What’s a worse investment than Cash? Standard Life Managed cash!

Tax is a right bastard and hammers your investment returns, so I saved money into pension AVCs while working. For most people a stakeholder or a SIPP is a better way than additional volutary contributions (AVCs) but in my specific case AVCs are the way to go. I saved pretty much exactly the amount of the 25% pension commencement lump sum (PCLS) in AVCs, at the time in L&G FTSE100:Global 50:50, starting April 2009 after reading this spine stiffening article and figuring I had little to lose anyway.

SP of L&G Gbl Eq Idx FxdWt 50:50 LP Pn (fund 50:50 FTSE AS/Global Eq index)

As a fund that one pretty much matched my investment beliefs at the time

To capture the sterling total returns of the UK and overseas equity markets as represented by the FTSE All-Share Index in the UK and appropriate subdivisions of the FTSE World Index overseas, with fixed asset allocation between the UK (50%) and overseas (50%). The overseas exposure of 50% is divided 17.5% in Europe (excluding UK), 17.5% in North America, 8.75% in Japan and 6.25% in Asia Pacific (excluding Japan).

Although I started with a good chunk in 2009 I believed I would have to liquidate and retire in March 2012  so I switched to cash in the AVCs. Switching doesn’t incur costs, and purely by damn good luck March 2012 was the high-water mark to date.

My retirement date was opportunistic, depending on when a voluntary redundancy package would become available. For someone with a known retirement date, it makes sense to liquidate one’s share holdings 20% each year over the last five years running up to retirement, if you have to turn it into cash to take a PCLS, or are liquidating a SIPP to take an annuity of < 20,000 p.a. FWIW different rules apply if you have a SIPP that would yield an annuity of > 20,000 a year but none of that applies to me.

Now I hate cash as a store of value, but the one thing you do know about cash is that it sits there and doesn’t get numerically any smaller. It’s value seeps away into the night as governments print money and increase the amount of cash competing with your stash to buy the goods and services in the economy, but the number in your account doesn’t go down.

Until, that is, the Pension Trustees in their wisdom decide that the Standard Life Managed Cash Fund is what the cash part looks like.

Pricing Data for Managed Cash G4 Pn S4 (CWR0) – on a bid to bid basis

Now the scale on the LHS is pretty microscopic, nevertheless if I’d taken this out in the blue funk of April 2009 I figure I’d be down 2%. When you compare it against the FTAS it is clearly still a steady pair of hands

comapred to the wild ride of the FTAS

I didn’t get all the benefit of the rise because I didn’t buy my AVCs all in one go in April 2009, though I started then. Nevertheless, I got a 20% leg-up which wasn’t bad for sitting on my backside for three years. You can see that the Managed cash fund is steady as she goes.

Curiously enough, the vast majority of my colleagues, if they are doing AVCs, save in the cash find, because you know where you are 😉 To some extent it makes sense because AVC savers are older geezers within 10 years of retirement. The Ermine felt in 2009 a mix favouring shares was worth a go.

Nevertheless, it looks like some rum deal is going on here. I took a look at my Nat West Cash ISA in Quicken.

Bog standard Cash ISA

The key thing to look for is that the trend (numerically rather than in real value) is up. For the simple reason that each month Nat West add a little bit to the account each month; I’ve never taken anything out of this ISA because you shouldn’t ever take anything out of an ISA unless you’re skint. This is still worth less now than when I started in 2009 but life is sometimes just like that, cash is a bear.

Now if Nat West can manage to make the numbers go up a little bit each month, why can’t Standard Life FFS? It isn’t hard, and a gradual downdrift is not right with cash. I don’t have any choice with the AVCs if I want to hold cash, though I may switch about 20% of this to the FTAS L&G index fund. Since there is an uncertain period between 3 and 8 years before I liquidate the AVC, what I’d really like to do is switch into the FTAS fund a bit each month till the halfway point, and switch out from then on. However, as an ex-employee that is a grievous process involving sending letters and stuff, compared to the online switching process while still working. I can probably only make one move every six months…

I still want to know who at Standard Chartered Life,[ref]my bad, Standard Life thx to Ted for picking that up:)[/ref]has got his hands in the till. Managed Cash is not the way I’d want them to manage the cash!


General Education fail with Magna Carta on Letterman, Dave

I didn’t think Cameron did too badly on Letterman, all things considered. The quality of an Eton education showed in that he knew Magna Carta was signed at Runnymede in 1215, although my grammar school education achieved the same result at a cheaper cost.

David Cameron on David Letterman. Magna Carta? Search me, guv…

However, I was disappointed in Cameron’s failure to wing it when asked to say what Magna Carta meant in English. His general edukayshun was obviously lacking. Magna is in many English place names, such as Minterne Magna and Dave is more widely travelled than I am. Sheer observation will show that the Magnas are usually bigger than the Parvas so large or great would be a good guess.

Minterne Magna and Parva. Not so hard to infer Magna might be great, eh, Dave?

It’s not too much of a stretch to get from Carta to Charter, particularly given the context. Great Charter would have done, and our Dave should have paid attention at school more. After all, he got to copy out 500 lines of Latin text as a bollocking for smoking cannabis at Eton. Since even an Ermine could infer Magna Carta would be Great Charter with his low-grade education I would have though our Eton-educated and Oxford PPE first class honours Dave might have been up to it. Okay I mightn’t manage under the TV cameras but then I’m not hired to run the country. It’s the failure to act imaginatively and resourcefully under pressure I find disturbing.


an offer you can’t refuse?

The Ermine household took a wander into town, on the lookout for a point and shoot digicam for Mrs Ermine. Savvy shoppers are going to immediately think – first mistake, wtf are they going into town for this, the best deals are always on the Internet? Well, yes, but DW is exacting on the size she wants of a P&S, and to get to know that you have to touch it and handle it. We started off at Cash Converters, it’s my favourite store for heavy stuff secondhand.You can’t help feeling that the Dark Side is taking over round these parts, however.

Are you sure that typo on the ad shouldn’t read “a loan of £666”, Mr Cash Converters? Is this the power of competition with The Money Shop next door?

I bought our PA amplifier there for £30, secondhand from a pub. I’ll probably get our PA speakers there as well. They are variable on small electronics – I’d say they are overpriced a bit.

Cash Converters. Bet they don’t have ‘don’t be evil’ in their mission statement

Cameras of the sort we wanted (compact, IS) seemed to roll up at the £50 mark. The problem with this is a P&S camera lives on borrowed time. The action of the lens coming out sucks in dirt, which either gums up the lens mechanism or gives you dust spots on the sensor. You just don’t know how a secondhand P&S has been kept, so we had a look at the new market to see if this risk is worth taking. Checked out a couple of stores on prices, a Panasonic DMC-LS5 wasn’t bad at about £70.

Then you get the smartphone out, a Samsung G2 in DW’s case, to establish whether the price is right. Since the web browser on a smartphone is worthless for finding anything out[ref]that’s why you have apps on a smartphone, to munge the data to suit the poxy little low-resolution screen, old stagers will remember it as what was hi-tech EGA graphics in the mid 1980s.[/ref] you curse the bugger and remember the county library is nearby. For the first time I got to use the Web in the library, after removing the JSA instructions left by the previous user from the table. The camera price was sort of okay, not fantastic.

We then went to Jessops, who had a Canon 117HS for ~£80. Apparently, this is the same as a Canon 115 HS but the different model number. This is a scam so Jessops can avoid price comparison sites. Some investigation on the web showed £80 wasn’t bad for this. Yes, it’s £30 more than a secondhand digicam, but the year’s worth of guarantee for what is inherently an unreliable product has some value (cash converters warranties for a month ISTR).

So we asked them if we could fire it up and check it out. Consternation in the ranks, and we were informed that there wasn’t a battery or charger, though these could be purchased. The Ermine voiced, perhaps a little loudly, that this was therefore a scam, it wasn’t £80 they wanted, but £80 plus the £20 cost of the essential parts to get a working camera. The sticker price was deliberately misleading. Anyway, the shop-assistant went back to see if they could find a battery, and a chap came back, and DW took over the negotiation.

the haul, I’m glad I didn’t throw out the charger from the last Ixus

The upshot was that she paid £85 for the camera, with a hahnel battery charger, hahnel aftermarket battery, camera case priced at £16 and a three year extended warranty. The Ermine is still not quite sure how that happened, as I’m sure the 3-year warranty was originally quoted as £20. Normally I don’t touch extended warranties, but for a product class which has a known unreliability problem it has some appeal. Particularly if they throw in a case, and drop the extra to £5 which seems a little bit less usurous. Okay, so the 12V power supply of the charger didn’t work, though the charger did. I have enough 12V supplies, and indeed it so happened that we still had the battery charger for the previous Canon Ixus so no big deal 😉

More offers you can’t refuse. The Ermine is too poor to get a loan from the Money Shop these days

You know you’re on the wrong side of the tracks with Cash Converters. It isn’t just the gold ads, it’s the fact they’re right next to a Money Shop. You’d have thought the Ermine is right up their street, no job, no income, what’s not to like? Hey, that sort of thing used to get you a NINJA mortgage in the bad old days!


Bank card and a job? £1000 can be yours

Well, hot damn, no £1000 today for me. Got bank card but no job, so The Money Shop ain’t talking to me today 😉 Psst, got a Rolex? What’s up with that. Firstly, if you have a real Rolex or Breitling are you going to be hob-nobbing with the riff-raff in the Money Shop rather than the sort of pawnbroker with a top-hat and three gold balls outside his shop, and secondly if you are a likely client of the Money Shop your Rolex was probably £5 at the local car boot sale, no?

So, thoroughly dejected at being not good enough for the services of The Money shop, I carried on, to observe yet another offer I couldn’t refuse

Borrow £100 for £125? hell, YEAH!!!! Why Not? bring it on

Why would I want to do that to myself? Really? Borrow £100 and pay back £125? Do I get fries with that? It wouldn’t be so bad if I got my dodgy motor fixed all inclusive, but no. I’ve kept this photo full size, if you look at the small print at the bottom you get to see

Representative 1410.33% APR … Interest Rate 300% p/a fixed

Who are this bunch of criminals and charlatans then? Say a warm welcome to the usurers at the Cheque Centre, impecunious citizens of Ipswich

At least they can spell. It’s the Cheque Centre over here, rather than the Check Center….

They’re actually recruiting at the moment. I was half tempted to go in and hit them up for a job, just to see what sort of punters come in to buy £100 worth of notes for £125. However, I’d probably discover a whole bunch of people who want to kill me, because even the Cheque Centre must have some criteria for lending.

Let’s remind ourselves of what they are offering me. I go in today, with an urgent need of Stuff, so I get a load of these

£100, waiting to be turned into booze, Harry Wraggs and Sky TV vouchers

I turn them into beer, Sky TV minutes and harry rags

[iframe http://www.youtube.com/embed/7_ywKdVcGqg?rel=0 240 180]

to come back later, having had to work 25% longer to earn this lot to hand back and call it quits

£125 – so paying 25% more is a great deal because I couldn’t wait a month?

Whatcha say to that sort of offer? What other answer is there other than Hell No! If ever it looks a good idea to you to pay 25% for 30 days, then STOP RIGHT THERE. Sit on your hands. Think. Stop buying shit. Let the kids scream I wanna have, I wanna have,  I wanna have for all they’re worth. Because when this looks like a good deal you are in a deep hole, and rule#1 in a hole is Stop Digging.

There are a lot of offers you should refuse in this town at the moment!

What I learned at the Blog-Up Meet in Leeds

Karen from Help Me To Save organised the first meet-up of UK personal finance bloggers in Leeds this weekend. I went along and learned a lot about the UK personal finance scene, about blogging, and Leeds and its student population, since it was Freshers week and lots of lovely people were getting thoroughly ratarsed, in a good humoured way 🙂

Leeds Fresher’s Week

The decision to go was made a lot easier because Karen awarded me a prize of a free hotel stay in Leeds for being runner-up in the competition with this 5 tips to retire early post. and DW was up for a visit to the Harrogate Turkish Baths so we could both get something out of driving up north.

When you’ve been doing something for a while it is a good idea to take some time to orient yourself, where you’re going, where you have come from and how the landscape has changed. it seemed a good time to take a look at what was happening in the world of UK personal finance blogging.

infer the general from the particular…

I never intended to start a personal finance blog, starting this as a narrative of my journey to early retirement, but personal finance was a means to the end. One of the discoveries was that finance is not enough – it is living intentionally by your own lights and values that matters just as much. So far, this blog is the narrative of my particular path across the minefield. To be more useful I need to distil the principles and techniques that I used, in order to make things more user-friendly. Although you shouldn’t normally infer the general from the particular, I plotted my route from the general principles. Sharing some of those principles might give someone some hope at a low-water mark, that with a lot of effort they could switch and reroute their path. I would be misleading them if I said retiring early is easy.

Early retirement involves different tradeoffs from ERE or regular retirement

Early retirement before you are 40 is all about income diversity, savings from post-tax income as well as ruthlessly controlling living costs. Regular retirement from 65/67 is all about savings from pre-tax income for most people, as well as Government assistance. Early retirement between 50 and 60 is a mix of pre and post-tax savings because of the regulatory issue of not having access to a pension before 55, as well as having longer to live off your savings.

Frugality – Fight the Fire, not the Flames of consumerism

Some topics covered gave me a double-take – ‘bloggers and brands working together’. Uh?. Initially I felt that I don’t fit in there at all, since in my view an awful lot of what is written in personal finance, particularly on the frugality aspect of things, is attacking the flames not the fire. If you are going to put out a fire with a fire extinguisher, you have to aim it at the base of the fire, where the trouble starts. In personal finance, that trouble starts as soon as you pay for anything.  If you have ever tried to use an extinguisher under pressure of a real fire, you will know that’s hard to do – the temptation to aim at the flames that are licking up at you is almost irresistible, because dammit, that’s the bit you see and is nearest! So it is with frugality, we aim at the cost, not the cause.

There’s no point is saving 10% at Tesco when you shouldn’t be getting that at Tesco at all [ref]I hold Tesco shares, so please don’t all do this at once ;)[/ref], you should be growing it or getting it from a local store servicing a group of people who still know how to cook from scratch.There’s little point in getting cashback off a new TV when the question you should be asking yourself is do you need that TV new? Do you need it at all, what’s wrong with secondhand? In general, I take the line ‘if in doubt cut it out’

Many personal finance bloggers seem to buy an awful lot more Stuff than I do, so they can recommend places to get it cheaper from personal experience.  Something else I realised from the Write on Finance Blog-up was that I am older than most PF bloggers, so this stands to reason. If I look at my spending, it has less Stuff and more experiences, this shift was dramatic from 2009 onwards.

I once read that there is no point in brands chasing people over 40, because they have made most of their decisions on brands and are set in their ways.

  • Recall of more ‘creative’ advertising is inversely related to their socio-economic group.
  • As people get older they get more cynical and harder to impress – the ability of ads to create a positive reaction declines with age, in particular more ‘creative’ advertising.

source: AQR The 50+ market: bother or wither

When you combine this with someone who has deliberately shifted the focus to trying to make things and experiences rather than buy or hire them in and to focus to nature and reading rather than buying I could see there’s going to be little connection with brands.

Martin Lewis’s curent moneysaving tips. Sky TV and an iPhone are never about saving money, at best it’s about being fleeced less. Think vampire squids and blood funnels inserted into anything that smells of money 😉

However, my thinking was narrow. Two of the brands I did favour, and not just because the sponsored my hotel stay at Leeds[ref]for the record I’ve mentioned them here by choice as a hat tip – in no way was this a condition.[/ref]. Moneysupermarket served me well for single trip travel insurance to Carnac. They recently bought out Martin Lewis’s moneysavingexpert site. Although once again Martin seems to expect us to buy far too much Stuff the forums have been a mine of information. There apparently infographics which would help explain the early retirement issues but I’d damned if I can find them at the moment. Things like that are the devil’s own job to code and test.

ING’s Ezonomics gives a different perspective from both the PF blogosphere and the newspaper financial sites. Plus I learned from Ezonomics’ Ian Bright that while I had to raise about 20% deposit on my first house in 1989, the way I did it would be considered financial fraud in today’s world. I borrowed half the deposit on interest-free balance transfer on an MBNA credit card, apparently this sort of thing is frowned on these days. Everybody got their money back on or ahead of time; I paid that credit card back over the first year, getting the loan interest free, and answered any forms truthfully, they simply didn’t ask about extra credit card debt in those days. This is more a source of off-the-wall bits and pieces and perspective. Part of the problem with trying to get a handle on personal finance is that the whole issue of finance and how the financial system works is in turmoil, because some of the underlying hidden assumptions have failed. Getting a chance to stand back and look at as many possible reasons for this is hard, because of the fog of war.

Politicians offering voters more than the voters’ productive capabilites deserve? Who’d have thought that would happen

There seems to be a general sense of too much capital chasing too low-quality investment opportunities. Some of this is because the amount of demand in the economy has dropped, the failure of animal spirits. However, it could be due to peak oil challenging the assumptions of industrial capitalism, in particular its need for growth.

Perhaps lazy politicians buying easy votes with lifestyle giveaways rather than showing voters the fact that their desires outstrip their productive capacity. Maybe plutocrats are co-opting governments and increasingly taking for themselves the spoils of war

I found their article on how to plan for early retirement interesting. I managed a fail on a lot of the topics (1,2,4,6,10) My biggest wins were with 3, 5, 7 and 8. In particular I used windfalls to firstly pay down the mortgage and then pay up my AVC savings, and I didn’t buy too much house. In the years when people thought property only goes up, the mantra was to stretch yourself as much as possible for a bigger house, because it was a leveraged investment bought with other people’s money but the increase accrued to you. I had an experience of negative equity early in my house-owning career, so I only bought as much as I needed. There area lot of parasitic costs in owning a house bigger than you need, and these parasitic costs are likely to rise in future (energy being one of them – heating a big house is alot more expensive). More strategically, you don’t want to stick out too much from the crowd.

Nick Clegg is currently targeting homes of > £ 2 million for his wealth tax but this sort of thing tends to suffer from mission creep. The advantage of living in an average sized semidetached house is that by the time the forthcoming tax comes down to me, there will be an awful lot of other average house owners who will be kicking up a stink.

Adjust your seatbelts, adopt the brace position, ready for a stock-market crash

It’s very unusual that I find myself among the more optimistic of a bunch of people about finance, but the general feeling about the economy seemed to be that it’s doing down, the stock market in particular is overdue for a jolly good crash probably some time in the next four years. Counterintuitively, there’s something exhilarating about that though I don’t subscribe to the expectation. Last year’s summer flash crash did me some good, and it seems ambulance chasing is one of the few ways to improve things. This worked for me in 2009, and again in 2011. Against that, the feeling people seemed to have about the economy were that it was deep-seated and structurally damaged. I share some of that view but seem to come to different conclusions. One of the advantages of having been round the block a few times is that I have seen the sky fall in before. It isn’t always as unsurvivable as it looks.

I am not a Digital Native

The most practically useful part of the session was the litany of tyro errors I perpetrated because I was writing a narrative without looking at the setting. I don’t use social media that much, because heck, I didn’t grow up with it. I only tolerate Facebook despite its inherent evilness because if you don’t use SMS or a smartphone there are some people that only have a common presence there.

I’m not a digital native, far from it. However, other people seem to set store by social media, so facilitating its use seems to help some readers. If it doesn’t, well, it doesn’t cost much real-estate.

Other errors include not having a contact form and indeed no picture and real world name. I like being an ermine, but it’s not actually that hard to identify me. The initial reason for this was that I didn’t want to end up getting dooced over the three-year savings period. All this doesn’t really matter now, and I don’t really think I was hugely controversial. However, I’ve become used to a sinuous body and brilliant white fur…

Hasta La Vista Ad-Sense

I use Google Ad-Sense on a few other websites, and it works well for me there. Particularly for anything technical, it’s useful to readers because it picks up ads where you can buy the spare parts or tools I am talking about.

I personally use Ad-Block-Plus with Firefox. For the simple reason I don’t want to be marketed to, and I want simplicity on my screen. ABP eats adsense as a matter of course, so I never really appreciated that in terms of personal finance it seems to concentrate the evil. Now I personally think if you take out a payday loan you’d pretty much got it coming to you, and while I’m not a dedicated follower of Ayn Rand I do think personal responsibility and agency are important. And it’s inescapable that in on this website Adsense doesn’t square with my values because it concentrates services targeted at losers. I am happy to report that you, dear readers, are clearly not losers because Ad-sense doesn’t make that much on here (presumably it does sometimes throw up useful ads). So hasta la vista Adsense – if it doesn’t square with my values it can go and spin.

Curious that going to a conference which has at its heart a focus on monetizing your blog cause me to de-monetise mine, go figure as our US friends say 😉

Some new reads

I admire Ash’s from Sterling Effort’s chutzpah in packing in his job. I have some 30 years on him. I felt fine about my job for the first 20 years, but I recognised his feelings in me efter 2006. He’s got more energy than I, so I took three eyars about it, but then I don’t have the courage to strike out into the unknown with £50k behind me 😉

Miss Thrifty gave an engaging talk, although I am not sure I am the same wavelength. Fabulous writing style though, she develops the story and narrative well. Guess that shows the value of experience as a press journalist! However,  if  I ever get to the stage where a 10% voucher on Cath Kidston looks attractive to me I need to step carefully and ask myself what happened to the principle of trying to avoid shops, and indeed favouring secondhand…

Moneysavingprinciple’s ebullient Maria underscored the value of being opinionated. It’s one of the great things about blogging. Being opinionated is frowned at in a work environment – indeed modern management seems to prioritize the pliant at the expense of mavericks. It lends colour to your writing. Her post Money for all seasons picks up on how we just don’t seem to design our financial lives, but firefight the money one season at a time. No wonder we often don’t end up with the results we want, imagine trying to grow crops in such a scattergun way.

Maria voiced a usually unspoken observation that usually dares not say its name. I find myself mainly reading PF blogs written by guys, because it is investment and to some extent ways of making money that draw me. The lady writers tend to have a strong bias towards the frugality axis. Don’t shoot me, I’m just the reporter here 😉 Take look at MoneySaving Challenge’s UK taxonomy where I saw a similar thing.

All in all a thank-you to Karen from helpmetosave  for organising it all and I’m chuffed to be introduced to some more great sites. As far as monetisation goes I’ve gone backwards, though the ideas are applicable to other sites I operate. I probably just don’t consume enough Stuff to be able to give personal frugal recommendations, perhaps I have achieved the Zen of frugality without noticing. As Thoreau said

A man is rich in proportion to the number of things he can afford to let alone.


Simple Living is about more than money…

It’s about living well. Welcome to a guest post from Mrs Ermine on some of the finer aspects of living well

How, you may ask, does the Ermine household keep itself in high style on a modest budget? Mr and Mrs Ermine like to eat well, but don’t like to fill the coffers of large food corporations. Fortunately good food and industrial food are two very different things.

So while Mr Ermine prepares his next post on financial wizardry, or perhaps another of this rants about the state of modern Britain, why not come and join me in the Ermine Towers kitchen on my new blog Simple Eating in Suffolk? The kettle is on (with just the right amount of water, of course) and right now there is something with a distinctly South Indian theme being prepared… a fine dish which Mr Ermine enjoys, and which costs just a few pence.

the redeeming value of sitting on your hands and doing nothing in the market

Here you go, an opportunity for a laugh at the Ermine’s expense 😉 There’s been one persistent dog in my ISA portfolio listing, Royal and Sun Alliance (RSA). There’s nothing particularly wrong with the company, but everything wrong with when I bought this share.

RSA stock price chart

Take a gander at the chart, and see if you can guess when I bought this. Yup, February 2011. I didn’t exactly hit the peak, but near as dammit. So this bad guy gets to look like

In a previous life I’d have hated that SCREAMING RED You Screwed Up reminder, and be tempted to hit the conveniently placed sell button next to it in the portfolio form. So tempting, and yet so likely to lead to the sort of investment death that Pete Comley grouched about in his Monkey with a Pin book. With a growth share you just have to sweat it out or take the hit, there’s no Third Way.

However, this was after I’d taken a decision to become more catatonic, though not in the classical way. I could’t see anything that had hugely changed about the company, so I left it to fester. It was down about 30% at the low water mark, and even now it’s 15% down.

However, there seems to be a hidden benefit of a HYP in that there is a Third Way, compared to a growth portfolio. Firms that have a reasonable dividend paying history

RSA dividend history


which is part of what attracted me to the share, have a useful attribute. They slowly buy me out of mistakes like that. We always look at share price graphs, but since I own this stock my own representation of it does show the dividend return as well. Note I use monthly beginning values for the stock valuation graph otherwise Excel would consume all the memory in my PC, so it doesn’t show the price spike I bought on. I paid about 3100 in all for my share of RSA, including commission etc. Yeah, that was dumb. Presumably in Feb 2011 it looked to me like the recovery was well underway, or something just caused a rush of blood to the head…

RSA valuation (monthly chart) stacked with the accumulated dividend I have got on my stake

Now I still haven’t broken even on this, but I am £100 down on the purchase price, not £400. And RSA are slowly buying me out of my cock-up. It was still a mistake to buy the share when I did, but it shows the value of doing nothing. This is the only line of stock in my ISA that is down on a total return basis, though that’s easy to say at the moment when everything is riding high. And we should remember that the reference point, the numerical £ value, is being destroyed by Government action all the time…


ISA valuation + cumulative dividend return graph. Note this is NOT a performance graph, most of the accumulated rise is because of purchases! I would be working for Goldman Sachs if this were a performance graph 😉

It is instructive of plot all of the holdings in my ISA on a stacked chart, pinching the idea from Rob’s chart wrangling. Unlike his performance chart my chart shows the total value of the ISA over time with dividends added in. The vast majority of the change in value is due to putting money in and making purchases. What is visible there is that the dividends make an increasing proportion of the whole return for a stock as time goes by. This isn’t stupendously visible because my ISA is only three years old, though you can see that the small gaps are larger on the lower stocks that I purchased earlier; the accumulated dividend becomes a larger and larger part of the total return as time goes by. To make that clearer I’ve split this into capital value and dividends received

capital value and accumulated dividends

Because I am putting money into this the capital value will increase faster than the dividends, and will do for several years. In theory once I get to 200,000 in 17 years the dividend income will match the rate of addition and then outstrip it, but I haven’t got that much cash for this 😉 Nevertheless, the dividends have put in a decent 8.5% of the amount I have contributed so far. There’s no sense in extracting the cash from the tax-sheltered account while I still have cash outside, so this state of affairs will carry on for a few years.

Although theory says a growth portfolio is equivalent, given an equal amount of risk, where you take the income if needed by selling off parts of the portfolio, being able to live off the income feels better. It also reduces the amount of decision-making. It is more expensive to sell off 2% of the portfolio by selling 2% of each holding as opposed to one stock to match 2% of the total value, but then which stock do you sell?

It is clear that Slater had some point in that ‘elephants don’t gallop’. HYP stocks are mature firms in the Summer and Autumn of their life cycles (the Winter ones are the value traps 😉 ) The wildest party thrown in my HYP is the recent BAE EADS fuss, which is hardly a ten-bagger…

I had to leave out National Grid form the plot because I couldn’t see how to represent the corporate action a while ago. I’ve put 28k into the ISA and TD list the capital value of the stock as £29k. However, neither TD’s summary or the chart allow for the £1500 cash in the account from a motley collection of the dividends that haven’t yet been reinvested. And a fair amount of this year’s allowance hasn’t been added, because it might as well earn me some paltry interest outside the ISA; I haven’t had much taste for buying this year or indeed the opportunity, since it took three months to shift my ISA from Interactive Investor. So the current snapshot return is about £2500 on an average stake of £14000, over a period of three years. The actual amount of dividends I have received is £2400. The yearly dividend rate as a proportion of the total invested by the end ofthe year was only 2.5% in the first year but shifted to 5% as I moved to a high-yield portfolio approach.

The trouble with this is not the rate of return. It is the £10k p.a ISA limitation – it takes time to pump up an ISA enough to win a useful income from it, and that income only rises at about £500 a year. Wannabe early retirees take note; if you want an ISA to form part of your income stream, and possibly allow you to go for a late pension savings burn then you have to start early, like at least ten years before you want to retire! In the interim I have to use unwrapped holdings and cash. There are people like Bernanke and our own government desperately debasing the currency and falsifying the inflation figures at the same time, which makes the cash not in NS&I ILSCs a toxic non-investment horribly exposed to government confiscation by stealth.

There’s also a lack of opportunity in the froth, I’d like another stock market meltdown like last summer, please, just without the rioting, thanks all the same. The Euro and Grexit don’t seem to be delivering yet – heck I am slowly building up a European Index position and it is running away from me rising which is not how this is meant to turn out. Mind you, there is the upcoming oil war on Iran to add to the mix, so the meltdown will probably appear in the near future. And October is coming up, often a good month for fear and loathing on the stock market 🙂


Where have the decent, middle ground consumer products gone?

In her book Cheap, the high cost of discount culture, Ellen Ruppel Shell observes the increasing polarisation of products. Globalisation is driving most of us towards the Poundland end of the market, with stuff that is cheap, absurdly cheap compared to earlier times, and a very few people who are either fanatics or have a lot of money towards the high end. As a result, the quality and reliability of a lot of products is, quite frankly, crap, though their functionality is pretty good. Nowhere is this more apparent than in electronics. Digitalisation, higher integration of components and Chinese manufacturing have all made it a lot easier to do many things in electronics, in particular adding features and functions. These are pushed relentlessly by marketing departments, and we often fall for it. The entire history of the iPhone is an example of featureitis gone mad. Just as well this makes the product cycle so short.  The vacuum tube kitchen radio my mother had in the 1960s operated from 1960 to 1976 ISTR. None of the replacements have lasted 16 years. There’s no point in making an iPhone last more than 5 years, it will be hopelessly naff by then in the eyes of consumers.

One of the advantages of taking an axe to consumerism is I get off some of this hamster wheel. The recent launch of the iPhone 5 left me as cold as the previous four launches. However, I still have the problem that stuff breaks down, and it seems that this is much more likely for newer stuff than kit I’ve had for a while. It makes me loath to replace something with a more modern replacement if it can be avoided, because capitalism seems to have hollowed out the middle ground. I either end up with cheap rubbish that fails me in my hour of need or top-end products that are often too fancy and too pricey for my requirements.

Demise of a faithful friend

This was brought home to me when my 10-year old Iriver IMP-250 mp3 cd player died. I don’t have an iPod because I don’t do portable music on the move, it’s kind of hazardous as a cyclist, and when I had my car it had a perfectly serviceable CD player 😉 However, the iRiver CD player was nice for the outdoor parties because a MP3 CD would run for several hours, and being a CD player meant we could take other people’s music too. Ipods seem unreliable in this kind of service as well as being a closed box without a computer- I constructed a switchbox to select different people’s iPods but the big problem seems to be iPod battery life plummets as it gets colder when the sun goes down, I will have to run a USB hub from the main battery in future to counteract this.

The iPod doesn’t really like to party after sundown…

All portable audio devices live on borrowed time, due to the hard life they lead and the inevitable drop-tests. Nowadays, to make manufacturing cheaper the connectors are mounted on the main circuit boards, which is a really bad idea. Pretty much anything I make myself uses connectors mounted on the case with wires to the circuit board, because the connectors take a lot of mechanical stress. Fixing the connector to the case stabilises it, and the wires to the board take out any residual strain. However, this is a very pre-1980s constructional style.

Transmitting the mechanical strain to the circuit board flexes the solder joints, which causes micro cracks and ratty intermittent connections. It’s why you should always try and use right-angled audio jacks on portable gear. Presumably Apple provide straight plugs so you break the iPod faster and have to get a new one, leastways the earbuds I observed on people’s iPods all had straight audio jacks.

This 10 year old iRiver was just dead. That sort of fault is good, the ones I hate are the intermittent ones where you never really know if you’ve nutted the problem. I took it to pieces and was faced with this

iRiver IMP250 innards. That’s a lot of small parts, as its about 13cm across

In previous lives like at the BBC I’d fault find to individual components but that’s not going to happen with this, no circuit diagram and no service manual. You used to get one in the handbook of most consumer electronics until the mid 1970s when people expected to repair things if they went wrong.

Even if I had these there’s no fun in trying to unsolder parts here. That involves magnifying glasses, tweezers, lots of bad language and a fair chance of knackering some other part in the process. These things are assembled in the Far East by automatic pick-and-place robots, though an awful lot of module level assembly still seems to involve humans even on the iPhone 5.

the offending connector, black item on the left

However, there’s a good win in faulting consumer  electronics by knowing that 90% of problems are to be found in connectors or the power supply. Power supply problems are usually associated with smoke and visible damage. Connectors, however, aren’t so obliging. Probing on the circuit boards showed battery power wasn’t getting to the player, and nor was external power, and the problem was traced to the DC jack which switched the battery to the player when the DC jack wasn’t inserted. Or not, in this case. So I unsoldered it, cleaned out the microscopic switch contacts and reassembled the part, and the player came back to life, both on external and battery power.

iRiver IMP 250 working again, once more into the breach at the Christmas party then…

Now I could have bought a current replacement for about £30 at Argos or a little media player secondhand from Computer Exchange for £20-ish. I had been on a previous reccy for that sort of thing but come away empty handed. I have to admit that I hat been tempted by a secondhand DJ CD mixer that looked like it could run off 12V, but then sense prevailed. Not only was I setting myself up for an audio earth loop fail, but in the end I don’t really want to be a live DJ. I want to talk to people at parties and maybe get hammered, not do a Paris Hilton 😉

Paris Hilton DJ-ing. It didn’t go well, apparently

The price of freedom from consumerism is still eternal vigilance. There is still somewhere in the back of my mind the ad-man’s meme ‘if you just buy this product, your problems will be solved and life will be wonderful‘. No. All I want is what I had before, thanks, it’s worked well enough for  five parties outside, and if I’m going to spend money then I should change the old hi-fi speakers, which are clapped out from being a) overdriven and b) far too small for the job of running outside, which is why they’ve been pushed too hard 😉

Although the repair was effectively paying below minimum wage, I just didn’t want to add to the mountain of e-waste without trying at least to inquire what had caused this faithful old middle-range CD player(it cost about £120 in the early 2000s ISTR) to give up the ghost. Plus I know that once started, it will keep running outdoors past the 11 p.m point where dew starts to accumulate on metal surfaces, because the self-heating of the circuit boards stops the dew forming. It had been a surprise to me that dew forms in late evening and the small hours of the night, I’d always thought it was an early morning thing.

More digital casualties in the pipeline

The digital camera seems to be another terribly unreliable electronic gizmo in the modern world, particularly the point and shoot digicam. Digital SLRs seem okay, I even managed to keep one in good working order until I sold it to a colleague. Digicams, however, are a whole different world of hurt.

I learned photography with film, and one of the great advances in photography in the early 1980s was the autofocus lens. Manually focusing was fraught even with some visual aids and just one more thing to slow you down in capturing the moment. In the 1990s manufacturers made automatic exposure work properly most of the time, and then came digital, which after some early issues sorted many of the residual problems, in particular the running costs and latency of seeing the results. Digital SLR cameras reached a point  in the late 2000s where for the vast majority of people the main improvements were to be had behind the camera, not in front of it or inside it; a rotten photographer will take poor shots no matter how expensive the gear.

My old Canon AE-1P from the 1970s that I bought second hand in the late 1980s is still serviceable, as are the lenses. I’ve had five digicams fail on me with lens jam failures, a Fuji 1700, Canon Ixus 80, an Ixus 950, a Nikon 995, and I will have to take my Panasonic digicam to pieces to remove dust from the sensor which makes the camera useless at high f-stops (in bright light). That’s four down permanently and one fiddly repair job, in the course of ten years. I look at the cost of a digicam more as a two year rental, rather than as a capital investment. One of the advantages of digital was supposed to be you don’t have film costs any more. Looks like you still have the same costs, however, just in a different form as the gear falls apart in your hands as you use it. Money still has to made somewhere 😉

You can make a digicam last if you keep it in a box and only haul it out for birthdays, but the whole point of a camera is you take it to interesting places and put it in front of new vistas. Every time you switch the damn thing on and the lens comes out, it sucks in a little bit of dust and fluff, which eventually gums up the lens mechanism (Canon) or gets dust into the sensor (Panasonic). On a film camera that dust only affected one frame because it was advanced with the film. On a digicam you get this after a while.

dust on the sensor causing splodges in the sky

The manufacturing effort seems to go in features rather than fundamentals. What’s so hard about making a digicam that doesn’t suck dust into the camera? It’s so much easier for Panasonic to say hey, this camera has got Face Tracking, than for them to say this camera won’t suck dust into the works so your pictures won’t gets spots after a year or so.

after taking the camera apart and decoking the sensor. Face tracking is obviously more important than, say using the CPU space allocated to Face Tracking for something useful, like saving the dust pattern and removing it from future images, for instance.

What the hell does anybody need face tracking for? If you are so drunk that you need the camera to find the face in the shot for you, then either you aren’t close enough or you don’t need to take that picture for uploading to Facebook because a) it might not be the right face and b) they’re probably as drunk as you are.

What face recognition is for. Hat tip to Glenys for sharing with the world

It’s hard to deny the sneaking suspicion of advanced decadence in Western capitalism here. Faced with the choice of making this kind of shot easier, or keeping the dust out of the sky, the obvious choice is sod the dust, help the Facebookers out even if they are a few sheets to the wind. Bless…

It isn’t just the digicams, either. I have a Canon 18-75 IS zoom lens which has developed a stock fault after 5 years. This was something that cost about £350 new ISTR, and I had expected to be a decent middle ground product. Those old Canon FD lenses for the AE1 are still going fine, forty years after they were made… There’s no point in sending off the lens to be fixed if this is a stock fault, it will only happen again. Just how common it is was brought home to me in that the replacement part was only £2 on ebay, however the process of taking the lens to pieces and changing the ribbon cable is fraught and likely as not to break something else. For £2 it’s worth a go, and I’ve become happier with dismantling ribbon cables that seem to be widespread in small gadgets after learning from some videos on Youtube and experience gained with the iRiver repair. If I screw up I guess I just have to take the £600 hit on the 15-85 replacement. Or take an extra £200 hit and go with the 2.8 aperture  17-55 and get closer to the subject at the long end. I was more often short of light than of reach in using the old lens 😉

I really miss the middle ground in many products. The AE-1P was a middle ground camera – it worked well and lasted, but that part of the market is evaporating fast. As a result I end up buying rubbish, just because I don’t think it will stay working. Tools seem to be another case in point –  you can get a set of 50 spanners for a tenner. Just don’t expect a 13mm spanner to stay a 13mm spanner after you’ve used it a few times. Fortunately I still have my old ones from the 1990s, before the Chinese got in on the act 😉 I want a pillar drill. The whole point of a pillar drill is precision, and I know if I buy something for £90 then mechanical precision is not what I’m going to get. However, I don’t need a 1kW three-phase pillar drill for a thousand pounds either. Something in between, say 800W for about £300 would match my usage, but it’s not to be had locally.

Bring back those mid-range products. Not everything is life is black-and-white where you need either something disposable or the very best. Often something well-built but less capable than the best is good enough. I don’t want to be endlessly buying junk, and throwing it out after a few uses. There’s got to be a place between the Trabant and the Rolls-Royce. As Ellen Ruppel Shell asked in Cheap

Why was there such a scarcity of things reasonably priced? It seemed that all coonsumer goods were cheap, like the Chinese boots, or extravagant, like the Italian boots. Where, I wondered, was the solid middle ground that offered safe footing not so many years ago?

Agency – it’s what matters

One of the  key things about sentient beings is agency – self direction. This struck me particularly when I read this Do Britons feel rich or poor? article in the Guardian. The Surrey PR lady who doesn’t feel rich  on far more than I have ever earned wants a slap round the chops with a wet fish.

“Considering my husband works 6.30am-10pm, and I’m also working three days a week, you’d expect to have your own home. We’ve got a car that’s nearly 10 years old; we can’t afford holidays. […] we’ve been to university, we’ve both worked our backsides off, and we’re not seeming to get the rewards for it.

Earth to Surrey PR – take a step back, ask yourself what you’re doing and why it makes you feel pissed off like that. What the hell is the point of putting up with the stress of earning all that money if you don’t get enhancement of quality of life from it 😉

In contrast, the high-rolling piano-playing business woman knows what she wants and she knows how to get it. She is living her values and can express them well.

“To me, money is a form of expression. I need nothing. Do I want? Hell, yes.”

I salute the lady. That’s a different kind of intentional living. If you’re going to earn a shitload of money, then know why you’re doing it, and enjoy it FFS. Her story is couched it terms of agency, whereas Stuff Happens to the disaffected PR and the 34 year old MD.

Lest you say it’s easy for our piano player who has a household income of 1,000,000 a year, well yes. Her agency speaks in her history – single mum on divorce, prepared to sell her jewellery, take a lifestyle hit and teach yoga to pay her kids’ school fees. That’s agency – and it speaks in where she is now.


Intern – she provided the most balanced and objective asessment

You don’t have to be rich to have agency. Look at the 20-year olds. The intern and the call centre worker seem to be much more balanced than the PR lady and the MD with a 120k. The singles seem to have a better handle on things too.

The homeopath has agency, even with the cheesy “Pay the deposit and the universe will supply the balance” mantra, but at least it sounds like it’s hers, and she is living her values. That’s agency. It shows in many of the other people in that study, the lawyer, the call centre op, the teacher. What’s notable is they aren’t all rich. Some would be classified as poor in money terms.

Agency. It matters in a sentient being. If Stuff happens to you in the world, then you’re on the wrong track and losing the capacity to shift yourself onto the right one. And yes, I know. My job went bad as a result of Digital Taylorism. Stuff happened to me too, doctor heal thyself and all that. It’s a fair cop, though in my defence I did do something about it in the end. I’m just sharing a little bit of insight from the other side 😉

The ermine – Renaissance symbol of nobility

‘Ermine’ – Peacham’s Emblem 75

The ermine was a mediaeval symbol of nobility, because it was believe it prized the purity of its white fur so highly it would face death rather than defilement. That’s agency too – agency is choosing your path. Because it is an archetypal symbol of agency, the whole story is larger than life, and Peachem was then to admonish the nobles to make like the noble Ermine and step up to the plate

Me thinkes even now, I see a number blush,
to heare a beast by nature should have care
to keepe his skinne, themselves not care a rush,
with how much filth their minds bespotted are
Great Lordes and Ladies, turn your cost and art
from bodies’ pride, t’enrich your better part

Choice isn’t just about what to buy next in the shops. It’s also about the things that matter in life. Believing you are a function about where you’ve ended up in life surrenders agency, because though you can’t alter how you got here, you can change where you’re going next. From that Guardian article, it seems to also affect how rich/poor you think you are.

One of the things that advertising and consumerism does to people seems to be it denies their agency – to become happier you need to buy this product etc. We have a stupendous quality of life compared to even the Britain I grew up into.

That article showed just how much it was to do with how much agency people felt they had as well as how much money. There were two people there with a lot more coming in than I’ve ever had who were seriously pissed off, because they felt they had no agency in their lives.



net worth fears and intentional living reflections

This is a part 2 to getting perspective. It’s a strange world we live in in the West. To see just how strange, you have to step outside it for a moment, and I seem to have inadvertently done that in my attempt to retire early..

As I grew older the nature of what mattered to me gradually changed, turning from the outside world and Stuff into trying to understand what mattered and has value to me. There’s some evidence that this isn’t particularly specific to me – I find resonance in Carl Jung’s description of the process of individuation as one of the primary developmental aims of the second half of life.

Jung understood individuation to be something that began in the second half of life, when individuals reach the zenith of their lives and suddenly find themselves facing an unknown vista or some unforeseen upheaval. Sometimes this turning point takes the form of a crisis: such as a financial failure, a health problem, a broken relationship, or a change of residence or profession – something which upsets the status quo. Sometimes this experience assumes the form of a profound self-doubt, a loss of meaning or religious conviction, a questioning of everything previously held so dear. Sometimes it presents itself as a deep yearning or a call to change direction

In some of these respects my story follows that path, meaning began to drain from what I had pursued before. This showed particularly in respect of the value of Stuff to me. For example, amongst financial bloggers I have probably shifted past MMM towards what ERE pre-return-to-work was (and maybe still is!) in terms of spending. I don’t have ERE’s intensity of purpose, nor do I have his material minimalism as a result of a lifetime’s accumulated material wealth, so that isn’t to say I follow an ERE lifestyle. I have neither MMM or ERE’s physical fitness mania, for instance, which seems to be a common thread in low-spending PF writers.

a random walk over psychology and investing

Many people prize the intellectual aspects of mind in personal finance, treating finance as an analytical problem. It is true that a lot of issues arise because people don’t pursue their goals rationally, indeed PsyFi has created an entire blog on the foibles and inconsistencies that separate people from implementing their financial dreams. This leads to a subtle confusion, because intellectual and analytical treatment can improve the how in personal finance. However, it is almost silent on the why, and some of the biggest wins are to be had in changing what is of value to you.

Money is a great medium of interchange and a mediocre store of value. How you allocate money and invest is important, but even more important is why you allocate the fruits of your labour to the various facets of life. There is a time to buy jewellery and a time to save for retirement.

We don’t really do enough on the why in the personal finance blogosphere, probably because this is such a subjective call fraught with individual variance. Some people would look at my drop in spending on Stuff and feel heck, the Ermine is living all in the past and the future, not enough jam today. For them, the call is right – spending now is what matters more. Breaking the binding chains of consumerism is hard, and even harder after you’ve been at it for a couple of decades.

The emotional centres of the psyche give empathy, but they also animate the ability to determine values and intentional living IMO. With only the intellect available after getting to see the wall of the doctor’s surgery a year and a half ago, I focused mindlessly on achieving a narrow goal, trying not to let my networth fall. It is a daft goal, because taken to the limit it will make me the richest guy in the cemetery, but it was simple enough to focus on. It’s easy to specify and hard to do – save 20 x my outgoings and job done. Obviously that’s a fair sized ask, and in practice you do that by slashing outgoings. This is not easy if your sense of value is externally based or you need to see yourself in the reflection of others.

I don’t really need much Stuff to inquire within, though I have bought a copy of Jung’s Red Book for an insight on his journey through the transition, which is them most I’ve ever spent on a book! That’s by no means the first place to start for an introduction to his work, his autobiography Memories Dreams Reflections is probably a good place to start.  John Betts’ free podcasts are good, but the organisation of the podcasts is a hellacious mess. The first one (intro) is here, about halfway through the list.

Knightley in A Dangerous Method

Many people, particularly of a highly intellectual/analytical bent find Jung’s work overly mystical. That’s fine – his model matches enough of my life experience so I’ll go with it, other models may suit other people better. The recent movie A Dangerous Method featuring Keira Knightley is sensationalist twaddle IMO 😉

preserve networth or reduce income fluctuations

Anyway, in pushing my costs down, I generated an projected income profile something like the blue line (the x-axis is the zero income reference for the y axis, and the numbers on the x axis are years with 1=2012)

That line would preserve my(numerical)  net worth, as  I spend the income from my ISA and non-sheltered shareholdings plus the income from cash. Notable is that this blue line is some way above the current level of jobseeker’s allowance and tax-free (well actually tax-pre-paid due to the unusual tax treatment of dividend income in the UK).

JSA is £71 a week, so to produce at least this income I had to save, outside the pension system, 71 x 52 x 20 = £74000-ish. In practice there are subtle distorting factors – more half of this ended up in cash, a form of investment that I despise and that gives paltry returns these days as well as quietly dying into the night due to the depredations of the Bank of England’s QE. So in practice I saved a bit more, compensating for the rotten return on cash and ending up with a higher income.

It’s an interesting exercise, when people grouch about the paltry level of JSA, exactly how much capital the taxpayer has to raise to pay it. Even on that, my lifestyle is higher than most people on JSA because I don’t get to pay rent/mortgage out of it, and have to some extent prepaid some household expenses from capital.

Nevertheless, according to the Joseph Roundtree Foundation, I am stuffed. Doomed. Boracic lint. Insufficient spondoolicks.

Straight between the eyes, no? You do not have enough to live on

Note their definition of a minimum standard of living is a little bit more than what I would imagine

“A minimum standard of living in Britain today includes, but is more than just, food, clothes and shelter. It is about having what you need in order to have the opportunities and choices necessary to participate in society.”

Presumably that includes Sky TV and a flat screen telly to watch it on, neither of which I have 😉 Although as an INTJ type I am probably less gregarious than most I don’t feel I am totally out of touch with society.

Last weekend’s party. Even INTJs don’t totally shun their fellow human beings…

I had to fudge some of the inputs to the minimum income standard calculator, like subtracting the amount allocated to rent and income tax and NI because these don’t apply. Plus some handwaving to try and split out this household calculation to make it more specific to me. Presumably the help links go to somewhere where the Fairness Fairy is going to wave her magic wand and sort all this out for me.

I may hit up the tax and benefits system to get the £1800 worth of contributions-based JSA I am owed (26 weeks x £71) before Universal Credit stymies that due to the £16k capital ceiling in April next year. But after that I am done with the benefits system, and it’s hardly like I am making a profit on the deal, I’ve paid more than that this tax year alone! Presumably there’s some way of winning the excess back from HMRC as I worked really hard to avoid earning over this year’s tax threshold, though I had to lose income into pre-tax employee share schemes and pension AVCs to do it.

Most retirees have an income from their pension, so I am probably not the typical subject for the JRF. However, I was surprised at some of the line items making up their minimum required. F’rinstance, when I was drinking  the JRF’s £16 worth of alcohol a week I was also somewhat over the NHS recommended limits because I was compensating for not living my values. I came to the conclusion this needed to get knocked on the head in the interests of health. Okay so some of the households JRF modelled will be spending in pubs and clubs where the unit rate will be higher, but a fair number will be downing wife-beater at 5.2% in front of the big flat screen TV at home. Tesco runs 20*440ml cans at £16 (less on a special offer from tomorrow!)

20 cans of Stella at 5.2% is 44 units of alcohol. Don’t try this at home

so some of our JRF households are getting seriously hammered on 44 units per person a week, running about twice the NHS recommended limits for a man at 21.

I could meet the JRF requirements if I run down some of the cash over the eight years before pension age. Preserving my networth gives me a 1:5 ratio of income pre and post pension, running the cash down softens that somewhat to 1:3. I should also add to that the income from the pension AVCs, but there’s only so much what-iffery it is worth doing after the ‘enough’ bar is reached. I’ve done too much Excel in a past life 😉

avoiding tax is all about being able to spend less than people of a similar income

Looking at this perhaps it would have been more rational to accept paying more tax over the last 3 years to have a larger capital stash now to reduce the variation in income. However, as I tried to save to retire early the amount of tax I was paying started to really piss me off, particularly when it exceeded what I was living on. So to hell with it – I lived my values in keeping more of my income out of the rapacious maw of the Government even if I had to accept a large income variation. Indeed, being able to eat a high income variation by living below your means seems to be the key element in being able to minimise tax liability. As a result these tax breaks accrue to the people that either earn much higher than the norm or who can drive down their costs much below the norm for their income cohort. I fall more into the latter camp than the former. Most people, who spend > 80% of their disposable income get particularly rocked by the tax system with no opportunity to beat it.

So far so good, then what?

However, more to the point is that having destroyed the hold of consumerism over my life, do I really want to re-enter the fray by increasing spending to JRF levels? I have other work to do, to self-actualise, to get my ass onto a bike more, to get to know the different plants that inhabit the hedgerows. I want to witness another stoat fight in the long grass, to record the changes in the dawn chorus over the coming springs.

All these things don’t need me to spend loads of money, but in some of them I may find more of myself. This is the freedom I needed. I accept that to do it means I forego some of the pleasures that money can buy – travelling to see New Zealand is probably a fantastic experience, and I tip my hat to people who make it something they really want to do. But for now, I will leave things like that. I will travel a bit, but I won’t do it to run away from myself or to blot out the negativity of the daily experience of life in an office working for The Man.

As I look back over the recent years, I start to feel that the original narrative of the story, that this was something that came to pass as a result of external forces, in particular The Firm transiting from ‘a truly great place to work gone bad‘, may be only a partial explanation. In this (somewhat technical) article on individuation there is a passage

She went through the expected crisis of losing confidence in her highly developed and refined social identity, and she also came to question many of her previously held convictions and opinions

where I see analogues with my experience – the sudden change, where previously held forms fracture and spall under no obvious provocation. There are more hints in some of the synchronicities. I had more than my fair share of luck in being able to get out, but only when the time was right.

The right answer will probably be a slow ramp, perhaps with a small peak at the beginning in setting myself up. I spent a couple of hundred pounds on getting my bicycle sorted properly to reflect the type of journeys I use it for. I may get a Hameg 2024 oscilloscope at some point in the future to further some engineering interests.

I gained power over personal finance by realising there is a time for everything, and trying to roll with it. Now is the time of the lean years, though less lean than the last three, and the time for a much higher quality of life due to the elimination of The Firm. I have some influence over the profile of these years and a reasonable amount in reserve. Once again, I am reminded of the advice of the Delphic Oracle – Know thyself.

getting perspective at some ancient stones

I’ve been on holiday, visiting an old friend in France and seeing the prehistoric standing stones at Carnac. It’s been the first holiday for a long time. A week has been enough to achieve a shift in perspective.

seeing something this old gives a new light to the world

Personal finance should be about living intentionally, deploying our crystallised claims on future work in a way that accords with our values. All too often it becomes a search for certainty in an uncertain world. Self-knowledge is a necessary part of doing something well. It is easy to lose sight of this in the figures on the screen, and it’s great to see people looking for understanding of themselves in the search to put the personal into finance. Rob is also looking within to do better without. As investments go, knowing thyself must rank high for ROI.

Taking a break also meant I returned to a pile of mail, which included a deferred pension statement, which unlike all the calculators and estimators I had to use while at work is a definitive statement that applies specifically to me.

The amount is about a third of my gross salary while working, which isn’t hopelessly surprising given I worked for The Firm for 23 years. What is surprising is that I’m not sure I’ve ever lived on that much in real terms.

While working my annual spend was of course much more than I’d get as a pension, but a lot of that spending went into either things that were written off in financial terms or that I don’t spend much on anymore. Some of it was accumulating assets (housing post 1999, share investment post 2004), some of it was pure waste (housing pre-1999, share investment pre 2004) and much was trashed in taxation.

I have eight years to go to the original retirement age at The Firm, and yet I’ve fallen into the same thinking that dominates a lot of the PF blogosphere when people think about retirement. Paralysed by the fear of running out of money, we try and think like the Rothschilds. We don’t ever want to run out of money, damn it, even if we live to 500!

Hat tip to Monevator for pointing me at Can I Retire Yet‘s How Do You Know if You’re Running out of Money In Retirement. The digested read seems to be that CIRY feels that unless you’re withdrawal rate is < 3% of your total net worth you run the risk of ending up in deep shit.

The usual reckoning is drawing down between 4 and 5% of your net worth. At 5% you need to save up 20 times your desired annual income; go with 4% and you need to save 25 times your annual retirement income.

Take a step back and think what that means. A typical final salary pension targeted an income of 50% of final salary, so I’ll shoot for that as a target retirement income. Let’s say you have a flat career arc – that means you need to save 10 years’ gross salary (working salary*0.5*20 = 10). Okay so compound interest might give you some leg-up, but it’s still a big ask.

That shift to 3% is a big deal, you now have to save 33 times your annual income to be out of the woods, and if CIRY is right on the low end that you need 2% you have to save 50 times your annual retirement income. In my case, I’d have had to live 30 years, buy a house, go to work and pay 30 years of taxes on the gross pay from five years of my 30 year working life, and save 100% of the remaining 25 years gross. Let’s allow the boosters of compound interest the possibility of compensating for the fact that my pay rose in real terms over my working life. Even after that, I’d say saving 50 times just ain’t going to happen.

What we all seem to miss here is that you’ve only got one life. It’s a balance – saving more for later means living less now for most of us. To be sure, most people get this wrong in saving not enough, and CIRY does a great job in highlighting that stock market variations place a great big noise signal on your net worth that swamps your withdrawals.

Face it. It isn’t just money you’re running out of, even if you are Nathan Rothschild.

There’s a general ramping up of the requirements for security in the retirement blogosphere, a trend towards stipulating that we must achieve a safe withdrawal rate such that we never run out of money. It’s bollocks, because we are missing one of the other things we’re running out of at the same time as we’re running out of money.

We’re running out of life. Each and every one of us, one day at a time.

The requirement to save 50 times my annual retirement income is clearly nuts in my case, even if I had no company pension. Heck, I could totally forget about the stock market, save in a ladder of index-linked cash savings for each of the next 50 years, and kick back by the pool. I’m just not going to see another fifty summers turn to autumn!

Too many people treat their retirement savings as an Ivy-League college endowment fund, wanting to design things so they never run out of money. There’s no point in doing that. If the elixir of eternal life is discovered or we all suddenly start living to 500 like Methuselah, the changes this will wreak upon the environment we invest in will be so stupendous the assumptions will have broken down completely. You probably just won’t live beyond 100. If that elixir of extended life becomes available at Tesco you’re just going to have to spit on your hands and go back to work.

There is another implication of running out of life. Don’t be so fearful of running out of money that you retire too late, either. For the vast majority of people wage slavery is doing something they don’t want to do for the fear of the consequences. As MMM pointed out a while back, one of the great things about the modern era is that it is possible to retire, and even retire early.

Today we have a unique opportunity to hit financial independence after only 10 or 15 years of work. Retiring in one’s mid-30s sounds crazy, but it is the unprecedented times we live in that makes it possible.

When I was at school in the 1970s people really believed that the future would be a future of leisure and 2 day work weeks. This expectation had even been anticipated by JM Keynes a generation before, in Economic Possibilities for our Grandchildren.

It didn’t turn out that way. Some of it can be blamed on the 1% half-inching the spoils of war over the intervening forty years. Some of it did turn up in the possibility of a shorter working life, rather than in terms of the same length working life with fewer daily hours. Firms really hate employing more people even if they have to pay less for them individually, because managing more people is not scalable. Anybody who’s ever tried to interact professionally with a job-share team knows only too well that the whole is less than the sum of its parts. As MMM continues

The actual fact is, due to productivity and technology improvements, wages have risen faster than the cost of goods in real (inflation-adjusted) terms.

Younger readers may not believe this, because these are changes that happen slowly, you need a couple of decades of observation to see the changes in aggregate. And you always see the exception. Looking back over half a lifetime, the poster child for the hard-done by priced-out generation, the house, has adversely changed in relative value since the late 70s/early 80s. They forget that before the late 1970s most middle class families rented  – indeed more than half my class lived in council houses when I was at school.

Other essentials of life were much more expensive relative to wages. I recall my parents used to put sixpences in a tin after they used the phone, trying to track the costs and save as they used it. Many will think nothing of paying £50 a month for mobile phone service. Food was more expensive. Power was more expensive, cars were shockingly expensive and unreliable to boot.

better products but poorer services

One class of thing that has become a lot worse and dearer is services. Higher average wages relative to needs means that people were cheaper to hire in the past, and many services were better, because for all our technological innovations we have never really managed to approach the adaptability of a properly paid human at unpredictable and non-repetitive tasks. The quality of advice you’d get from an owner-run TV shop was streets ahead of the Dixons teenager of today. Having said that Woolworth’s shop assistants and the like weren’t always the pinnacle of intelligent life…

Early on in my career I could ring up companies and get somebody who a) worked for the firm and b) actually knew the products and their quirks. There’s hardly any point in calling a company for aftersales support these days, particularly for technology – you either get a soldering iron out and fix the damn thing yourself or you junk it and get a new one. I’m 100% with James Kunstler in his entertaining heartfelt plea for the AFTA Act of 2012.

we’ve spent four decades and untold billions of dollars to computerize every phone system in America.

[…] The net result of all this effort and investment is that it is now just about impossible to get a live human being on the phone at any company, agency, or institution in our land. […]

     By computerizing all the phone systems we allowed every company, agency, and institution to dump all of their transactional inconveniences onto us, the customers, clients, and citizens.

Why is there so much fear and loathing about saving enough for retirement then?

We spend less on needs and more on wants. Companies are getting better at increasing our wants, and unlike our needs there is no natural limit to wants. This is an arms race the consumers of the world are losing 🙂

There is less certainty about work, and employers slyly reduced wages without cutting headline salaries by cutting deferred pay – getting out of pensions as much as they can. When I graduated, a typical professional engineer would start at a company and work there until 60. I was an awkward bastard and job-switched several times in the first seven years of my working life, then worked for The Firm for the next 23 years. Compared to other people at The Firm retiring or leaving at a similar age to me I was a fly-by-night – I have seen many40 year long service presentations in my time worked with a lot of people who were with The Firm man and boy from 16!

Uncertain career paths make saving for retirement less clear than it was for previous generations. You need some reserve to be able to handle the unpredictable. How much reserve? Enough to cope with our darkest fears – so we demand huge levels of security, which then leads us to file retirement saving into the too hard self-inflating ball of worry category. However, MMM’s point still stands; although the path is less clear than for the last generation, the capacity to save now is higher than it has been, as long as you don’t chuck more and more of your disposable income down the bottomless pit of increasing Wants.

How would Sir like to cut his retirement planning? Quality of Life or Security?

This hidden security assumption harmed my plans too. According to the pension statement I have retired 8 years before the design retirement date for my pension. In 8 years’ time the deferred amount is one I’d be perfectly happy to live on, indeed I wasn’t living on that much for most of my working life, what with the depredations of mortgage payments, pension payments, tax and NI.

So I designed my stock portfolio to live off the dividend income alone over the interim. Although it isn’t obvious, doing that is an attempt to avoid one of the hazards CIRY warns against as a major red alert, selling shares at a loss. You simply don’t sell 😉 There are second order effects that make things not so simple in a HYP. For a start you are investing in a smaller universe than a straight index tracker. I do end up with plodders, none of the racy sort of ten- and twenty-baggers that Rob is hunting over at Self Employed Investor.

Though you don’t ever sell with a HYP, you can eat a loss if a company goes bust. This hasn’t happened to me yet and is inherently less likely with HYP shares if you guard against yield traps. None of mine have even skipped a dividend, indeed it is dividend performance alone that may well redeem my worst performer in terms of SP, hello RSA, many month winner of the wooden spoon award on SP. It is slowly approaching neutrality on total return with divis. Once it passes that point this firm might actually start working for me. I never realised the sheer power of just sitting on your hands to redeem what was clearly a mistake in hindsight!

The trouble is that I wasn’t able to build a portfolio I can live on in three years from a standing start. More than two thirds of my savings are in pension AVCs so they aren’t part of my portfolio at all. However, I have been tremendously lucky with some sharesave schemes which doubled my portfolio, though getting them into my ISA was beyond me. If you get the opportunity, join sharesave, to the max. JFDI – it’s like the Lottery, except the odds are better and you get your money back if you don’t win 😉

A time for all things

I don’t need to live off my portfolio divis alone. I have a finite amount of time, and as the old Byrds song says,

A time to get, and a time to lose; a time to keep, and a time to cast away;

with a hat tip to Ecclesiastes. Life is a journey, it is not a framed picture on the wall like Dorian Gray. I managed to force down my outgoings down enough that I could live off the income from the portfolio, adding it all together both in and out of the ISA. I am short a little income, but I have more than enough free cash to address the years of shortage. In practice I accumulate in the ISA and run down the cash rather than draw, to preserve the tax wrapper. Unlike some, or perhaps many, I really don’t like cash as an investment class, which of course is why I’ve ended up with more of it than any other class 😉

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As I wandered around the old stones, and reflected on how I got here, I realised that I had lost perspective in the fear associated with trying to bail early. I saved enough outside the pension system to nearly live on. But there’s something a little bit barmy about it, because saving 20x my income needs to bridge an 8 year gap at the outside prioritises security beyond the logical. I could save 10x the income needs and run it down over the 8 years, leaving me some in hand. What I feared was the feeling of a slow decline in networth.

My greatest regret is that I didn’t start thinking about this earlier. In retrospect I worked too long. I endangered both my physical and mental health fighting in the endgame. Don’t be paralysed by the fear of demanding total security – work out what your balance of priorities is. Then navigate your way towards it. Learning about investment management, what the hidden agendas of the other players are, what the risks are and what your own foibles are is a long project – a decade at least, if not a lifetime’s work; indeed people who are both far more interested in investing and more talented than I are still trying to work this out for themselves.

It took me ten years to learn enough about investment to become clever enough to be dangerous in the dotcom bust. I then quit and got on with other aspects of life for many years. I lost balance, focusing narrowly on some kinds of life success at the expense of self-development and individuation, until the imbalance destabilised enough to force change.

Part of that change required me to find a way to retire early, and I focused on the money, with more skill in action as a result of experience, and the guidance of people who showed me I could take charge of finance and shift my path. In doing so I lost balance in a different way. Fear dominated my field of perception, and I became rigid and narrow in vision.

It is not absolute security that I needed. It was freedom of action. Security was a prison that built walls around me. Insufficient freedom of action quenched the fire within, and I had to fall back, and fall back, hoping that one day the fire would restart in the draft of the endless fall. It needed a shift in consciousness, to cease shoring up the walls, and to listen for the sound of Thoreau’s distant drum –

If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away.

The signal from that distant drum is faint, and all too easy to lose in the noise and hum of life. It carries a valuable message, to be cherished, despite it’s faintness. Live intentionally, or live not at all…