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 😉

I’ve seen this movie before

That was me, starting in 1997. No idea about highfalutin’ shit like diversification, so guess what I invested in? Heck, I was the proud owner of an early technology ETF, TMT. How did that go down for me? Badly, so badly that even the ETF provider was so embarrassed about the appalling performance that they pulled the ETF in 2003, making forced sellers of their punters into a market low.

The FTSE100 Go on, I give you one guess as to which year the Ermine capitulated

Some time in 2001 the Ermine gave up on dotcom stocks, and bought into the indexing mantra. So I got myself a low cost Virgin FTSE all-share CAT¹ approved index fund, which had charges of a piffling 1% p.a.

I got pissed off with all that guess when – 2003. I gave up about £7000 to the stock market. Compared to what I surrendered to the evil housing market it doesn’t amount to a hill of beans, and nowadays I look at that as excellent value training in what not to do with the stock market in the University of Life. That £7k (probably 14k in today’s money) was my entry ticket to seeing the wisdom of this in my hour of need, and getting to act on it, timidly in my ISA and full-on in my AVC (sort of like a SIPP). It was good value – you can spend a lot more that that on shysters trying to sell you courses and newsletters on how to be a great trader/investor/stock market hot handed king. I say pay your dues directly to the market if you have to. After all, the obvious question to ask of anybody selling you how to be a great investor, is if this is so damn good, why aren’t they borrowing the money from a bank if they have to and eating their own dog food?

Market routs are good for FIRE folk.

There’s an ill wind a blowin’ in this new year, and it’s blowing you guys some good. The overvalued stock market is finally beginning to surrender to gravity and reality. There be opportunities out there for young folk looking to achieve financial freedom, buy into the suckout when it comes. Could be as easy as buy regularly every month if we can get the FTSE100 down to 4500. You don’t have to catch the cusp of the turn, just the general suckout, hold on for ten years and look back. Things are looking up. young FIRE folk, go get em. This ain’t anywhere near a rout, yet, but here’s hoping for 2019 mayhem, eh?

while you’re at it, batten down the hatches

Obviously you have to be fortunate enough to keep a hold of your job, so watch your backs and keep those CVs up to date and your contacts close. There’s an argument that the last downturn busted the Ermine out of the jobs market though it also bent the stock market out of shape enough to help him bridge the gap. Companies go nutty in squeezes like this and they start setting you performance management objectives like “Boil the North Sea.” Basically so they can make you feel like shit and be more compliant, in downturns they don’t have to try and retain people.

Will. Not. Be. Boiled. In your bosses lifetime at least. The North Sea from Southwold.

I’d say now is the time to make sure your emergency fund is in good shape, to stop buying consumer shit and other lifestyle accoutrements you can’t afford. Thin out consumer debt in all its forms.

That’s a tough one to do at the same time as girding your loins to carpe diem on the stock market. I was dumbass enough and fearful enough to prioritize cash savings in my ISA in 2009, although I was at least bright enough to half split it with S&S ISA savings. Where I did win bigly², however, was ramming my pension AVCs in a 100% stock market fund, I was a sub-50 whippersnapper at the time so by definition I was 5 years off from using that, and this sort of logic was compelling. When I see that post appear on Monevator again, I am going to sell gold and buy stocks 😉

OTOH I can’t be too hard on my getting on for ten year’s younger self. He was not to foreknow that I would be able to hold on to that job for another three years of massive savings, so prioritising cash savings first was perhaps not so daft. I did not have the classic six month’s salary in reserve, because I was doing something else that was tremendously dumb in hindsight.

Don’t pay down your mortgage. Have resources to do that instead

I accelerated paying down my mortgage, I wanted to bust its ass before I left work early. I wasn’t actually in that bad a position – I bought my first house in 1989, which meant I was on course to clear the mortgage 25 years later, which works out to 2014, so I had five years to run. I was slightly ahead, but I switched resources to paying that down. It was a flexible mortgage, it worked like an offset, but one where you can draw back the overpayment. I was daft enough to clear the bugger  around 2010. FFS I even comprehended Monevator’s concept of using it as an investment tool, and wrote this tripe about paying it off.

I could have invested in 2008 and made a mint, and indeed could have had 11 years more use of this cash, currently at rock-bottom rates. But I don’t have his edge and ambition, and in the end I wanted my house to be truly mine.

Berk. In all fairness, I was frightened of getting canned, and fearful people do stupid things. Don’t get me wrong, I am all for canning debt where you can. Get an offset mortgage or a flexible one like mine, and ram the bugger down to the minimum amount if you can, while you are working.

Look at how little it cost me to carry the possibility of borrowing about 50k for a year

In my case the minimum was £1000 when I asked them. Anyway, FFS don’t pay the damn thing off, and above all else, don’t pay it off before you are 55. Why 55 – that’s when you can draw from a SIPP, and one of the best ways of paying off your mortgage is with a little bit of help from HMRC ³, using your pension commencement lump sum. Consider paying into your pension what you would be paying down on your mortgage. Keep it in cash in your SIPP, if you must.

The second win from carrying the mortgage is that no blighter will lend money to someone without an income. Seriously, the retired ermine was a much better risk than the employed Ermine – I had several years erstwhile gross salary in the ISA, I had SIPP pension savings that would be available in a few years, and it all counted for aught. If you put income of 0 on any application to borrow money or even on a credit card application, they immediately think you are living under the railway arches, because no ordinary punter in Britain has capital assets, they all live paycheque to paycheque, and having more month than money is the only reason people borrow.

The only capital asset some punters have is a house, and a mortgage is a loan against that asset. Keep the facility of that loan, because it allows you to smooth your income, particularly early FIRE folk before 55. But do it in a cost effective way – run the minimum balance if you can. And do bear in mind you need other cash savings, because under times of economic stress, finance institutions can revoke the  terms of a flexible mortgage.

So I’ve nailed my colours to the mast of serious incoming ahoy – after all, the best pundits predict about 200% of the real recessions that happened, because the bear case always sounds smarter. I may look like a serious tosspot this time next year when the FTSE100 is up at 9000, you can have a larf then!

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1. Charges, Access, Terms minimum standards, fees max 1% pa. This was meant to be good value, and it was, compared to the rogering punters got from the City of London back in the day before 2000. I guess RIT wouldn’t be that impressed by an OCF of 1% p.a on a FTSE all-share fund nowadays. The past is a different country. ↩
2. What can I say, it’s the time of of the Donald and resistance to populist simplicity is futile, the will of the people™ must be respected, init? ↩
3. Ayn Randian types would say that’s without hindrance from HMRC rather than with help from them, anyway, the point is you pay down some of your mortgage from pre-tax income. ↩