Month: January 2019

Will the last UK finance blogger please switch off the lights on their way to Twitter

In a recent post Monevator started off decrying the slow fade-to-black of the UK finance blogs, did nobody tell him that

This is the way the world ends
Not with a bang but a whimper.

but more seriously, I wonder if it isn’t in the nature of the beast. The blaze of frenzied writing is to be had in the initial stages as you are working out what is what, and if this FIRE malarkey is possible at all, and what  stage of the process you are at. Then come years of grind, when not much interesting happens at all, particularly is your investment strategy is basically buy a tracker every month for 20 years, then quit on the proceeds.

The end of the world features tumbleweed

Before I join in bemoaning the passing of the old guard we really ought to have a rundown of some great new UK FI blogs I have come across:

There are also some interesting EU FI blogs, achieving FI is different in most of Europe because tax-sheltered accounts seem to be less generous and tax thresholds lower. It reminds me of the situation in the UK when I started work, when although we were all poorer the social safety net seemed to have a bit more humanity1. The Anglosphere has gone more towards a winner-takes-all model, diverging both from mainland Europe and from its former self when jobs were more stable, addressed a wider range of the intellectual ability range and particularly in the UK, housing was less vile. Firehub.eu is a good place to start. I wonder if the Brits will be kicked out in April for their renegade ways 😉

Steady investing and a lack of market drama isn’t good for narrative

I would say that RIT has done well with the steady investing narrative, turning it into a book. But there are only so many ways you can slice the lemon. Maynard Paton has an interesting FIRE journey – note that it also features some fantastic luck. In his case, calling the housing market well, but selling out of stocks before the GFC to realise liquidity to buy the house. Luck on its own is not enough, you must also carpe diem. MP gets to stop work nine years earlier in life than me.

It was much easier to write about investing ten years ago. We had just gone through a humdinger of a crash. Not only did you stick out in a big way saying the stock market was something to run towards, rather than away from as fast as you could, but starting from such a low base meant the market was tolerant of mistakes other than churning. The expected return is inversely proportional to valuation, you could buy pretty much anything left standing in early 2009 and do reasonably OK. Building a high-yield portfolio (HYP) with a useful yield looked like a reasonable possibility then. Nowadays you’d have to indulge in risky behaviour to get a high yield because valuations are higher. Sure, there’s Sturm und Drang in the papers about recent retrenchments, but the FTSE100 is back to two years ago, not 10! Continue reading “Will the last UK finance blogger please switch off the lights on their way to Twitter”

100% mortgage backed by BOMAD? I’ve seen this movie before – it didn’t end well

Rich kids will get to bid up house prices aided and abetted by BOMAD1 and a Lloyds bank 100% mortgage. BOMAD are on the hook for defaulting rich rugrats in the first three years, then Lloyds bank should be OK with the equity said kids2 have built up in those three years. Let’s hope Brexit doesn’t make the housing market go titsup, eh?

No, actually scratch that. I wish exactly that. I have no sympathy for these featherbedded chillun – let them suck up the negative equity, and let BOMAD be rocked for a chunk of the debt as a useful playing-field levelling action. Bring it on.

Perhaps after that’s happened some other poor devils will get to afford a house, should they be fortunate enough to still have a job in post-Brexitland.

BOMAD-backed mortgages are tough luck for kids who don’t have well-heeled  parents, because, natch, the rich kids will bid up house prices. So we can understand the delightful sentiment behind Frank Field’s letter to the Grauniad which proposes extending the largesse of the 100% mortgage to all those who don’t have access to BOMAD. Bless your egalitarian cotton socks Frank me old mucker, but you happen to be older than I am. So how come in your 76 turns around the sun you haven’t noticed yet that if you subsidise people’s mortgages, what happens? House prices go up. The maths is simple.

Punters have £x they can spend on housing, and in general when you are young an inexperienced as to the vicissitudes of financial life you deploy all of that £x, because everybody around you tells you that you can’t lose with housing. You also don’t tend to have much capital behind you and are in the first part of your working life, so your earnings are limited. You’re running on empty once you’ve committed your £x to the rapacious maw that is UK residential property. There are no reserves. If you’re £x is more than someone else’s you soak it up by having more house or living in one of the more tony districts, or reducing the zone on your London Underground ticket if you are rich enough to buy in the Great Wen.

The market is set by some punters finding their £x just ain’t enough to own where they want to live, so they leave the market for the rapacious BTL rental market, reducing demand of housing to buy. So, Frank, you go and subsidise that buyer’s £x by £y allowing these folk to borrow more than they can actually afford, guess what happens? Prices rise by £y, or if you subsidise mortgages by £y, by the increase they can borrow with that extra £y, which is a lot more. Result misery. This is an area that needs tough love because of the law of unintended consequences.

We’ve been here before. MIRAS, Help to buy3, LISAs. Get the government the hell out of the home loans market and keep it out of it, nail their feet to the floor. That includes you, Frank. Sure, BOMAD ain’t fair and the rich will screw everybody else. See also: private schools, moving to catchment areas, the lot. If you have the money you will always shit on other people’s kids to get yours ahead.

Government – stay out of the home loans biz. Get into the house building biz

The government can do something about housing – build the bloody things as social housing, don’t subsidise the buying of houses. Leave that to the market. Fewer that half of British households can afford to buy a house IMO. It’s a tremendously expensive capital asset that sucks up roughly 6-10 years of your gross earned income4, and in earlier generations before 1979 we catered for these people with something called council housing.

Let’s not over-romanticise that – some council housing was ghastly, I remember playing on some of the elevated walkway council estates as a kid where some friends lived, and they were dire. Council houses were often terrific, though, particularly for families – far more space than the typical four bedroom premium executive detached-in-name-only5 rabbit hutch constructed now.

Typical taste bypass of a modern estate aimed at those with more money than taste, this one in Turkey. Someone’s missing the whole point of a castle, these ones are definitely DINO. A castle should be 10 miles from the nearest one 😉

The government should stay out of the homes loans biz. Totally, other than to regulate charlatans, minimum lending standards, and to deny BTL lending totally IMO. I’ve nothing against private landlords, if they really own their properties. If they are competing for mortgages with homebuyers, well we survived perfectly well without BTL mortgages up to 1994 and nothing about the British housing or rental market has gone in the right direction since then for the poor bastards that have to live in the properties.

If the government wants to do something about housing, then look to the days before Thatcher screwed it all up to buy votes giving away free money to council tenants with Right To Buy. They were council tenants because they weren’t rich enough to buy their homes, and 40% of these houses are now in private BTL hands, shitting on the generations after. Thanks, Thatch.

We could roll this back  – build social housing, which we used to call council housing, and employ the best lawyers in the land to place a perpetual restrictive covenant on council housing so that any politician that even thinks of doing a Thatcher Right to Buy to sell them for votes is threatened with an official summons to be put in the stocks at the Tower of London to be pelted with eggs by everybody that can’t afford to buy a house until they think better of it.

In other news, personal insolvencies reach a seven-year high and household spending is at a 13 year high often fuelled by credit or depleting savings. Just the sort of situation that absolutely calls for 100% mortgages , natch?

  1. That’s Bank of Mum and Dad if you are one of the lowlife oiks that don’t happen to have mater and pater with the odd 10% of your starter house kicking around in loose cash they don’t need for three years. ↩
  2. In the curmudgeonly Ermine worldview you’re still a kid whatever chronological age you are if you are financially dependent on your parents. Paying your own way in the world was one of the key rites of passage to adulthood in my day. I do appreciate that such non-launched kids like to be called adults nowadays, but this is my narrative, so bite me ;) ↩
  3. Help to buy was on new houses, FFS. Yer typical first time buyer isn’t rich enough to spaff their money on a new house, you whazzocks. This was straight bung from taxpayers to Dave’s housebuilder chums ↩
  4. At a purchase multiple of say 5* one salary, and typical mortgage terms at typical multi-decadal British interest rates of ~ 6% means you pay about twice the capital sum over 25 years ↩
  5. DINO is when there is separation of about two inches from one ‘detached’ house to another. You need a few feet to get away from your neighbour’s bad taste in rap and to keep your squealing grandchildren out of their beauty sleep. ↩

Unitising my portfolio shows I sucked last year

The trouble with unitising one’s portfolio is there’s nowhere to hide. Unitising lets you track the effects of adding money, which helps avoid the easiest gotcha in fooling yourself on returns. The Beardstown Ladies Investment Club effect. The hard earned cash you lob into the pot makes your portfolio go up, but it’s not profit, or ROI, or anything like that.

Unlike starting with a one off lump sum from which you draw nothing, evaluating performance gets a lot more complicated if you draw a yearly stipend from your stash. It gets a lot more complicated if you’re one of the ordinary mugs who has to actually, y’know, earn the money they are putting into their future freedom fund, paying it in year by year as they go.

The UK version of the Motley Fool used to have the greatest description of how to unitise and worked example called Stockpicking – Are You As Good As You Think? by G.A.Chester which was still visible to freebie members, but all that was lost when they reorganised the website(19 January update – see Neil’s comment for the original text – he had saved this). Sadly G.A. Chester seems to serve up endless spammy clickbait articles these days, what the hell happened to you, man? Stockpicking was an article pure genius, putting across a tough concept in actionable bitesize steps.

Monevator has a description here but for some reason I really struggle to follow that, although I recognise the moving parts when I analyse my spreadsheet written to implement GA Chester’s more ermine-friendly narrative. I tested the spreadsheet against Chester’s example. Pity that gem of wisdom is lost to linkrot.

Unitising is quite a grief-stricken and error-prone process because it involves going through the spreadsheet and entering the current price of holdings I own at the January sampling datum point. After 10 years, particularly with some occasional muppetry I have a few dead lines of stocks I have no holdings in, but it’s easy to miss the odd line where I do have holdings. It fails safe in that if I don’t enter the price of a holding I own, it says the value of that line is 0 which makes the unit price lower, which is an incentive to go back and catch all of ’em on the grounds I can’t be that crap, surely? There’s also a error-checking catch line that tots all the holdings up, it’s kinda nice if it matches Iweb’s view of my world. Obviously fans of Cloud Services like Money Dashboard will have this easier, though you still need to do the annual spreadsheetery to unitise. Money Dashboard claims to be

a secure cloud-based open banking website that enables you to replicate and then track all the spending categories you set up in MSE’s Budget Planner

Colour me a cynical sonofagun but I am of the firm opinion that secure and cloud-based do not belong in the same sentence. See Equifax for a worked example.

The Ermine portfolio unit value is down 5% this January to last January. It’s also changed nature, more gold and I have taken 20k out as cash, though I may stick that back in to Charles Stanley, which is a Flexible ISA, and pull it out again halfway through April. And I may contribute something to Iweb this year, though I can’t make the full 20k.

Now that’s not dreadful. What would I have been doing otherwise – I’d be in VWRL a la Lars Kroijer.

Hargreaves Lansdown tells me VWRL is down 6.87% Jan 18 to Jan 19

I get divi from VWRL, which is about 2%, I guess there’s a .25% platform fee too. So instead of all that tracking, I could have had one lot of VWRL and been about the same.

What about VGLS100? That was about -5.36% in acc units. Much of a muchness and not worth the Sturm und Drang. In general, a little bit shit. Where Eagles Fear to Perch did better than me last year for instance, congratulations that man!

Defence, not offence is the word at the moment

Now I did shift much more defensively, there’s a lot of gold, there are some government bonds in there. I am probably suffering the deadweight drag of the gold not earning an income. Well, that’s my excuse. I shifted more defensively for several reasons. It is not quite determinate when the best time to take my main pension is, there is a balance between the actuarial reduction because I am not 60 and what appears to be high CETVs which incidentally seem to reduce the actuarial reduction, for reasons I don’t understand.

So I have to keep on pinging the pension modeller. I might need some of that cash if the modeller says delay a bit, and money you might need in the next five years has no business being in the stock market. Particularly when said stock markets are at high valuations. I did much of the switching mid last year, but all that gold and the cash is pretty much a passenger now. I am not one of you young finance workers getting a savings rate of 50% into your SIPPs, I might have a negative savings rate this year.

I’m also trying to keep some of this year and last year’s ISA allowance, because I will draw a pension commencement lump sum from my main pension. And there is some hazard of a Corbyn led government in the future. As a retiree I won’t have a particularly spectacular income1 so I will probably be safe from his ministrations, but an ISA allowance of £20000 is way above what the vast majority of the population could even dream of saving. The argument that letting the rich shelter such a large yearly amount from tax does have some cogency, so I want the possibility of getting that PCLS into the ISA within the next year or two. Whether £20,000 will have any useful value in the Brexit Brave New World of buccaneering brio will remain to be seen.

  1. by the standards of my professional self or indeed the general UK PF scene – even the employed Ermine was way down in the ranks of finance whizz-kids well represented on the UK PF scene now. It wil be fine and more than my early retired self, but I don’t expect to be a tall poppy in Corbyn’s sights. Hopefully Corbyn won’t have the Blairite ambitions of siring a baby-boom through pronatal giveaways as we had in a tough period midway through my career, where every other bugger seemed to be getting the breaks. ↩

New year, New You, New hope

A Happy New Year to you – what are we looking forward to in 2019 then?

I was out walking with two friends – the sun was setting – suddenly the sky turned blood red – I paused, feeling exhausted, and leaned on the fence – there was blood and tongues of fire above the blue-black fjord and the city – my friends walked on, and I stood there trembling with angst – and I sensed an endless scream passing through nature.

Oh. Not so much, really. Did you know there were four versions of this picture? I didn’t until now, so I have learned something new today before 10am. Can’t be all bad. There are great parallels between now and the beginning of the global financial crisis. There are some that say there are great parallels between now and the 1930s, but let’s fight that one later on, eh? What do we have in front of us?

It’s an ill wind blowing, young FIRE folk…

The problem with seeing many new bloggers starting on their journey to financial freedom in the last couple of years is the thought in the grizzled Ermine’s fur that you really want to start that journey with a stock market that hasn’t been pumped up by funny money. I wish y’all the best of British luck, but I know from bitter experience that taking a suckout a couple of years after starting one’s journey to fabulous riches financial independence via the stock market is tough as hell if you take a spanking a few years in. Here’s how I did it wrong, so you don’t have to 😉 Continue reading “New year, New You, New hope”