details on past performance. After reading this, an investor should be able to understand the key strategy and risks of the fund so that they can make an informed decision as to whether to buy units or not.
Active Management
A UT’s fund manager makes all the decisions about what to invest in. They do their research and as long as they stick to the rules of the fund, which detail the types of investments they can make and will be outlined in the investor information document, they can do pretty much what they like. They decide which stocks to buy and sell, in how much and when and the onus is completely on the fund manager to generate returns for the investors. This is called “active” management and next month we’ll see another style called passive management.
SUMMARY
So, although we’ve gone over quite a lot of information, at its core a Unit Trust / Mutual fund is really simple: investors put their money into a fund; the assets are held by a custodian to keep them safe; a trustee acts on behalf of the investors to make sure everything is run properly; and a fund manager makes the investment decisions. This is almost what we said over a year ago in post 1.1 so you see, funds really are simple (it’s just choosing them that can become difficult!).
THE INVESTMENT REPORT
For an explanation of The Investment Report and The Crazy Fund please see our post “1.1 The Deep End”
| Fri 28-Feb-25 | Monthly Plan | Lumpsum Plan |
| Cash last month £ | 57 | 0 |
| Cash Saved £ | 50 | 0 |
| Unit buys / sells £ | 0 | 0 |
| Total Cash £ | 107 | 0 |
| Units last month | 483 | 10,000 |
| Units bought / sold | 0 | 0 |
| Total Units owned | 483 | 10,000 |
| Unit Price £ | 1.2494 | 1.2494 |
| Fund Value £ | 603 | 12,494 |
| Total Wealth £ | 710 | 12,494 |
| FX Rate | 1.2588 | 1.2588 |
| Total Wealth $ | 894 | 15,727 |
| Estimated CAGR | 15.00% | 15.00% |
| Years to $1billion | 88yrs 5mths | 79yrs 1mths |
THE CRAZY FUND
| Results | 31-Jan-25 | 28-Feb-25 | MTD Move | YTD Move | LTD Move |
| Unit Price £ | 1.3361 | 1.2494 | (6.49%) | (2.37%) | 24.94% |
| FX Rate | 1.2407 | 1.2588 | 1.46% | 0.60% | (1.07%) |
| Unit Price $ | 1.6577 | 1.5727 | (5.13%) | (1.79%) | 23.62% |
| CAGR £ | 30.55% | 21.09% | (9.46%) | (6.81%) | 21.09% |
It was a bad month for our investments and this will happen, we’ll see far worse than this on our journey. The FX rate to see how much we’re worth in USD moved in our favour which helped to offset some of the damage but there’s no escaping the fact that it was a bad month, investing is noisy. However, look at our long-term performance, we are on track, nothing has changed.
Below is a table of what the fund is invested in at 28/February:
| Ticker | % Fund | Price | CCY | Type | Description |
| LON:IEM | 10.1% | 383.00 | GBP | IT | Impax Environmental Markets PLC |
| LON:SMT | 10.4% | 1,042.00 | GBP | IT | Scottish Mortgage Investment Trust PLC |
| LON:XDEM | 10.5% | 5,568.00 | GBP | ETF | DB X-Trackers MSCI World Momentum Factor UCITS |
| LON:ATT | 9.6% | 400.50 | GBP | IT | Allianz Technology Trust PLC |
| LON:IITU | 9.9% | 2,539.00 | GBP | ETF | iShares S&P 500 Information Technology |
| LON:PCT | 9.7% | 335.00 | GBP | IT | Polar Capital Technology Trust PLC |
| LON:XDWT | 9.7% | 90.47 | USD | ETF | Xtrackers MSCI World Information Technology UCITS |
| LON:CSP1 | 10.2% | 49,578.50 | GBP | ETF | iShares Core S&P 500 UCITS (Acc) GBP Hedged |
| LON:EQQQ | 9.9% | 40,051.00 | GBP | ETF | Invesco NASDAQ 100 UCITS GBP Hedged |
| LON:JAM | 9.9% | 1,080.00 | GBP | IT | JP Morgan American Investment Trust PLC |
| Shares | 99.9% | ||||
| Cash | 0.1% |
Our investment in LON:IEM went Ex-Dividend in the month and we have included the dividend in our cash balance, we’ll receive it in early March on the Settlement Date. See post “1.7 Some Things Companies Do” if you need a refresher on dividends.
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NEXT MONTH
Next month we’re going to look at the two other types of fund we mentioned, Exchange Traded Funds and Investment Trusts. Please don’t forget to subscribe and spread the word!
DISCLAIMER
Please note that by the time this blog is published, we may no longer own some or any of the investments discussed. Strategies and investments discussed might be totally unsuitable for you and we are not recommending them to you, they should only be considered as ideas for further research. You must read and agree to our Terms & Conditions, including the Disclaimer, which can be found on the T&C page of our website: https://thecrazyplan.com
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