The Brexit Boost conundrum – this bell tolls for me

Unlike young folk saving for a pension, I don’t have a long multi-decade accumulating  investment horizon. In about five years time at the most, the rocket engines fueled by my stored earned income will splutter and die. I have already earned pretty much all the human capital-derived income I will ever earn, and it is only the process of extracting it from SIPPs and some portion of a future DB pension commencement lump sum that will contribute to my holding. The portfolio will then reach steady state, and I can use the natural yield as a tax-free income.

I’m also an active investor – well, I try to choose my time of buying at lows, though that’s getting really tough to do, though early last year was a good chance, even if what I did buy was classed as passive. So to track how I am doing I unitise annually, in January. Brexit lifted my unit price 34%. last year. That’s not quite as much as Vanguard Lifestrategy100 which lifted 37%, which is telling me something I guess. I can at least be chipper about being a lot more up than the Slow and Steady Passive Portfolio. In fairness I should note these guys are 20% in bonds which puzzles me as they are at least 10 years younger than I am, they are at least 20 years off retirement age. I don’t do bonds because my defined benefit pension is as bond-like as you can get.

A 34% lift is not something that’s going to happen again. It’s not like the portfolio is worth 34% more, a goodly part of the boost is the 20% Brexit Tax we’ll all be paying on food and fuel etc. As the Ermine curls up to go to sleep, in the distance there is the sound of a bell tolling.

Let’s imagine though that you’re a 65-year old UK retired investor, the long run is 50+ years, and the jolly boost to our portfolios from the weak pound we’ve seen over the past 12 months instead works against you over the next 5-10, cutting your net worth and income by 20%, at a time when you’re reliant on that portfolio for your living and you have no new savings from work etc, perhaps for years to come.

Hmm. I guess that bell tolls for me. I’m still a fair way off 65 and even so the long run ain’t 50 years, but heck, I want it to boost my disposable income.

I don’t see it as a reason to sell anything I have for the hedged variant. And my personal view is that the toll on the UK economy due to Brexit hasn’t even got its boots on yet, because we haven’t left the EU. So there’s room for more of a suckout to the pound. Rampant Brexiteers tell us that the pound has been overvalued pretty much since forever, and the fall doesn’t really matter, indeed it’s good for the common man because it will shift our economy away from finagling finance into doing something real for a change. For all I know that may be how it pans out, though I suspect the common man will still be shat on because the robots will take the jobs in those manufacturing companies, but he’ll be paying the Brexit Tax on imported essential stuff like food and fuel. But what the hell, he has got his country back so I’m sure that will be a price worth paying.

Unlike Monevator, I fully expect the Euro to go titsup in my lifetime, which I guess makes me a sort of long term Brexiteer, though not for the usual reason that I hate hearing the sound of Polish on the High Street. That may well send the pound up, and the value of my portfolio plunging. It so happens I have a few years of ISA contributions to make, I have a last capital-gains-tax embargoed unwrapped holding to sell and some of my SIPP PCLS as cash. It makes some sense to me, now the pound is down in the toilet to buy some hedged to GBP Dev world exUK or global ex UK. Sure, we may well have further to fall but I’d hope most of Brexit is priced in. And I have enjoyed a lot of lift from the Brexit tax. Be a bit of a shame to give that up if Brexit turned out to be less stupid, so  carrying three or four years of ISA contributions as GBP hedged foreign index stuff for a decade could soften that sort of volatility a bit. Echoing Scott Fitzgerald, I don’t think any portfolio is complete unless it has some exposure to something the owner totally doesn’t believe in. I believe Brexit will be be a local economic disaster that will make the masses that voted for it rue the day they were Pied-Pipered over the edge by rich people who can afford the suckout. I might be wrong. It always pays to bet a bit against yourself. It’s worked for me before 😉

In the big picture a putative reversal of the Brexit tax because the EU really was a sheet anchor to the inherent dynamism of Blighty’s economy will be great for me, even if it hammers my ISA. That’s because my main pension will be worth more in real terms, ie the same as it was before last June’s brain fart, and that will do me more good than the reversal of that jolly boost to my portfolio.

Goya’s The Sleep of Reason produces Monsters drawing from 1799

A place where the Brexit Boost conundrum has turned into a major ‘Abandon ship now!’ signal is in my SIPP, where until yesterday morning most of it was invested in VWRL and gold. I’ve left the gold rump but that VWRL is 20% up in Great British Pounds on what I paid for it, and since my SIPP will be drawn down to nearly 0 in two years not four I have absolutely no business being in the stock market there. FFS, there’s a man-child in the White House running amok doing The Will Of The People™, while the checks and balances set by the Founding Fathers seem to have failed as Reason sleeps. And I was exposed to this because 50% of VWRL is in the US, on the back of an eight year bull run. Time to take my Brexit Boost off the table in that SIPP. I’ve taken enough damage from the domestic version of The Will Of The People™ this year, and it’s not even like I will get any upside if Trump Makes America Great Again, because he’s looking to do that by Making Everywhere Else A Bit Shit to pay for it. So I’m outta there. Although if DJT Makes America Great Again by building all those roads and bridges using American construction workers and it boosts the US economy I guess the VWRL in my ISA will tip its hat to him.


43 thoughts on “The Brexit Boost conundrum – this bell tolls for me”

  1. I’m never sure whether to treat my investments in SIPP ISA or unprotected differently, as they all contribute to the same pot. I guess the real issue is the tax regime, and on that basis the ISA should get the riskier stuff as there is no tax on the upside, and they don’t tax losses wherever they occur. I’m VUKE and VIMD in my SIPP, foreign in my ISA, and VUKE/foreign outside, but that’s historical based on when I bought them.

    I’ve been moving into VMID (FTSE 250) because I felt underweight there, but have no idea whether will Brexit will deal it a body blow.

    My foreign has done very well, I think that needs to be bed and breakfasted into the ISA to clear the capital gains, rather than because I expect to outperform in future.


    1. It gives me a hard time to actually work out how to allocate the different risk profiles across SIPP and ISA, for historical reasons I have much more ISA anyway. There are three different classes for tax reasons – the ISA where you take all the gains and can’t share losses with the taxman, the crystallised part of your SIPP (assuming you took the PCLS) where once you are into paying tax you share 20% of the gains and 20% of the losses with the taxman, and the uncrystallised part of your SIPP, where you share (20*0.75 = 15%) of the gains and the losses with the taxman. I’m sure that should matter – as you say, intuitively the more risky material should be in the ISA, but it almost needs Monte Carlo modelling to see if the gut feel is valid on average!


  2. Don’t panic Mr Mannering.
    There is no straight line relationship between exchange rate changes and inflation, it’s quite hazy. A BoE study showed a rough 3:1 relationship delayed by several years ,e.g. a 10% fall in exchange rate of the Pound might lead to around 3% inflation several years later.
    Plus you can to an extent control your own personal inflation rate – I could shop at Lidl instead of Tesco for example and wait a year before buying my next Ferrari or more likely iPhone.
    What certainly isn’t going to happen, unlike you imply, is that everything gets 20% more expensive almost immediately,and we are all 20% worse off. Your “20% Brexit tax”. Maybe 6% in 3 years if you buy the same stuff and if nothing else changes

    However meantime the economy does better because exports are cheaper (which might strengthen the pound eventually) and the rise in inflation also slightly washes away debt, your mortgage if you had one, gets smaller in real terms.

    Of course, who knows what DJT will do, in a few years time the dollar could be a disaster ((and then you’d be happy ?) you seem a bit conflicted there 😀

    Regards Joe


    1. A retiree spends on different things. Fuel – gone up at the pumps. Food – going up right now. Foreign travel, going up for me because of the exchange rate. I am totally debt-free so I don’t benefit from that inflation boost. Though I’d remind Brexit cheerleaders that you only win on the inflation/mortgage side if your wages keep track with inflation.

      in a few years time the dollar could be a disaster ((and then you’d be happy ?) you seem a bit conflicted there

      I am conflicted. That is the nature of a conundrum, else I wouldn’t be thinking on betting on Brexit being a success via hedged stuff 😉 TBH I probably still don’t have enough US exposure. So a disastrous dollar and a US suckout would stretch my increasingly worthless pounds a bit more on purchase!


    2. Wise words Joe, I’m not totally buying the 20% worse off either. I think your analysis is probably closer to reality, i.e. the road from exchange rates to inflation is a convoluted and winding one..

      And if it takes time for that inflation to work its way through the system you can bet your bottom dollar it will be over taken by future events (dear boy) that we haven’t dreamed of yet.

      In a nutshell, I’m saying think about things before they happen by all means, but save your worry for when they actually manifest themselves.

      ‘I’ve know a great many troubles – most of them never happened’


      1. i do see the sense in taking some of the gains made from the devaluation of the pound off the table though if you’re decumulating, that looks a pretty sensible active sort of thing to do to me..

        building your own house would be great, the only downside being its always more work than you think, you might get fedup before its finished. Those kit houses could be the answer as they go up a fair bit quicker

        The better solution would be to forget building the house, but build a shed instead – best of both worlds, i.e. buy as small a house you can get away with then embelish it with outbuildings built by your own fair hand. Thats my strategy..

        I notice MMM has copied me on that one, I maintain I do a much better job than him though, his looked like it was made out of playmobil, no style or craft in it


  3. I like your idea of viewing your DB pension as a bond. I have one too, and I’m never sure about it because I’ve never looked too closely into the management of it. All I want to know is that it will be there when I call on it. Like you, I’m hardly invested in bonds at all. I have a bit in gold as a hedge against armageddon but the rest rides various Index funds, spread across markets and companies. I fret about making changes and tell myself that “do nothing” is the best strategy and then realise that this is just a strategy too, probably no better or worse than some others I might consider!


    1. Treating a DB pension as a bond seems the obvious way to go – in which case I am still arguably over-exposed to bonds even though I don’t have any. Hence the concern about the Brexit Tax, which has permanently made me poorer in real terms. If you are at the start of your working life or midway through it but have decent DC savings that have got the boost, then you are OK. The starter because in theory wages should rise to compensate for inflation, though let’s see how that pans out in real life. The DC pension saver because their pension savings have been numerically inflated thorough the Brexit Boost, so they have preserved value in real terms and again hopefully their earnings will increase to compensate. But I’ve earned all the money I am ever going to earn, and the DB pension is devalued by the Brexit inflation tax if it goes over the value of the cap.

      I think once you’ve decided to index, you may as well stick with it, much to be said for the do nothing strategy!


      1. I wonder how many people who didn’t take protection against the Lifetime Allowance reductions are cursing because this 20% boost in asset values will take them into painful tax regimes now or when run forward to retirement. There are no Fixed/Individual Protection schemes for 2017. I thought I was safe, but it might be a close run thing now. Nice problem to have I suppose.


  4. @Joe the problem with arguing that Brexit based devaluation doesn’t matter is that its the markets that have done the devaluation, and who are we, as passive investors, to disagree with the market. If you are prepared to take a contrarian view on this, are you also an active investor, predicting stocks that will do unexpectedly well from this change? Which are they, is there a fund that tracks them?

    One genuine aspect of the devaluation is the cost of foreign travel, which I planned to spend much of my retirement doing. I will have to mentally spend my boosted foreign holdings as I wince at their prices, but many people with UK only income streams will just not travel. I don’t think insularity is a good idea, but then I’m a Remainer.


  5. Hi @ermine! These problems are in the “nice to have” variety, right? 🙂

    Just a quick note on the portfolio — as we often stress and repeat with each publication it’s a *model* portfolio, with a 20 year time horizon. It’s an educational tool, really.

    As such it will continually add more bonds and reduce equities as it approaches the finish line. At some point statistically speaking that’s likely to reduce the returns to the point where it would clearly have been better to sit all in equities, in terms of raw return. But we’re guarding against sequence of returns risk here.

    In reality both me and @TA have different aims and retirement horizons. (He aims to reach financial independence in the next 5-10 years and probably won’t work much afterwards, I intend never to totally quit earning money but nevertheless invest like Warren Buffett is going out of fashion. 😉 )

    I am keen for us to start a SSPP2 when this one reaches its 10th anniversary (shockingly not crazily far away now) but @TA demurs when I suggest that, so I may need to find a young ‘un to take up the baton. 😉

    Thanks for the link, good luck fiddling with those rocket boosters.


    1. > nice to have

      True in one way, though when I see a 34% lift I fear the corresponding suckout from reversion to the mean. And what on earth do I buy in the last few years of my contributory investing career with valuations up in the sky?

      I see the reasoning for TA’s shift to bonds, because his horizon is much much shorter than my guess of 20 years!


  6. @ermine,

    What’s this DB pension cap you refer to?

    I have been assuming your DB pension is BT.

    Mine is Royal Mail, deferred since I left in 2008 (just before they switched from final salary to career average) and I started drawing 12 months ago.

    As far as I am aware this is CPI-linked and without a cap and I always assumed the BT scheme was very similar.


    1. Hmmm. A bit of Googling later I now think section B of the Royal Mail Pension Plan does have a 5% cap, although the same section ( at ) seems to indicate the link is RPI rather than CPI which I don’t think is right.

      If there is a indeed a cap this somehow passed me by throughout the period from 2008 to now, including everything I read about the transfer of the scheme from RM to the government.

      I was previously unworried about possible return to the sort of inflation we had in the 70s and 80s (over 20% at times if I recall correctly).


      1. I think it is reasonable to be concerned about the possibility of > 5% inflation over a 30-50 year timescale. You definitely want to confirm that there isn’t a cap before if happens 😉 If you started drawing a year ago you could be 51 at the earliest, let’s say your time horizon is 40 years.

        2017-40 gets you back to 1977. Take a look at this inflation chart to see a 40 year ride. Everybody remembers the 1970s as being high, and it was, but most of the 1980s was also above 5%. Even the early 1990s would have been a bit rough

        The cost of inflation exceeding the cap for any year is a permanent real reduction of your pension by the amount exceeding the cap. For the rest for your life. This is cumulative for successive years. It’s the mother of sequence of returns risks. If it happens to you in the first five years of your retirement, you will have a much tougher time than if it happens in the last five.

        I have a similar arrangement. The cap is 5%, but the link is to RPI when the pension is in payment, and CPI while deferred. The difference between RPI and CPI will probably slightly attenuate the 5% cost to me of drawing mine two years early.

        Taking the PCLS and investing it is perhaps one way to shift the inflation (and taxation risk due to integrating NI and tax) risk, although of course you then get to eat stockmarket volatility.


  7. hmm – you got me wondering what to do with the ISA in april now

    1. bed and isa the whole 40k from existing taxable
    2. smash in 40k of new money
    3. or go 50/50

    to carry the who wants to be a millionaire analogy on, I’m effectively phoning a friend here

    what to do?


    1. Although 1 and 2 look equivalent (if you refill the 40k into existing taxable, ie are looking to make a net 40K portfolio addition this year) it’s not exactly the same. If you bed and ISA then at least you defuse any CGT on the existing 40k holding, assuming it went up this year – and if not you’re doing something wrong 😉 That gives you a clean post-Brexit slate to start from, whereas if you simply add the 40k straight into your ISAs then the unwrapped holding starts off with a base CGT liability from the devaluation of the pound, which sucks.

      Need to watch the 30 day rule on that, though at least your main bed and ISA holding is okay on that


  8. hey! I’m glad I asked. I hadn’t twigged that 2. is pointless when compared to doing 1. and then just refilling the taxable. may as well defuse the old CGT en route..

    very good ermine. I owe you one for that little gem 🙂


    1. As someone who’s only now managed to ground a CGT liability over several years I always want to avoid that sort of situation 😉 Since according to Barclays

      if you leave this allowance unused for any given tax year then you will lose it forever – unused allowances cannot be rolled over to the next tax year.

      it seems rude to leave some on the table, even if it’s a lousy amount.

      It’s difficult to see from the guidance whether one way round the 30 day rule for index funds if you are after the same thing after bed and ISA-ing the old lot would be to get the income version rather than the acc version or vice versa. But you can usually find a second source of a tracker from a different company. And in the end it only delays your new tax year lump sum investment by a month even if you stick to the same thing. If you are regular monthly investing then simply starting in mid May with a two-month initial contribution would nail the 30 day rule.


      1. Hmmm…maybe not. See the Monevator discussion today. Probably best to buy an “obviously” different fund (that tracks the same index, etc).


  9. the guidance isn’t totally straightforward is it?

    i often get the feeling of falling down a rabbit hole with hmrc

    say for vanguard LS, even if you can’t fob off inc. as being different to acc. it should be straightforward to do something like replicate LS60 with 50% LS40 and 50% LS80 or something along those lines..

    or as you say, just wait a bit..


  10. I wish I had this problem 🙂
    My main concern is that my pay may not keep up with my post-Brexit cost of living. Ian Stewart wrote a blog post way back about how everyone needed their own inflation index.
    I do as well. I spend more on foreign holidays than I spend on groceries. I also spend quite a bit on restaurants, and you know what the hospitality industry is saying about Brexit.
    Tax is another issue. I don’t think the Tories will be able to plug the hole in the budget they’ve blown with taking back control simply by continuing to skin the poor and the disabled. And I don’t think they will give up their dogma of a balanced budget. So they’ll have to come after the middle class, probably sneakily, e.g. by not increasing the 40% threshold quite in line with inflation and keeping the 60% and 45% tax thresholds fixed. Perhaps they’ll reduce the annual pension allowance further and freeze the lifetime allowance? Who knows. We’ll all have to pay for this train wreck, not just the brexiter lunies.


    1. I think there’s some comfort in that holidays and restaurants are wants so I don’t think the wolf’s going to be calling at the door 😉 Whereas there’s a teeny bit of comfort in that some of the Brexit voters will take the hit in food etc – well, they made their goddamn bed, may they lie in it. If they turn out to be right and it was all those beastly Poles taking away the unskilled jobs, then the suckout will have been a price worth paying, and if not, well, diving for simplistic solutions has to have consequences.


      1. haha – i can see your not missing the something that gets the old fire in the belly stoked up. Its good to be fully engaged though as its much more interesting/exciting that way.

        It has taken me by surprise the depth of feeling the referendum has generated as I didn’t really observe much interest in all things EU pre brexit from everyone around me. Very different to say, the NHS, which clearly people love and are very proud of. Maybe its a classic case of you don’t know what you’ve got til its gone?

        As adler pointed out, not unfairly I would say, the whole brexit thing may become an irrelevance if the other forces abound within the EU bring about its demise. It was good to be reminded that britain is only a small piece of the puzzle..

        Hmm – being grateful for things that you take for granted, understanding ones own insignificance in the grand scheme of things – there’s probably a philosophy lesson in here somewhere?


      2. I probably agree that in the not too distant future Brexit may be a sideshow, there is much ruin within the EU because of the failure to recognise that there are limits to the amount of common cause among EU nation states, and those limits are clearly short of making the Euro sustainable, never mind Jean Monnet’s dream of a ‘ever closer union’ United States of Europe.

        But FFS, there’s possibly a competent case to be made for Brexit in the 10 year time frame. But the Brexit cheerleaders are such a bunch of wankers, almost to the last man, but just wankers in a different way to each other, there’s no common view of Brexit.

        Is it about immigration, is it about sovereignty? Is it about getting back the lost glory of Empire days when the sun didn’t set on the Queen’s realm in which case we really are stuffed? We had the spectacle of BoJo more or less saying immigration was fine until he was told to STFU. It would have been better if we had a chance to see what was being voted for with a no vote, because “should we leave the EU” is about the means, not the end. It’s all very well to vote to put petrol in the car to go somewhere, but it’s maybe better to chose where you want to get to first.


      3. wise words – its all a bit headless for sure

        i would agree the cheerleaders are wankers, thats pretty clear cut, but the other 17 million, I personally would be wary of writing off that many people as some act of mass onanism

        thinking along the lines of the wisdom of crowds and all that – can that many people be so badly wrong? Its a bit like arguing that markets are inefficient, i.e. do i know leaving the EU will be a disaster better than everyone else who voted compared to do I know this equity is mispriced compared to everyone that bought and sold it in the market

        maybe its a bad analogy, but I still find it hard to buy the ‘half the country is stupid’ line


      4. > I still find it hard to buy the ‘half the country is stupid’ line

        And I’m not saying that 😉 It’s just a pity that this is a digital choice, and having gone for the one which was less defined other than process, it is time that there is either leadership or more fact-finding done. It’s clear that there are several alternative views ,so trying to qualify the priorities people have would be good. And, in an ideal world, scoping out what could be done.

        I think it’s clear that for some types of work the A8 countries did depress local wages – the builders etc. Perhaps immigration at this level is/was an issue. Fair enough, the costs of construction will rise to pay people a better wage or automation will come in, and building work will get more expensive. I don’t see this as necessarily a bad thing.

        What about white collar work? All the bleating about labour shortages and needing to import people – well, arguably my job was destroyed by Indian IT outsourcing, which has ‘owt to do with the EU, I am okay with the result but does that mean that Brits of above average but not stellar ability will be disadvantaged in future compared to the past, and what does that cost our economy, and generally where is work going? I was clever enough to get ahead for a late 20th century economy, perhaps not enough to do well in a 21st century economy, how much is that a bad thing if at all? If I had children that might exercise me more, as it is since I got out I can be chilled, although I will grow old into a society where this catches up with people. In general the bar seems to be rising for people to get a decent career as time goes on. Can our economy produce enough stuff with fewer people?

        Although George Osborne may have been a wanker with his punishment budget, I think he is right that Brexit did not put the economy as a priority. That’s also fine, life isn’t all about money in a First World nation, though let’s not have the bleating about the effect on the poor if and when they take the hit, they did, after all, vote for it 😉 There are some times in life where you can’t have what you want.

        It’s fair enough that in the round people wanted out, but what we desperately do need is a better idea of what we want the UK to look like from here on. Not all of that is within our power, but it would help as the right questions of our neighbours. Brexit is framed far too much in terms of what we don’t want the future to look like, and not enough in terms of what we do. It is better to run towards the light than away from the darkness.


  11. yes it is quite useful to compute your personal inflation rate, you need to do some sort of multi year rolling calculation though ideally, bit like CAPE, to smooth out the spending lumps, just comparing year on year can be a bit misleading.. one of the useful insights of keeping accounts is seeing just how lumpy spending is, makes me wonder how people can have any success setting monthly budgets, I dont bother with it as its too unpredictable

    sounds like your coming from a nice angle though in as much as you have plenty of fat to trim if things start to get tight?

    i watched the after brexit adler bbc doc the other day, thought it was quite good

    i remain unable to attach myself emotionally to either side of the argument. I’m definitely missing the something about it that gets the old fire in the belly stoked up. My view is that the country split, i.e. 50/50 seems to be a good interpretation of the problem, i.e. theres significant pros and cons on either side..

    after initially thinking i would abstain from voting in the ref, I finally swung to a remain, and what did it for me was thinking of the amount of money and effort that would have to be spent on the admin mountain that would be generated in whitehall.


    1. Regardless of the merits/demerits of Brexit in itself, I am genuinely puzzled by the blithe assertions made in this comment thread that the inflation rate isn’t rising and won’t be anywhere near as much as the devaluation, but maybe this personal inflation effect is there for me. I was after a 2TB hard drive to put as a redundant standby in my NAS. I did not expect to be asked for £100. Its brother, the original one of the same spec, cost me £86 in May 2012, inflation-adjusted that would be £93 but this is a piece of computing kit FFS, it should be cheaper in real terms after five years. 20% Brexit tax looks right taking that into account. A pot of this has gone up from £1.55 last week to £1.75 in the co-op. Okay, two data points don’t make a chart. but it doesn’t match the assertion of single digit inflationary results, and that’s starting to show in about half a year in very disparate product classes.

      To some extent that’s fair enough, if we are going to kick out the low-waged EU workers that are making the unskilled Brits so unhappy by “stealing their jobs” then we will get labour shortages in those areas, so either the price of that labour will rise or we will learn to do without the product since it can’t be supplied at a price the market will bear. Still, they have got their country back, so at least they’ll have got what they wanted, and good luck to them.


  12. @hosimpson, I think you must be right – follow the money, the poor don’t have any more to be relieved of, while the rich have the means to protect theirs, that leaves the middle-classes. Since that will hit their votes, they’ll want to be coy about how they do it, but at least 2 facts will enable them, the dependable naivete of the electorate & more importantly, the lack of any opposition.

    I am guessing it’ll still be covert, such as the recent significant hidden/indirect tax rise via loading more tax on various insurances which consumers will subconsciously blame the insurance companies for; comparable to giving the waiter grief for the food in an eatery.

    The possibilities are endless, [death by a thousand cuts] so widespread increases on the tax element in the costs of insurance, utilities, transport/fuel – massive council tax hikes can be blamed on local government …..a windfall (for the establishment anyway) could be the divorce settlement amount to leave the ‘venal EU enslavement’ deal. The evisceration of the NHS is almost done, so it can be called unfit for purpose & replaced by mostly unaffordable, US-style, predatory, private-health ‘care’ corporations. (That could yield another serious windfall in the stripping of NHS assets, such as city-centre sites like hospitals & research institutes)


  13. Inflation can also work in mysterious ways, so think beyond the in-your-face power bill massive price hikes, or even the sneaky jumps in the tax components of our necessary [vehicle fuels] & fun lovin’ chemicals. [booze, fags, luxury foods] Then move onto those unavoidable things in life that people neither are aware of nor would understand anyway – where the establishment can raise their game if pressed to be creative in fooling the plankton.

    For example, short-termism applied to work, as more people are swallowed into the gig economy, they no longer have paid benefits such as holiday pay, sick leave & sweetners like bonuses or private medical cover/decent pensions. That makes a savage difference to your annual budget & therefore quality of life immediately. Similarly invisible in daily life is the price of basic accommodation soaring to the point where properties double in cost every decade in the areas where the jobs are, so people want to live.

    Yes, impoverishing the middle classes ruins the only tax intake, but that has to play second fiddle to the primary aim which is for the elite to stay in power & can anyway be blamed on the EU bogeyman, like in an episode of Yes Minister …..take it away Sir Alan B’Stard. Today, our ersatz actor’s a Cruella Deville cartoon character freshly back from the requisite poodle-pilgrimage to the newly elected leader of the US, for the Special Relationship ceremony whereby the uk vassal puppet upholds tradition by humping the leg of the Sunny Delight King. [ in this case Cartman from South Park has been made the ‘leader of the free world’ in a particularly hallucinogenic episode ] 🙂


    1. > 11B shortfall

      No, because a) I will take the 25% PCLS which will slightly derisk my exposure to that, and hopefully derisk PPF haircutting by taking that off the table, though they will do what they will do if that happens. and b) crown guarantee, which is specific to that particular case. I took the steps as soon as I could to avoid exposure to The Firm in my stock market investments, other than its component in index funds. I was tempted to rush in after the recent debacle, but valuations are so high and the Railtrack/Enron effect recent enough I desisted.

      And perhaps c) I will have a decent-sized ISA worth about half the notional backing capital of the DB pension when I am done building it and I am debt-free, so if the pension all goes titsup I will have to suck my gut in somewhat, though there’s a question as to what the ROI would be like under that sort of scenario.

      The sort of tail risks of all that going wrong are there, to be sure, but by then there would be notable social unrest/one party statehood/war and pestilence. I am too old to be prepared to fight that, and saved capital or even gold won’t help me. I would be better off using basic engineering skills to help warlords scavenge or bodge energy systems to hang onto some residual elements of what they once recalled as civilisation, or be lost to the denouement. Some things are too big to fight…


  14. @Ermine – I think this will be very interesting to alerting your readership:-

    ‘On April 1, the Government will introduce a 1 per cent cap on charges when over-55s exit their old workplace pensions.’

    [

    It’s an extract from the above-referenced article on a chicken quietly coming home to roost in the pension mis-selling industry – it seems a lot of people are going to find out suddenly that the private pensions they were counting on have evaporated via sneaky charges.

    Looking at the T&Cs on the one in the article, it smacks of the spirit of the endowment mortgage scam … does the current avalanche of cars being bought with PCPs – they really look like endowment mortgages reheated.


  15. Hi Ermine,

    Stumbled across your blog as continue to try and educate myself on investing. Some really useful discussion and apologies but I am going to be cheeky and see if you or your followers can help me with my own investing dilemmas!? I am in my mid 40’s, so about 10 years before I want to start to take income. I have been reasonably sensible with savings but pretty risk adverse also. I have around £100k of ISAs that I have recently consolidated on the Interactive platform and to achieve this ended up selling about £40k of active funds during January, meaning everything is now in cash. I also have company pensions that are on a good trajectory and not planning to do much with them yet.

    I completely buy into the passive index based investing approach (Bogle, Tony Robbins, Tim Hale books read) but for all the reasons above, combined with what seems like limited options for defensive investments as well, I am getting trapped in a timing/analysis paralysis state.

    I know you shouldn’t try to time the market in a long term approach, but I am concerned that the recommended portfolio’s (Tim Hale for example) are no longer really balanced, as everything seems overpriced bar the emerging markets.

    The options I am considering are:
    1. Wait (3-6 mths) to see what happens to Trump and Brexit and see if the US equity and bond markets become better value and then invest per Tim Hale portfolio – i.e. hold cash for now
    2. Start to build portfolio now but only 50% now and then add a bit each month over next 6 months to get up to a 60% equity/40% bond split
    3. Build portfolio now but hold cash instead of bonds for my defensive element
    4. Buy a Vanguard Lifestrategy fund now

    As you can tell I am no expert and a bit all over the place!

    Any advice appreciated!


    1. @Jonski hints – well, read Monevator – but I personally (this is not advice, DYOR and all that – but some things are reasonably easy).

      1. for God’s sake start now, even if small 😉 I take your point that stock market valuations are high, and if you can’t stomach that, then at least start monthly investing into something simple. If you really want a 60:40 split then VGLS60 isn;t a bad start. VGLS has somewhat of a home bias in the UK, but maybe that’s not such a bad thing given your views on US valuations. Waiting to start is a tough one to call, and a lot of your return is time in the market, not timing the market. And that’s coming from an active investor who does favour timing 😉

      The reason I say start is because you need some of the lift of looking back and seeing your track record. If you’ve only got an investment horizon of ten years you want to start trickling in soon. It is really, really tough to call macro issues right.

      Having said that, I have sympathy for building a portfolio starting with what’s cheap now. If you are going to divvy up your 100k cash into x:y:z and z: is cheapest right now, EMs perhaps, there’s nothing wrong in buying that first. But as an example of how that can go wrong, I decided in 2010-11 that the US market was overvalued and I’d start elsewhere. It’s stayed overvalued, I take solace in that the US is half or VWRL and a DevWorld ExUK index fund I’ve been buying the last few years. But deciding the US market was overvalued has probably cost me return. Likewise I thought emerging markets were good value in 2014. They got even better value the next year. My fellow countrymen helped these massively by devaluing the pound 20% last June. Thanks for the bailout, guys. In the round, however, buying indexes that stink has worked for me, because I buy and hold indexes. I don’t aim to sell, I steer balance by targeting new money to TA’s point 2. But if you are going to market time the sectors, hold ’em, don’t trade them, that way madness lies.

      2. You need to consider your company pensions as part of your total asset allocation. Multiply any defined benefits parts at the projected pension at NRA times 16 to get a rough equivalent of the capital value (this is not the same as the CETV, it is the factor HMRC use). A DB pension is very bond-like in its offer, Then do your Tim Hale asset allocation for your risk tolerance across the entire pension portfolio. You have flexibility outside the company pensions, so that it where you would be doing your portfolio rebalancing as best you can.

      For instance, I regard my DB pension as a bond, accordingly I am 100% equities, because I can never get my total equity:bond ratio over 50%, which is too low for my risk tolerance.

      If your company pensions are DC then asset allocation goes along Tim Hale lines over your entire pension estate.

      3. Carrying cash as your bonds part is okay over a timescale of a few years, but 10 is pushing it. If doing that makes you feel better about starting on the equities there’s nothing wrong with that for a couple of years, but don’t let it slide much more. You will know more about investing, and you will know yourself as an investor better in a couple of years.

      Get other opinions.

      MSE forums on pensions

      Lemon Fool

      I would venture being “pretty risk averse” may cost you return if it keeps you in cash for too long 😉


  16. Thanks for the tips and motivation, I will keep reading but focus more on my equity options and worry less about bonds. I will also revisit my asset allocations in my pensions as 2 out of the 3 are DC so need to be considered in the mix. I plan to max my ISA contributions each year so I will set these up to keep adding to the portfolio each month which should help. I am also thinking If I do start cautious the cash will be there to increase equities if some areas did get cheaper? Thanks again.


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