Brexit damage limitation

We have decided to quit the EU. It was a democratic decision with a gap of over a million between the sides, so it’s pretty clearly what the majority wanted. Unlike many Remainers and a large part of the London/finance set that make up the PF blog community, I have sympathy for the part of the Leave community who say their wages and jobs pushed down by the free movement of people after the A8 accession of countries that were much poorer than the UK. I believe their choice is not in their long and medium term interests nor in mine, but I can see where they came from.

The little Englanders and harkers back to Empire I have little time for. Let’s hear it from Boris Johnson on this

We used to run the biggest empire the world has ever seen, and with a much smaller domestic population and a relatively tiny Civil Service. Are we really unable to do trade deals?

We used to run the biggest empire in the world because we industrialised first and had the edge on being able to clobber other places into submission. Things have changed in 100 years peeps. The modern predilection for everyone’s a winner would have no truck with the entrance exams for the Empire Civil Service.

I want to preserve my capital against the own goal that is Brexit. I may have sympathy with many of the people who voted Leave, but I don’t want to sponsor their decision any more than I have to.

You wouldn’t start from here (after the Brexit result)

as the classic joke says. Fortunately I am not coming from a standing start. I started a while ago. In 2009 my HYP was largely FTSE100 based, I’m fortunate in not having great exposure to banks because I can’t value them and only a small exposure to property/housebuilders because UK property scares the bejesus out of me. But I didn’t like the geographical bias and started to shore it up with an outer circle of index funds in emerging markets, Dev world exUK and more recently VWRL world equity trackers. I was aiming for focusing less on finance and more on Life, because I was dealt a good hand by Osborne in being able to use my DC pension savings to front-run my main pension.

My main problem is that I hold sterling assets. And the big problem is that sterling will become increasingly worthless as trade and foreign investment falls. We’ve already taken a massive hit in the financial crash. I am particularly exposed to this as people still working may see their wages rise with future inflation, where as my networth is the accumulation of previous earnings. On the other hand I have advantages – redundancy is not a threat to me and I don’t owe anyone any money.

XDRs are IMF Special drawing rights,  a basket of foreign currencies, against the £. I use XDRs because individual currency pairs just show relative changes, XDRs are the luminiferous aether of forex which gets us away from all this relativism…

Okay so a lot of it (more than half) are foreign assets denominated in sterling, so the fall in the pound will merely give me a false impression I am a great investor by raising the numbers on the screen  rather than make me fundamentally poorer in these assets, but in the end my pension is in Sterling which is most of my effective networth. Unlike some I don’t consider my house in my networth so I am neutral on that and I don’t own any rental property, so if house prices fall I don’t feel that is a bad thing.

price of an ounce of gold in pounds

Oh and I bought a lot of gold last year, because the ermine is a skittish creature and the 2015 valuations of the UK stock market and the US stock market, together with the infinitesimal chance of Brexit1scared me, and people thought gold was trash, witness the GBP/XAU chart. OK so I sold some of it before the referendum to half-split the profits which was a bad move in hindsight, but I still took a profit, and I will hang on to the ballast of the rest for a while. Unfortunately I also hold a lot of cash because I have only recently crystallised my SIPP. My dear fellow countrymen have made me 25% poorer in real terms last week, this will come through in the price of imported goods like food and fuel and pretty much anything I do if I stick a paw outside this sceptred isle.


Harold Wilson was quite right in my schooldays when he said the pound in your pocket will stay the same. It’s what you can get with that pound which changes, so I really need to do something about that cash. I have already started with some of it into VWRL, and will drip feed some of the rest as I extract it below the tax threshold into VWRL. I will accept the risk of a market crash in five years time when I will have run the SIPP flat; I will start coming out of the market in four years time and if I take a hit on the SIPP I will start to take income from the proceeds of the ISA. And if it all turns into tears in falling rain, well, that’s just the way things pan out.

I owe Monevator a few beers – my original HYP was heavily UK based with big fish from the FTSE100. But his diversification articles were compelling, and I shored the UK core up with Devworld Ex UK and emerging market index funds. In the HYP I was fortunate enough not to have a predilection for banks (how do you value a bank?) or house-builders, though my REITs look like sick puppies. For some perverse reason my ISA ended up on the week, denominated in the increasingly worthless pounds though it took a hit early Friday. But I have bought more gold and more VWRL. The obvious choice is in many ways Lifestrategy100 but the GBP version is too UK biased, hence a favouring to VWRL. World equities are tanking too, but the pound is tanking faster.

I’m interested in ideas though, what if anything do readers think as a way of losing less capital through the troubled times to come? Or is it as simple as sometimes you have to stick your head between your knees and kiss your ass goodbye… This one is big, and it’s bad.

  1. as perceived at the time, but you should always bet a bit against your prejudices 

60 thoughts on “Brexit damage limitation”

    1. hehe – the USD scares me because of incoming Trump, Though I feel the draw of any port in a storm… I used to think brexit or Trump I can take. Now Brexit is a given, the second sucker punch would be tough!

      There are similarities in the forces behind our Brexiteers and the power behind the Hairless One. I’ll think about it, agreed yield is nice to have , but sometimes good enough is good enough 😉


  1. I’m a bit at sea myself here, but is it completely ridiculous to suggest buying a FTSE 100 tracker? That’s what I’m thinking of doing with some of my cash.

    75%-ish of the revenues for those companies is generated outside the UK. The FTSE 100 is down slightly since the referendum, so it at least superficially looks like you can still “buy” those future revenue streams in foreign currencies at the same price you could before the referendum.

    Obviously there’s some risk of the FTSE 100 completely collapsing, but given the international exposure of these companies by the time that happens you’re probably screwed anyway.

    I don’t see any other clear way of getting “good” value for pounds held in cash; if you buy gold or US shares or whatever, you’re taking the current crappy exchange rate (but admittedly it will probably get worse). And if you’re happy with that, surely you just buy US government bonds or something. But I guess they’re being pumped up in value by the flight of capital anyway.

    (Fortunately I am *fairly* well diversified – my portfolio is about flat, in pounds, compared to a month ago – although not as diversified as I’d have wished. Can’t be helped now.)


    1. The VUKE I bought in January is still up 3% which presumably means it hasn’t fallen so far – but again I am looking in depreciating pounds, which makes it hard to know what’s going on. I bought those in January with pounds that were worth 10% more than what they are now, so I guess I’ve lost 7%. Beats sitting on cash where I’d have lost 10% though 😉

      The US looks attractive now, ad I kick myself for not having gotten into it because it was soooo overvalued the last five years. But that DevWrldxUK is half US, I’ve glad about it now. But come November…

      Valuation matters. Until your fellow countrymen change the rules 😉 I’d settle for a deposit account in IMF SDRs at the moment. I’m even prepared to look the other way on getting any interest, the old saw about return of capital as opposed to return on capital!


  2. I am also sat on some cash that I was waiting to use until after the vote. My plan was to calmly pile it into a FTSE 100 or FTSE 250 tracker (or maybe even banking shares) and let it run for a few years. Haven’t been able to do it yet…


  3. Speaking as someone who is prone to catastrophising, you might be catastrophising a bit at least on the medium and long term.

    I didn’t ever get over 2008, so I’m still in the Permanent portfolio asset allocation and clearly this isn’t the year fiddle with it. However I’m carrying a lot of cash because I couldn’t bring myself to buy any more Gilts over the last couple of years. So pretty much in a similar situation as you, minus the pension.

    What I knew I should do was move that lump of cash into a basket of currencies but I didn’t because I was holding out for the interest.

    All I’m going to do now is shift a lump of it over to ns&i because “nobody knows nothing”, least of all me.


    1. > is shift a lump of it over to ns&i

      Blimey, have I missed something? Can you do that again? I have a fair wedge still in that and roll those around when they mature but I didn’t think you can get new issues.

      > because I was holding out for the interest.

      Hate to rub it in but you’ve just taken a 10% hit on that…. Mind you, I wasn’t really getting any interest so you’re doing better than me!

      I’m not really that concerned for the equities, I’m reasonably happy that will come good in the wash. The only stock I have sold after the referendum is Aberforth Smaller Companies because I’ve had a good run, and luckily sold before it fell 10% yesterday. I don’t see smaller UK companies having a fun time for a year or so, though the drop was overdone IMO.

      it’s the hit on the pound that concerns me, and the prospect of it slip-sliding away more and some of the horror sinks in. People still working have some hope of getting inflation-linked wage rises to track that out in the 5+ years timeframe. But my cash-like assets have taken a hit and I don’t want too much more of that. I’ve always hated cash has an asset class and i now have another reason!


  4. I had very little equity exposure to UK listed equities (less than 10%) and significant gilt holdings, so I look like a winner in sterling terms. I don’t feel like a winner though :/

    Its very difficult to gauge how much poorer the referendum result has left me but 10-15% feels about right

    Much will depend on what happens in the property market. I don’t personally see overseas investors rushing to invest in UK property like they did in 20011-2015 as relative prices, the perception of the UK and their circumstances have changed quite considerably


    1. Here’s hoping the property market tanks, for the sake of our younger people who look like having fewer options of working abroad in the years to come. And to shake down some BTLers for their ill-gotten gains, perhaps it’s an ill wind…

      > look like a winner in sterling terms. I don’t feel like a winner

      That’s another problem – our main navigational instrument in portfolio valuation is telling porkies. In my ISA and unwrapped a/c the numbers are bigger after the referendum, just sadly not bigger enough to compensate for the -10% recalibration of the quantifying units last week 😦


      1. Unless Brexit causes a significant decrease in rents and home prices it hasn’t really worked for the people who voted for it has it?


      2. But the long night is still young… Though it’s all a relative thing, cheaper houses ain’t much good to someone if they lose their job in the crossfire!


  5. No need to panic.

    Vanguard Lifestrategy 100 almost at a record high. Vanguard World, ex UK at a record high. FTSE100 tracker tootling along okay (FTSE100 over 6,000). FTSE250 tracker taking a bit of a pounding – back to 2013/14-ish levels.

    My total equity portfolio down <1% in the week. Apart from the FTSE250 I'm no seeing anything that's cheap – unless you go for individual stocks (which I don't) such as housebuilders and banks.

    I want to buy – I put cash aside for the next "crash". But this doesn't seem to be it…

    On the active side Woodford is down and Fundsmith is up. So much for experts! 🙂

    Yes, the pound is down (but nudging back up). That will make some things much cheaper and some things much more expensive. Should help with the balance of payments deficit.

    We're only less than a week post Brexit vote. Doesn't look too bad to me – my portfolio has had much more volatility in "normal" bad days in the past.

    Usual advice at times like this (unless you're a very active trader) – "sit on your hands".


    1. But you are measuring everything is sterling, which is down about 10% compared to a basket of other major currencies

      Intellectually difficult to say you are “up” really

      Personally, if I didn’t have a lot of money invested outside the UK I would be dailling that up myself


    2. > I put cash aside for the next “crash”. But this doesn’t seem to be it…

      I think that’s what makes this a tough one to handle, because what’s happened is the real value of your cash has just tanked, whereas the markets (other than the FTSE250) have merely wobbled. It’s usually the other way round – your cash stays the same value in real terms (over the < 1year span) and the market jumps up and down like a March hare.

      I went for gold and VWRL accepting the real value of the cash is down because, well, if Leave were right and we're headed for the sunlit uplands then hey, I lose on what I bought but I have a more chipper country and my existing equity holdings will pick up the slack. What frightens me is the thought of a slow gradual fade to the pound. I'm chilled on the equities. It's the value of the cash slowly leaking away that worries me!


  6. >Blimey, have I missed something?

    Nope no more ILSCs (RIP) just the savings account, as opposed to the Icelandic savings account I was exclusively using in 2008.

    > Hate to rub it in but you’ve just taken a 10% hit on that

    Yep it’s not as if I didn’t know any better, so serves me right for complacency. However price of cabbages haven’t changed in Aldi (yet) and I’m not planning to buy anything denominated in another currency in the near future.

    Short term is just noise, I was back sliding on my media diet, now I’m making up for it with a media fast.


  7. All a bit confusing. “We’re doomed” on one hand, but nowt’s cheap to buy. My pound in my pocket is still the same and all that, but if I try to give it to Otto or Helene they’d like a little bit more…that’s life (and history).

    $1-30 to the pound is hardly the end of the world (even if it never goes back up). 3 day week, shopping by candlelight, teenagers being conscripted, bodies unburied…remember those times. Perspective, everyone.


  8. mmm aldi cabbage. i will be picking one of those bad boys up later today

    future unclear – possibly meaning don’t change your processes too much

    don’t just do something – sit there, and all that..

    admittedly, being a decumulator rather than an accumulator makes it all a bit more scary, but stay cool


  9. I’m up 2.3%, mainly because my huge VUKE FTSE 100 tracker was down when I last valued it, and I’m 33% abroad (only 2% US, wish I had more, but always thought it overvalued, mutter)

    Whether I’m actually poorer is a moot point, I was planning to spend much of my retirement on frequent holidays, but can I really spend 33% of my wealth on foreign holidays? Must visit Scotland/NI more before it becomes foreign too! No idea whether the cost of living will rise to match pound’s decline. Obviously imports like oil and bananas will be more, but services won’t. Biggest issue will be whether taxes will have to rise.

    As for now, I’m not going to do anything different, I’m going to boost my cash from 3% (I know, I know, but I have 10 years of civil service pension, and Mum holds most of my inheritance in cash/house) using P2P, and trickle the FTSE 100 dividends into FTSE 250 for a slow rebalance (possibly with a few lump sums too). Oh, and carry on working, which is a shame.


    1. I think we’re poorer, but it hasn’t shown up yet. Most of what we buy is made elsewhere, food, fuel,so it will drift up. It also makes investing tough – we see the numbers go up but it isn’t real because the ruler’s been made shorter. Interesting you’re shifting to holding more cash in P2P.


  10. I certainly respect the right of the British people to make the decision they did, but our world is so economically interdependent now that it seems hugely naive to discuss sovereignty and independence as if this could happen 100% in any country.
    I certainly was not immune to Brexit; my investments declined, the Canadian dollar was also a victim of the flight to safety, and the concomitant rock bottom interest rates punish returns for retirees and ensure the continuation of a nasty real estate bubble in a couple of our major cities.
    I come from a working class background myself as does my wife. We sympathise with those who feel disenfranchised and left out of the prosperity circle, but is it worth it to cut off your nose to spite your face?


    1. > is it worth it to cut off your nose to spite your face?

      I guess therein lies the rub, although desperate people don’t always clear choices. And so much of the consequences are unknowable beforehand.

      I’m surprised the ripples went as far as they did, although grateful that my big push for VWRL was at least buying less high, though in £ terms I got no advantage from that, but it enabled me to increase my foreign assets less dearly.


    2. I think a lot of people genuinely think that the UK will (in the long-term) be economically better off out of the EU. Partly because we’ll embrace world trade without the shackles of the EU but also because of a feeling that the EU is heading south (both economically and politically). So no spite and no cutting.

      The Leave position has often been caricatured as “we’ll take a long recession as the price of getting rid of foreigners”. Nothing could be further from the truth, IMHO. But it is a judgement call – Leave do not know what the world will look like in 15 years with the UK out of the EU. The Remainers have no idea what the EU will look like in 15 years, never mind what it would have looked like if the UK had stayed.

      I think that $1.35 : £1 has been overplayed. Some commentators seem to think that there’s both a perfect level for sterling, and that they (alone of all the gods) know what it is. I didn’t hear wailing when sterling fell from over $1.70 in 2014 to under $1.50 in 2015. If it ends up at c$1.40 after the current turmoil, so what? No need to sacrifice our first born to Cthulhu just yet.


      1. While I disagree about the prospects for a small offshore island with delusions of grandeur, and educational system that seems borked beyond redemption, a wage level that is fundamentally far too high relative to the rest of the world as a result of its historical First World status (that hurt will come to the rest of Europe and North America too in time) and an unhealthy attachment to past glories as delightfully sent up by Monevator; I’d be the first to admit that the actual outcome is a known unknown. I am not clever enough to say, and now I am in this hole I hope Brexiteers turn out right and your narrative is closer to the truth than mine. Wearing egg on my face is easier than subsisting on beans and heat from a single candle in my old age. I’ll happily take being wrong over being skint and with serious social unrest.

        But, I confess I am increasingly beginning to dislike some of my fellow Remainers for a combination of serious intellectual snobbery, technocracy and a lack of basic human compassion at times.

        The Leave constituency consists of multiple groups (as does Remain). There are people who voted that way for positive (to them) reasons like sovereignty etc. You would probably fall into that category at a guess? There is a small rump who were prepared to take whatever to get rid of foreigners, Smethwick all over again. I am probably still with my mother’s assessment of the basic tolerance of the British character in the round. But there’s also a large grouping of the desperate who have got the short end of the stick from globalisation and free movement. Mike Carter described what some of that looks like. It ain’t pretty.

        > If it ends up at c$1.40 after the current turmoil, so what?

        If you’re earning, and keep your job, you are probably okay over the long run as long as you can get inflation adjusted pay rises. As someone who has sterling-denominated capital but no future earnings, if I hadn’t had a lot of foreign assets, I would be that much poorer. Wilson was wrong about the pound in your pocket in the 1960s and he’s still wrong now, from an individual consumer POV. Britain buys most of its food and fuel from abroad, that drop will hit people in some of the essentials of life, and disproportionately the poor who spend a larger part of their income on the essentials. Yes, it will benefit exporters and perhaps the balance of payments. It will hurt me, because although I have much more foreign assets than the typical Brit and my pension is inflation-linked up to a point, its value has been dropped, and the real value of the tax thresholds has just fallen 10%. So it means quite a lot, really, IMO.


      2. @Richard I certainly hope you are correct. Britain is one of my favorite places to visit – has been for 35 years. I wish you all the best.
        My confidence in a good outcome would be better if the Leave politicians had some sort of plan – but do they, aside from sticking their fingers in the eyes of fellow MEP members?


      3. @Ermine / Ray

        Well, I’m only one vote in 17m so in that sense I don’t count. The Remainers have often characterised Leavers as a homogenous group – usually somewhere between Farage on steroids and the lobotomised end of the BNP spectrum.

        But 52% (or the other 48%, or the 28% who didn’t vote/care) are a huge mixed bunch. They both contain Mr Average and Ms Median. White Van Man and Tory Toff. Ex-miner and ex-banker. Born in the UK and Born-Elsewhere. But mostly Fred and Susan Completely-Unremarkable.

        I’m very much an “on balance” leaver. I was given an extreme binary choice, but I felt I should vote.

        Had there been a real option for “staying in a reformed EU” I would have gone for it. I’m not angry now, but I was when Juncker sent Cameron back with a flea in his ear. That will hurt the UK short- / medium-term and the EU also. Perhaps long-term too. What do I know?

        It’s possible to see all the benefits of immigration but still want control over who comes in – particularly around skills but also to lessen the cultural shock. This is what I mean about “sovereignty” (when applied to UK law in general).

        In 50 years all parts of the UK will be multi-cultural to the extent London is now – and that will be great. But London’s had 50 years of slow acclimatisation – the rest of the UK hasn’t. And that makes people fearful. Who am I to tell them they’re wrong? Slowly does it, please.

        I’m still not sure that $1.40 is good or bad. If we’re 10% poorer now because of the vote, then we’re an additional 20% poorer for the fall in the £ over the last couple of years. I don’t subscribe to “stronger is better” but I have no idea what the “right” level is. And there’s much more to the price of goods in shops than $:£ – Aldi / Lidl have made a bigger positive impact on my wallet than anything-else recently. Claret might be more expensive shortly though 😦

        The Leave camp never had a manifesto as it didn’t have the Govt apparatus behind it. Simply a direction of travel and an vague intent – “we’d like to go thattaway, rather than thattaway”. Bandying “”liar” about as some have done doesn’t help, nor is it true (or at least no more so than any other political statement made in the heat of battle). The final outcome will be both sides pulling back from their “red lines” and making things work. If not, then the heads of Goldman Sachs, BMW, Renault et al (plus the Bilderberg Group) will have a quiet word in someone’s ear. Trade and profits will triumph in the end. The merchant classes usually win.

        I thought both Moneyvator’s Brexit posts were rather inflammatory, particularly around the belief, seemingly widely shared, that it’s only London bankers (and especially immigrant ones) that are keeping the UK afloat, and that the whole sector is about to vaporise. But I like the site and it will get back to normal (as will the markets) quite quickly. I’ll still keep reading.

        The latest post gives a list of economists’ forecast for GDP in 2030 (relative to if we stayed in the EU, I think). 14 years ahead? Showing on average 5% deficit (with a 2 point error bound). Really? If someone had posted a report that said the FTSE100 in 2030 would be 17,000 +/- 2% it would have been laughed out of court for that level of “accuracy”. There’s a greater error bound on what I’m going to have for dinner tonight. GDP 2030? Hmmm…

        If we listed out each of the last 100 years and put them in order, would 2016 really be at the bottom? Or anywhere near? We live in great times – they may be about to get a little less great (or a little more great), but “great, or thereabouts” will do for me. I’m not greedy. Or paranoid. For a little rock at the edge of the world, we’re not doing so bad.

        We all need to get back to a sense of proportion. And be a little nicer to each other, and doubt each others’ motives a little less.

        Ray – you’ll always be welcome in the UK (and, hey, the price of visiting just went down!). I’m guessing you have Scottish descent? My balls aren’t crystal, so I can’t say whether Scotland will remain or leave the EU (or UK). One thing’s for sure – the scenery will still be wonderful and the people welcoming. And it’ll rain! (I live near Inverness…and it’s raining.)


      4. @Richard I am not totally sure about origins – my family were immigrants from the USA back in 1840 or so. My wife is an Italian immigrant mid 1950s so my daughter is simultaneously 6th and 1st generation Canadian.
        I have been in Invergordon twice on cruise ships. In 2008 we went to Inverness and last time in 2013 to Urquhart Castle/Loch Ness. If there’s a finer spot than the Highland area I have yet to see it.
        Sadly my next sojourn in the UK will be a 5 hour stopover in Heathrow in November. I assume I can still check my luggage through to Rome without a reclaim and customs inspection. 🙂


      5. > We live in great times – they may be about to get a little less great (or a little more great), but “great, or thereabouts” will do for me.

        We do, but not everyone in the UK is having a better time than, say their peers of the 1960s or 70s. I grew up in a working class part of London. There was more dignity in work, even blue collar work then, and there was work for nearly everyone who wanted it, compared to now.

        I did well out of that, you probably too. Let’s face it, I retired 8 years early and 13 years earlier in my life than my Dad, we’re on here wondering about what effect Brexit will have on our savings and investments.

        There are an awful lot of people in the UK who don’t have savings or investments. If I was one of those, and I looked back to the era of manual skilled labour jobs my Dad had, I’d be pretty pissed off by now, and no, I wouldn’t reckon I was living in a great time.


      6. @Ermine

        I agree with all your points – posters here are never going to be representative.

        But the less educated, Northern, working-class types voted slightly more for Leave than Remain. I completely disagree with some Remainers that this means that they’re “thick” and their views should be overturned by gilded London types who got a 2:1 in Politics and Basket-weaving at the LSE.

        The population of the UK should be allowed self-determination. Personally I wouldn’t have had the referendum, but I wasn’t asked about that. But I do veer away from the “We/I know better” approach that some take.

        Some experts I’d trust – if 10 oncologists say “have chemo” and one says “wear a copper bracelet” I’d go with the former. But economists looking 15 years out? With politics thrown in? With the rest of the world doing its thing? This is 2016, not 1836 – I don’t expect anyone to tug their forelocks.

        The people have spoken. I actually don’t believe they’ll get their say. But nor do I believe – on balance – that in the long-term the doom-mongers will be right. And if GDP rises 25% by 2030 rather than (an assumed, and a long way from certain) 30%. Well…you’ll remember the 80s. We thought we were all going to be turned into radioactive slag by the USSR. I’m still voting for 2016 above 85 – 90 of the other years in the last 100. Bit worried about Putin, though. 🙂 And Trump for that matter…


  11. Hi Ermine, I converted about 10% of my investments into cash in February for no other reason than it might motivate me to spend some of it. Needless to say, the majority is still sitting in the bank, earning zero. At the weekend, I shifted money out of a European tracker into a gold fund – Investec Global Gold – which I did extensive research on (i.e. it was the one out of two I found via Fidelity that charged less). Pray for me.


    1. and pray for me too 😉 I bought roughly equal hunks of both gold (SGLP) unwrapped and VWRL in an ISA. In hindsight I am happy with VWRL; I bought global assets on a slight sale though it didn’t feel like it in £. I’m coming round to the feeling the gold was a tactical error, yes the pound did drop more but has it go much further to go? OTOH I may sell the gold in my ISA which is showing a decent profit to reduce my exposure a bit.

      Yes, I’ll have effectively churned half the gold which is dumb, but at least I get some more ISA allowance from the profit, because with the new tax on dividends rules I have no use for a non-divi payer like gold in my ISA, I need all the tax-sheltered space for dividend-paying assets.


    1. tl;dr – It’s a High Yield Portfolio.

      The idea is that the natural yield (annual dividend divided by purchase price) of most stock market investments doesn’t pay enough for the safe withdrawal rate (the percentage of your portfolio market value you can draw annually where backtested over the last 100 years you won’t run out of money in 30 years).

      When I was a late 40-something fearful wage slave in fear of redundancy and never being able to make that money again I didn’t trust indexing enough – I am still much more active than most, though so far I haven’t been beaten by Vanguard LS100. I am better at buying but bad at selling right. A HYP you only buy, and by selecting stocks with a high yield you don’t need to sell to get the income. I have only violated the do not sell mantra once, to take a nearly 200% profit on Aberforth smaller companies, because I believe these have been dealt a bad hand through Brexit. As such for an individual share porfolio a HYP suits my personal strengths and weaknesses

      For a better insight look at Monevator and the Motley Fool.

      I started in 2009 – you didn’t have to be smart to be a good investor in 2009, you just had to do it, pretty much buy anything. So my HYP got off to a good start.

      The Achilles heel of a HYP is in is largely about big firms, typically FTSE. I came to dislike that lack of diversification so I bought emerging market trackers and Dev World ex UK trackers to shift the balance better, and when it came roughly to al all-world balance I started buying VWRL.

      I have been fortunate in doing most of that work before the drop in the pound 😉 I really wish I could call it skill, but low cunning is the best I could claim and sheer luck is probably closer to the truth…


      1. How do you find the admin of having an individual share portfolio? I got rid of all my privatisation shares, except Lloyds, spit, and have tried to persuade my parents to gradually drop theirs, just to stem the flood of annual reports, AGM notifications and general legal guff as they split, join and do other financial pirouettes. It seems if its less than £50k, its not worth the bother, and I’d not want that in any one company.


      2. I stick ’em in my TD ISA, and TD don’t charge me annual platform fees for shares so I have no carrying costs. Sure, every so often I have to think about what to do about a corporate action but I only have about 20 shares in the HYP. I don’t find it a chore, and since the point of a HYP is do not sell I don’t rebalance it. I would only do that with new contributions. Corporate actions do unbalance things more and I used to fight that by directing new annual purchases to other sectors. That do not sell mantra of a HYP makes it an easier ride, it would be hell (and dear) to rebalance conventionally I agree.

        Would I do a HYP if I were starting now? Dunno – valuations are generally higher, I honestly missed the insufficient global diversification issue, so it would be harder to start one now. But in 2009 I needed the hope of a sustainable income, and the HYP has delivered that over time – much less volatility in the income stream than in the market cap of the shares. It suits my prejudices. I don’t like the rejigged UK VGLS100 because of its home bias, hence the VWRL. And I don’t do bonds because I have a deferred final salary pension which is easily enough to live on and is a very bond-like proposition.

        I accept my prejudices and quirks and that I may end up paying for them 😉


  12. Come come now, you don’t seriously believe Brexit will happen, do you? The whole vote was a stupid political trick that backfired, so now they (the powers that be) will come up with another trick to undo the damage of the first. The important legacy of this Brexit vote, along with various revolts occurring on the continent, is to put a fire under the rear end of the EU elite. The commoners don’t like too much immigration, and especially not poor Muslim immigrants and if said elite doesn’t want swastikas spray painted everywhere and rallies with mobs chanting “sieg heil!” then some big changes need to be made once Merkel is removed from office. Brexit will be put on the slow track to nowhere, in the hope the voters will forget about it in a few years. The list of ways to bury it is endless, though some technicality involving Scotland is the most likely excuse.


    1. I can’t say that I haven’t had some hope of that, and indeed there is some seditious talk along those lines flying about. But I’m not holding my breath. It’s never a good idea to ask difficult questions when you really don’t like some of the possible answers…


  13. And yes, I shifted some money (maybe 10% of my net worth) from US to non-US stocks Monday close of trading, so I’m putting my money where my mouth is. The non-US index is about 50% European, I believe. It’s not just that non-US equities are mostly cheaper, but the dollar is strong relative to other currencies. Expensive assets (dollars, US stocks, London real property) are dangerous in the long run, though they feel good in the short run.


  14. I’m very new to investing and I’m trying to learn something from what just happened with Brexit. I know that before the referendum it was like 25% computed probability for a Brexit. My intuition says that in these conditions, it would have been wise to sell 25% of the would be affected stocks the day before the result to balance this possible outcome. Does this make any sense? 🙂


    1. Hello Valentin

      I’m not sure there’s much to learn (yet) from what just happened. And when we do, it’ll only enlighten us (maybe, but probably not) for the next time…

      The general advice would be to invest broadly in cheap tracker funds, and drip feed your cash in regularly. Use tax-efficient wrappers (ISA, SIPP) when possible and if appropriate for your circumstances. Keep a cash buffer, just in case.

      Active trading might have made you a few quid on the day, but the FTSE100 (for example) is on the way back up – you might have not got back in, in time.

      A disciplined methodology, a mental filter to tune out market noise, and an ability to see the bigger picture is what you need. And a nice bottle of something in the fridge.

      (Don’t forget that the whole “market” called the referendum wrong. None of us are “smarter” than the market, although some of us might be lucky. But trusting to luck is gambling, not investing. Vanguard Lifestrategy100 and a nice Alsace Pinot Gris is my prescription for you. And me!)


      1. I understand that filtering out the market noise is best for the long term investment. However if I _expect_ that something really bad can happen tomorrow to my stocks with a high probability like 25% and nothing bad with 75% probability, wouldn’t it be wise just to sell and buy them again the next day? It is a little to lose if nothing happened (75% of cases), but you can avoid the big losses (25% of cases). I don’t think I understood what you mean by “you might have not got back in, in time.”


      2. Hello Valentin

        I think your example is far too precise. If you “expect” a certain probability of something happening then, yes, go with your instincts. But surely a diversified low cost tracker would cover all the bases – for when you think you know something and when you don’t?

        What I meant by “you might not have got back in, in time” is that if you call it wrong you need to correct. By the time you do that you might have missed, as in this case, the rebound.

        The FTSE100 (to continue this example) is slightly above where it was the day before the vote. The utter panic shown by some commentators is not shared by the markets. Maybe that’s to come. Maybe not. If you’d just awoken from a 5 day Pinot Gris bender you’d see that your portfolio had hardly moved. The markets often (always?) over-react. And the media doesn’t help. The last time I saw so many column inches wasted over a non-event was when David Bowie died. It’ll be 10 years before a proper analysis of Bowie can be written. Ditto Brexit – which almost certainly will not happen in the Armageddon way the Remainers are proposing.

        Sit tight, stay calm. This isn’t 1916, 1929, 1939, 1973, 1992 or 2007, even if Tarquin and Jocasta are having a little weepy evening over the impending 10% hike in the price of Bolly. Our grandparents would turn in their graves at what some now think is a crisis.


    2. First off, bear in mind I am idiosyncratic and an oddball. I would strongly recommend you start with Monevator’s guide to passive investing and Tim Hale’s Smarter Investing. Try to borrow the Hale book, it’s a dreary read, unfortunately.

      If after reading those you still want to be an active investor you need to be prepared to lose a lot of money at first because particularly in things like market crashes and Brexit you are fighting your own animal spirits. The vast majority of what I have made in the stock market has come from buying and then sitting on my backside. Having said that the thing I hold against passive investing is that I do personally believe valuation matters, but it matters more to me because my investing timeframe is short (ten years to build my portfolio, starting 2009). For someone with a longer timeframe regular passive investment will be safer, because you will average over about ten business cycles over a 30-year working life.

      > Does this make any sense?

      It makes sense in a theoretical way modelling the probabilities but not a practical way. Why not –

      There is unknown error in the probability – is it 25%, of 5%, or 50% – the confidence interval is never stated, and in all sociological affairs the signal is very noisy with an immense margin of error.

      Can you identify the affected stocks? The FTSE100 companies make over 70% of their profits abroad – their profits will rise in pounds because they will convert dollars etc to pounds. they are less affected. Numerically my ISA portfolio is up now compared to what it was before (though not 10% up, remember the scale has contracted with the fall in the £). Some of that is this effect at work. I confess I sold Aberforth Smaller Companies because I consider smallcap the most likely future damaged stocks, so far I had done well compared to sitting on my hands. But you must move fast, and clearly, and it isn’t easy – FWIW I’d say buying gold was a tactical error, buying VWRL before the pound dropped too much was probably a strategic win, though only time will tell.

      I learned in the dot-com bust that market turmoil is the time to be buying, not selling. I learned that by losing many thousands of pounds, but gaining more in 2009, but it was still very tough to do. The learning has served me well – overall the stock market has been kinder to me than the house market in the UK.

      Let us hope there’s not too much to learn from Brexit. It was unusual in that the currency was shifting more than many stocks. That matters more to me because I had too much cash in £ and I’m not going to be earning any more. If you will have 20 years of earning ahead of you your future wages will probably rise to compensate for the resulting inflation which will cancel the one-off hit.


  15. I have to agree with w.r.t. The Tim Hale book. It took me two attempts. A veritable Jacobs cream cracker of a book.

    A better / more enjoyable book to start would be ‘The Elements of Investing’ by Malkiel and Ellis.


  16. Thanks for explaining why some of my trackers had seemingly gone up in GBP terms, I didn’t really get what was going on there!

    Obviously it’s far too early though for us to start “feeling poorer” – it must take a while for prices to start rising and us to feel it in our pockets. I’m of the generation that hasn’t ever experienced high inflation though, and to be fair I haven’t been down the shops to buy a loaf of bread since the vote so maybe it’s £10 now for all I know 🙂


    1. As Hemingway observed in The Sun Also rises.

      “How did you go bankrupt?” Bill asked.

      “Two ways,” Mike said. “Gradually and then suddenly.”

      A shift in the value of the currency is lethal because it’s insidious, a slow bleeding way. Everyone can see a stock market crash, but a fall in the currency happens one little piece at a time. My ISA needs to gain 10% on June 23rd’s value, just to be the same – well okay the rally before wasn’t real either, but either way it’s down. Take a look at this and switch from GBP to USD or the EUR

      There’s a story in that, and it isn’t good. What we need to hope is that this doesn’t become a slow run – it’s far too early days to tell.


  17. Hi Ermine, good post, and some food for thought in the various comments.

    But one thing you may want to investigate is something I have posted in he past about on the Motley Fool – cash is not a bad asset, and it is worth looking at it more seriously, as in the best fixed period accounts it can and does beat shares more often than you would imagine.

    Here is some very recently published evidence, collated by Moneybox presenter Paul Lewis that proves this point. It echoes my own research from a few years back, and the key to it is buying one year fixed accounts (poorly named as bonds) or if you have a big stash maybe a ladder of 1, 2, 3 year fixes (maybe not now as rates are not far apart).

    So, keeping a ballast of cash is not as bad a deal as you think, and I tend to go with about 50% cash across multiple accounts and types including ISAs, and 50% equities/prefs/corporate bonds (for the non gold part of my portfolio) only going higher on equities when markets have bombed a bit or a lot. The key thing is you never lose (cash in these types of accounts is almost always above inflation) and sometimes beat equities – and in the round this means cash wins more often than you think.



    1. Erm, the value of cash in £s dropped 10% last week relative to anything from the rest of the world 😦

      Paul Lewis’s work is valid, but only for amounts in the low 10,000s. His assumptions are just too restrictive, you need hundreds of thousands to retire on, not thousands – most of the good rates have a low ceiling.

      Cash is looking pretty sick at the moment – I managed to move a lot of it into foreign assets as the horror dawned and all of that is up, some by a respectable amount, in our devalued currency. Granted, cash hasn’t been too bad over the past few years and inflation has been relatively low, but that’s about to change with the devaluation since the referendum. We consume more than we make or service; I’m surprised that the investing community is so chilled about the slide in the pound.


  18. Erm, what?

    As you point out, the value of your investments all just did the same, unless they are denominated in dollars, sold as dollars and spent as dollars.

    I take your point that at the moment the best buys are anomalous in that you can get great rates on current accounts for small amounts (though you can, and I do, get 3% on £60,000 from Santander), but that does not change the point. I can’t now recall the site, but somebody a few years back maintained a website that showed the best rates over a very long period of time for normal, non-teaser accounts and it pretty much said the same.

    And it made the same point about inflation, in that other than the most extreme periods these Best Buy accounts always beat inflation, just as they are now.

    I have considerably more than the amounts you mention in shares and in cash and my own experience over the last 10+ years bears out the stats, and while I do prefer investments also, it is salutary to see that this the case, and it also begs the question as to why all published comparisons between shares, bonds and cash seem to use the lowest possible cash return vehicle when it is clearly not true for any normal intelligent person.


    1. > As you point out, the value of your investments all just did the same

      Doesn’t that prove the point – I’ve only just gotten hold of my SIPP cash and expedited getting a fair it into the shaky market precisely to shift out of cash in £, and I had been globally balancing my ISA with index funds thankfully before the referendum? I have held too much cash over the last few years because I viewed the US market particularly as overvalued and my call on the money is < 5 years, but I was prepared to look the other way and take my chances with foreign equities given the UK has just shot itself in the foot. Although Trump in November has its concerns.

      £60k is still low compared to the amount you need for a 30-year retirement. But perhaps my experience of equities is anomalous because of my 2009 start point. I don’t really understand why so many UK investors are so chipper about the sudden self-inflicted fall in the £. Perhaps they have most of their working life ahead and expect compensatory pay rises, or at the end of their working lives they are invested in global equities.

      I have about the same in cash. Some of it is with NS&I – great, it will inversely track the fall via inflation. Some of it I have in a SIPP, and there I don’t have any high interest options other than converting to equities, and since I need it in < 5 years doing more of that is unwise. Take your point that the very lowest institutional rates are probably too low. But the headline topping rates are way too high because they aren't available for retirement saving. I accept that because the biggest win on the cash was not paying 40% tax on earning it, followed by the win on investing it and then selling at a profit.

      But some of it is personal prejudice. I hate all the pissing about involved with Best Buy accounts, chiselling away and spraying my personal details around loads of financial institutions to open accounts for a few thousand here and there, then shifting amounts monthly to keep up with the pettifogging rules. Then adding up all the lousy amounts to put on a tax return. In the end I'm rich enough not to need to bother – I didn't give up work to muck around like that, and I can live with the volatility of equities, paradoxically for the lower work involved. Buy, sit, collect or reinvest or eventually spend the dividends, and ISAs get rid of the tax form filling. There's no Cash ISA that pays a useful return.

      Most people would be better off paying down a mortgage than jumping through all these hoops – less chance to screw up, and you don’t have to pay tax on the money you don’t need ot earn to pay the interest.

      I’d actually go as far as to say Paul Lewis has done people no favours at all, because they will listen to the headline – “ooh, no need to take all that horrible volatility and risk in the stock market casino, I can stay in cash and do just as well” and not read the caveats that they are condemned to 30 years of running 20 accounts shifting money across them every month if they want to save for retirement that way, they can’t use SIPPs so they have to kiss goodbye to tax advantaged savings if they want the headline rates. Yes, it was a great story. Just totally unapplicable to what is probably the biggest savings project most people will make in a lifetime. Apart from that little detail, fine 😉

      So while I don’t disagree with the theory, I’m too lazy, and too SIPP-ringfenced to be able to use it. All these best buy rates don’t reflect the true market return on cash. They are promotional loss-leaders coming with loads of strings. So Lewis is not right. This is not a sustainable alternative, nor is it available for retirement savings.


  19. @TonyN – well I guess the acid test is to see what the 10% or more drop in value of the £ translates to in inflation in the coming months/year. It doesn’t look like interest rates are coming up, so you *may* (thats only a may) have a scenario where cash, even in best-buys, hasn’t done too well.

    I think the point about the effective ceiling to how much you can hold in the best buy accounts is a fair one. It is quite hard to get a lot of cash into them (unless you have a few kids then there are some loopholes).

    60k sounds more like an emergency fund rather than 50% of a portfolio


  20. @Ermine and @rhino,

    Yes, I do agree that the current times do seem to indicate that cash might not be as good as it. Has been, certainly the falls have made it difficult, and the noise from Carney at the moment is they will fall even further.

    Last financial year I got 2.2% on around £500k, so pretty poor, and ermine you are right, this is across a lot of accounts and it is indeed a right royal pain in the arse (I have in fact written to my MP and the FCA about how difficult it is) to move it around to get the best rates.

    The FTSE 100 in the same time period was down about 12%, but earned about 4% dividend so was net down 8% – that is a 10.2% swing in favour of cash. Only one year, sure, but it makes the point that cash can be best, and it will take a good up year to recover that plus beat cash in year.

    This year I expect my cash rate to be more like 1.9% so the pendulum swings even further away. But there is a strong relation between inflation, best savings rates and expected equity returns, so maybe it will be flat again. Certainly so far this year the FTSE100 has not yet raced ahead.

    To be clear, I am not really doing this because I believe cash to be inherently better, as I don’t (didn’t?). It is more about not having the guts to put all my eggs into the equity/bond markets as while intellectually I know equities do best over time, I have also seen too many huge falls since 1998, when I started, to know I could bear it all with equanimity if it was my entire retirement fund (though like Ermine I have a decent pension pot to make even that less of a concern). So it is there for ballast and to halve my losses in bad times. It is also there for two other reasons – firstly to have a big cash fund ready for a big drop in the market to buy more dividend income at lower price, and second to completely de-risk my cash requirements for the next ten years. Yes, way too long, but it gives me more courage to take on bigger risks in the market – for example buying 3i and Scottish Mortgage the other day when both fell. 3i is up over 25% in less than a week since due to incredibly lucky timing, and it is having the ballast that helps me make these calls.

    By the way, I found the web site I mentioned above – – which is useful to see this all in context. He has used mainstream best buys, not going to the very best rates possible.


  21. I am with you in being pessimistic about the Pound. Not so much Brexit as a large and never ending trade and current account deficit.

    I have only a modest % in UK shares and the rest in developed world ex UK, emerging markets and Australia. My big vulnerability is a UK property but I am loath to sell it for emotional reasons.


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