It’s nice that we have a bigger annual tax-free investment allowance in April (20k up from 15,240), but most of the opportunities for saving and investment suck at the moment IMO. Tax-sheltered savings are all very well, but there’s no point in doing that with cash these days, because at current 1-2% interest rates you can save 25k of cash as a higher rate taxpayer and twice that much as an ordinary grunt before you run out of savings interest allowance. And have you tried[ref]MSE has found you 1.75% fixed tops at the time of writing[/ref] to get 2% in a cash ISA lately?
What to buy next year then?
Over to the good old S&S ISA. So I have 20k burning a hole in my pocket next year, what should I go for? Although I do some background steady index investing in one ISA, with about half a year’s contribution I try and aim at what’s beaten up at the moment. I’ve tended to be too early into these – I was saved by Brexit from an early foray into Putin’s Russia, and saved by Brexit again when I was overenthusiastic about emerging markets. Other dogs have come good by their own work, and been Brexit boosted – I can’t remember when I first bought BRWM when it was in the doghouse and topped it up when it continued to be in the doghouse, but it has redeemed itself of its mutthood to be a good team player in my ISA now. I can be happy that I have nothing in the most popular fund lists for 2017, apart from VGLS100, which I have just sold. In indexing, I am a VWRL guy these days, because I have zero cost of carry[ref] VWRL is an ETF, TD don’t charge to carry shares, whereas they charge me to carry VGLS100, and VGLS100 has too much home bias for me as I already have a hefty home bias in the HYP[/ref]. It’s good not having the same stuff as everyone else. I tried that the other way round in the dotcom boom and it didn’t end well at all 😉
Valuations have been high of late, those nice guys at starcapital have a summary of where we stand with CAPE and various other metrics. Donald Trump’s America is the 600lb gorilla here at 43% of global weighting, but I was surprised to see Blighty in there with 5% global, and indeed to see that France is a bigger part of global markets than Germany though less than the UK. What the hell should I buy, if anything? Trumpland is way up there in valuation. And I’m already buying a load of that via a regular Dev World exUK purchase as well as VWRL, I really don’t want any more of it. I have every admiration for American exceptionalism, but you can have too much of a good thing.
The trouble with looking at performance is that Brexit has muddied the waters greatly
Our fellow countrymen voted for a pay cut of 20% so they could take their country back and stop hearing furreners jabbering away talking foreign on the High Street. An awful lot of my ISA is foreign assets, and even the UK based HYP tends to be FTSE100 big fish who earn a lot of money out of the UK. As a result the whole thing, denominated in pounds, is sky-high. It’s sort of like the effect on this picture
It makes it the devil’s own job to tell what’s going on, whether something is up because of its inherent value, or if it is the effect of the devalued pound. Into that fog of war I need to try and invest £20k, or hold it as cash because I deem the stock market overvalued, or some combination of all that. And I’m puzzled. Okay, so when you take last year’s £15k ISA allowance and deflate it by the 20% Brexit Tax then that means 18k of the new allowance represents the same real value as £15k did last year if you’re buying foreign assets, however, the allowance has genuinely increased by about 10% in real terms.
What on earth is a fellow to do?
Perhaps His Trump-ness is really going to drag the US out of the twisted wreckage of the financial crisis, by building walls all over the place, and telling the rest of the world to fuck right off as he Makes America Great Again. At the moment it seems he does policy by diktat and his pronouncements bear more resemblance to religious belief, or at best a random wibble generator powered by haterade, but that is obviously my pusillanimous European[ref]well, European for the next two years anyway[/ref] upbringing blinding me to his multifarious talents.
Talking of making countries Great Again, over here we seem to have a similar sort of random policymaking on the hoof, it’s all about taking back control and a lot less about what the grand future is for Little England after the Scots have scarpered. At least the Donald has a destination, rather than just a method in his madness. All we seem to have is process. Brexit means Brexit because it’s the goddamned Will of the People™. Yes, but WTF does it actually mean?
For most people, ignoring valuations and drinking the regular passive investment Kool-Aid is fine for this year. Tax year 2017/18 is just going to be another of the many years in your slow and steady journey to retirement nirvana. For just one year out of 30 or 40 it doesn’t matter than much to you if you buy over valued Stuff, you have years enough ahead and some other year will be like 2009, so you’ll do okay on average. Even for me, 20k is not a large part of my ISA, because I have most of my saving years behind me, but it is likely to be the last when I can fill an ISA.
Half of it will come from unwrapped holdings, because the writing is very clearly on the wall for holders of unwrapped holdings, basically you’re toast. For that portion, buying currently overpriced index funds isn’t so bad, after all what I will sell was also overpriced and Brexit-Boosted, it’s not like I actually earned all that money in the distant past when I was a wage slave. But it would be a dreadful shame to put my last 10k of real 20% devalued Great Brexitted Pounds into a sky-high market. Valuation matters IMO, and stinks at the moment. I guess about 30% of the number in the total box of my ISAs isn’t real and needs to go before it comes to reasonable value. The over a third nominal boost in my unit price last year is ‘king absolutely ridiculous, even if I knock off the lift due to the Brexit dumabass levy. Equity prices need to come down.
It’s not like there’s a shortage of good reasons for a Minsky moment, but the tragedy is while I know it’s coming, but never know exactly when. I might take time out on that 10k half this year until this time next year, however. It’s an error I can afford to make, assuming the Minsky moment doesn’t happen and I get to write this article again this time next year. It’s my last significant burst for the ISA, and hell, I want the markets to be down in the dumps for that, or at least like January 2016.