I despise the stock market at the moment, because it seems to be insane. There is nothing good about the economic situation or outlook, presumably the ludicrous rises of late are due to the wall of money flung into the system by central banks. I’m much closer to this fellow’s view. This shit is going to come in waves.
However, in bear markets you need to buy into insanity, so I ask myself, what is a solidly bombed out sector that has no prospects, and UK midcaps looks like it. So Tuesday I asked myself how my automated purchase of L&G mid cap index fund was going.
Computer sez NO. Indeed Charles Stanley seems to be having a hard time in the IT department, because although it’s working now, the response to the login button is glacial, I have to suppress the temptation of the Ermine paw to jab-jab-jabber on the JFDI login button which has a response time of about two seconds before ‘owt happens. It gets confuzzled if you rap on that control, as presumably some tiresome load of AJAX crap rattles around in the background and does its thing. First rule of UI design is at least make the bloody icon change colour locally right away. Oh well. Been slow and crabby like that for the last few weeks, I am glad I didn’t leave it to just before the TY end to whack the lump sum back in there.
Anyway, I got in there and saw the queued automated purchase of that L&G mid cap fund as well as my regular L&G index ex-UK fund which has up to now been my entire CS holding. I stopped investing into the CS ISA a few years ago, but keep it because Charles Stanley is a flexible ISA provider, which means I can draw down from the ISA and put it back without losing the ISA allowance. Monevator’s broker comparison table doesn’t even show Charles Stanley because it’s good for nothing with its 0.35% annual percentage fee. But that flexibility is valuable to me, and indeed the money I put in there is last year’s allowance. I detested stock market valuations in 2019 and stuck the borrowings in Premium Bonds, which reduces CS’s 0.35% fee (because the assets under management are lower) and is safe-ish. As long as you return the wedge over the tax year end/start you can borrow it back soon after the start of the TY which is neat.
My CS holdings are about a fifth of my total holdings. Looking at the account, the best I can say is that it hasn’t gone down relative to purchase cost. That’s index investing for ya, gone nowhere over several years… You have to buy into bear markets, or spend decades to consolidate the slow chunter up at a real return of ~4% p.a..
FTSE250 is roadkill-in-waiting
It’s all the wrong stuff. Loads of these firms are going to go to the wall. Young’uns with enterprise and vigour can look at these and stockpick in there, but I CBA with that. The index clears out the dead wood every quarter. I can’t find any value in the markets at the moment, it’s all way up in the sky and I am just waiting for the second wave of growl to overtake us. There is a genuine problem out there, this isn’t just a crisis of confidence, and there’s absolutely no excuse for the recent rallies, the bear market needs to double down IMO.
A quick look at the key data for this midcap fund shows roadkill-in-waiting
What have we got here then? Bellway PLC FFS. Yeah, right. We really are going to be building lots of houses when people aren’t meant to go within six feet of each other and half the country has lost their jobs, which is going to make servicing a mortgage so much easier, natch. I guess GVC holdings might do better in lockdown, although sports betting is going to be tough without sports. Their CSR report gave me a titter. This is a firm that’s trying to part fools from their money. It really shouldn’t be allowed, in the same way as the National Lottery is a tax on poor people for middle class projects, although I am sure they have a great CSR report too. GVC’s greatest CSR achievement would be to switch it all off and do something else, watching the bright red arrowed tail disappear through the door. It’s a dirty job and all that. Next up is Pennon. At least they do something useful that people will still need in lockdown.
It’s not looking good. So I doubled down and switched all but £50 of the planned index ex-UK fund purchase into that mid-cap.
the lesson from the last bear market was buy what you feel has no hope
Small companies and the Ermine haven’t got good form. I’ve made more money from shorting my holding of Aberforth Smaller Companies than I ever made from holding the buggers. People say the FTSE250 is meant to be the growth engine of the UK economy, but these companies have already had the living shit beaten out of them by the Brexit madness1, though there’s a bigger war on now.
I failed dismally to catch the bottom because monthly investing is like that, but I don’t have to do that. Leave something for the other guy. It’s tough to believe these guys will ever pick themselves up off the floor, and I am definitely of the opinion that this will be had cheaper before the year is out. But it’s a lot more beaten up than the rest of the market, drunk on funny money. In a genuine bear market you don’t have to be clever with what you buy, you just have to buy. This one isn’t a genuine bear market at the moment, because for the moment some indices have shrugged it off – existential economic threat? What existential threat?
Hopefully I will look back in five years’ time and be cheered that I got FTSE250 on the cheap. I will probably look back in one years time and curse myself for being a dumbass for jumping the gun and paying 40% over the odds. That’s why I am going to spread myself out buying every month. Buying in bear markets is hard because of that, although at the moment much of the bear market seems to have been cancelled in the main due to irrational exuberance. It’ll be back IMO. In spades… But at least the FTSE250 is still in bear territory. This used to be nearly 60p and is to be had for 41p. In a theoretical and intellectual way there’s a yield of 2.8% to be had there, but that was at the end of February. I don’t see midcaps paying a dividend for a good couple of years yet.
I can’t bring myself to buy into the overvalued general index. It was overvalued by CAPE before and it’s definitely overvalued for todays’ world of a synchronised shutdown of a quarter of the world’s economy. I have no understanding of the madness and hope it will go away soon and valuations will come to good value. But I am not buying at these valuations, if necessary I will return to the original path of running down cash over several years.
I’m not selling gold yet. There be inflation in the medium distance. I am all for printing money in the face of an existential threat, but more money and fewer goods and services = money being worth less. I am still in the market for investment trusts at a discount, however. This is largely why I favoured the FTSE250 ex-ITs, because I am heavy in ITs in the main ISA elsewhere. You have to buy into bear markets, and do it while they are still there. I am sure the boosters will say this is a V shaped recovery and I’ve missed my chance. Good luck to you, I say – I figure the bears will be back, and if not, well, I’ll run down cash as I was planning back in the halcyon days of late last year.
The market is mad at the moment. There again, many things are mad at the moment. The value of money is looking strange at the moment too. About the only useful thing I did with it this year was get in touch with CAF to reactivate my CAF card, now I am a taxpayer again2.
Thursday clap for carers
It’s all very well clapping for our carers, but if these poor devils are going to take those sorts of chances for us the least I can do is try and buy them some gear, since the public-school eejits in charge of the country seem to be so flat-footed we can’t do that in a timely manner.
Similarly there is a lot of suffering due to the disappearance of many people’s incomes down the U bend and others may help with that. I’m not going to make much difference sadly, I am not JP Morgan, and charity isn’t always the most efficient way of achieving a goal. But some is better than none, and I am fortunate is still having an income.
- The EU hasn’t covered itself in glory in the bigger war – it had to make a formal apology to the Italians for leaving them in the shit while pestilence ravaged their country. “too many were not there on time when Italy needed a helping hand at the very beginning.” FFS guys, where is your humanity? I used to hold IBGE as a bond holding but switched to gold. There be trouble coming down this pike IMO until the hawks get real on coronabonds. I suspect they won’t… ↩
- The great thing about using a CAF card is you get the 20% basic rate tax back into the account. Normally to get that you have to give your name and address to the charity for them to claim it on your behalf, and then you get hounded shitless for the next 10 years. With CAF you can give anonymously which fixes that problem 😉 CAF do take a rake for it but it’s a lot less than the tax back and it’s a price worth paying for peace IMO. ↩
Simple Living In Somerset 
>>I’m not selling gold yet
I am, most of mine was bought in 2011, felt like a right mug adding to it through 2013-16. Quite happy to skim the top off it now to de-risk my reliance on it.
However I don’t quite have the courage of my convictions to rebalance into stocks, it just feels a bit “wrong” maybe in a month or two.
My local council’s website is currently proving there is no interation so simple that you can’t futz it up with some gratutious AJAX for the developers CV. Does looking up my bin day really need a specific browser with all my extensions turned off ? FFS, this so 15 years ago!
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> There be inflation in the medium distance
Not sure if you have read about this elsewhere, but the latest wheeze is to rebadge the CPIH as the RPI – see, for example, https://the7circles.uk/weekly-roundup-14th-april-2020/
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I’m not really that sold on buying into the FTSE-250 as its like doubling down on your exposure to the UK economy when just by living here you are exposed to the UK economy, even retired, through government tax/ spending decisions and your other GBP currency exposure.
If it all goes peachy you look really clever but if it doesn’t, you are just much poorer.
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The stock market valuation is mad? Why are you so sure the stock market — and the millions of views behind it — are really that much stupider in aggregate than you, and have somehow missed the news that there’s a global pandemic on? It’s been 24/7 for a month on the media now, and let’s face it there aren’t as many distractions from the media these days… 😉
I agree the economic hit is going to be big and much worse than people seemed to understand even a few weeks, but it shouldn’t be long-term structural damage. Even the loss of a year’s earnings doesn’t matter hugely to the typical company’s valuation (maybe 10% off very roughly) and we probably won’t see a whole year of earnings gone. Leveraged firms could do worse if they don’t get through, but plus c’est change.
I agree lots of little companies (as in 5-10 employees) are going to be smashed by this questionable lock-it-all-down strategy, but we don’t invest in the stock market.
I’m increasingly of the belief we’ll be at least partly out in three weeks and Covid-19 will be a diminishing threat every day. Nobody knows of course due to second wave potential, but it’s actually starting to look a bit more weird to me that we had such a deadly first wave, which might suggest there’s all sorts of weird stuff going on in the data as much as anything else. (People are definitely dying, but of what? Remember Covid-19 is a notifiable disease. So you go into the stats if you test positive for it on death, even if you died of something else. I don’t doubt there are thousands of excess Covid-19 hospital deaths compared to baseline. I don’t think there are 13,000 to-date).
Obviously it’s horrible for anyone who does get it or knows someone who does, and I am not making light of that. But if you’re assessing whether the market has reacted sufficiently terribly, you have to take this sort of thing into account.
Time will tell!
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“I agree lots of little companies (as in 5-10 employees) are going to be smashed by this questionable lock-it-all-down strategy, but we don’t invest in the stock market.”
*Sorry, I mean of course “we don’t invest in 5-10 person companies (such as hairdressers or coffee shops) when we invest in the stock market.”
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It’s more that the US CAPE was/is flippin’ high to start with, and is still high historically. The US is most of global capitalisation, still now. And yes, I do find that barmy given that there’s a genuine hit on.
Of course automation and the FAANGs might mean it’s all different now. But it all being different now is usually a sticky wicket to bat on. As you say, we will see.
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I know what you mean about the CAPE but have you taken into account the fact that interest rates are near zero or thereabouts and have been for over a decade. I don’t see them going up any time soon! 🙂
Discount the value of a perpetual asset stream in a near-zero world and you can get a very *very* high present value.
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> you can get a very *very* high present value.
Indeed. And nobody ever got rich fighting the Fed. In which case the majority of my holdings that I’ve held for years will continue to benefit, I will have miscalled this in outing some of the more recent stuff and hopefully your more cheerful scenario regarding the pandemic will come to pass. I’m not a bad man – if I cock this up and it’s all tickety-boo and more people live then I expect once were are through the winter danger period then that’s a great opportunity to crack some bubbly and get hammered with some people in a bar, preferably not all wearing masks 😉 Most of my wedge goes back into PBZ and I’ve screwed up. That’s not such a terrible thing in my book.
OTOH if the opportunity presents itself in the following waves then I’m gonna go for it. Assuming of course, I am around/in a fit state etc. I’d much rather be wrong and miss out the financial opportunity but gain the health opportunity.
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The markets are confusing in the extreme at the moment, to put it mildly. I’ve also been thrown by the strength and speed with which they’ve picked themselves off the bottom (so far) on Mar 23. There are so many variables in the mix that I’ve found it impossible to form a clear enough view on which way things are likely to go. The major factors I see are 1) the unprecedented amounts the Fed has thrown at the situation, and may continue to throw; 2) the uncertainty of length and direction of the pandemic – will there be secondary waves, will the lockdowns be lifted without further major outbreaks, will there be (short term) drugs that work, or (longer term) a vaccine? Stuff like the historic drops in output across the globe over the next quarter seem secondary to these factors. The fact that P/Es are in many cases almost back to the inflated levels of late 2019 is also somewhat disturbing given the current backdrop, but see 1).
1) seems a given for the moment: Powell has explicitly said that he will do what it takes to keep the patient alive; 2) … well, how long is a piece of string? Many countries are now over the peak of the initial wave. Countries like Germany are already moving towards lifting the lock down and given their effective containing of the virus so far I think they’re in with a good chance of managing the move out with equal success. There have also been leaks to the effect that Gilead have had very good initial clinical results with remdesivir: an effective treatment would be a game changer.
The most eminently sensible comment I’ve come across in recent weeks was in an FT piece from a seasoned veteran along the lines of it’s impossible to work out where this market’s going, or to call the bottom, so work out how much you want to have invested at the bottom, and put some of it back in now. If the markets continue to rise you’ll feel better for having the exposure, if they fall further you’ve kept some of your powder dry to buy in. This chimed with my own thinking, so I’ve been buying back in, to sectors and countries that are lagging behind in the recovery so far, but will hold on to perhaps half of my loot until the market breaks out decisively in one direction or the other. Also keeping my gold for the moment… History doesn’t repeat itself but it often rhymes.
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> it’s impossible to work out where this market’s going, or to call the bottom, so work out how much you want to have invested at the bottom, and put some of it back in now.
He’s a wise fellow. I am trying to do this. But it’s not easy in the face of that lift. The pool of bombed out areas seems to be drying up alarmingly quickly!
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One place to look perhaps is to dig beyond the major indices, see this FT comment yesterday, for example:
“The S&P is down 11% YTD…..but the S&P reflects the equity value of 500 businesses doing well. Amazon can hit new highs and drive the benchmark while the old struggling bricks and mortar retailers (with many shops and employees) are not reflected in the index. Simply drill down and the capital markets partly reflect the real economic pain with Russell -26%, UAL -68%, Regional Banks index -36%, Marriott -32%…..”
I’m getting a strong gut feeling that the low’s been visited for the next year or two at least, until the next financially-driven recession, that I missed it, and that continuing to hang on to a “hey, where’s my next-leg-down” mentality could be damaging. I think The Investor’s point about the effect of zero IRs is germane to the apparently Cinderella world of markets heading back to the highs in the face of so much terrible economic news. Plus the huge amount of stimulus around once we’re beyond the worst, and the bounce back expected. Also that this situation could well turn out to be quite short-lived. Or maybe I’m just a FOMO idiot that savvier traders eat for breakfast… Herein lies the difficulty
Like you, I focused on UK small caps, but wonder about the future of the UK domestic economy over the next year or two. The govt’s pandemic handling has been dreadful, which implies perhaps that the UK is more likely to be slow in coming out of lock down, and more prone to secondary waves. Plus Spaffer’s still on message re Brexit at the end of the year. Could be a lot of smaller company failures…
I’m also largely steering clear of index ETFs at the moment, if ever there was a moment for stock picking to be a better strategy than taking a representative slice of the market, this is it. But being highly selective in the managed funds and sectors I’m choosing.
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> Or maybe I’m just a FOMO idiot that savvier traders eat for breakfast…
I fear I’ll join you in that corner. Most of what I sold is still in the money (as in it was worth selling it), but my Google finacie spreadsheet shows it was only about 10% worth doing now. And dropping… However, the return of the valuation of my ISA which still has all the big index stuff, my entire HYP bought in the early 2010s etc is shocking, and without reason IMO. But what the hell. The temporal returns skew in the variously sliced and diced FTSE Russell indices is illuminating, and supports the FT’s thesis somewhat. On a YTD basis the tiddlers and the microcaps are going down in flames, all engines on fire, whereas the top 200 have experienced minor turbulence in single digit % losses, and the 50 really big fish haven’t even spilled the coffee. So the indexers can laugh in my face and dig out their Keep Calm and Carry on tea towels while I root around for a white handkerchief and a stick 😉
Mebbe it’s back to Plan A – spend some of my cash reserves and eventually gold holdings to boost my income till i get to the SP. However, my spending has dropped too, like what the heck am I going to spend on? Flying to Maccu Picchu is off the cards at the mo, as is fine dining. Though I look above eye level at Tesco for wine these days. OK I bought a Dell reconditioned laptop for £700 last month because my old laptop lacked the cojones to run Zoom though it does Skype fine, but there’s only so much capex worth doing in lockdown.
I’m still drawn to midcaps though, since I’m generally a big fish sort of guy so I have no exposure to the sector – the HYP tends to be FTSE100 firms and VWRL is, well, big caps by definition. So I will carry on the regular purchases, largely as a punt that this will turn out ot be the beating heart of the post CV economy 😉 Take the point about Spaffer’s Brexit fixation about the light at the end of the tunnel. However, the EU’s response to coronabonds fills me with dread.
It’s bad enough to have to apologise to the Italians for hanging them out to dry at the start, but to compound it makes me wonder about the Euro, and if that goes titsup there will be blood and guts everywhere, and we might be grateful to the swivel-eyed Brexit loons for getting the right answer for the wrong reasons. I got out of IBGE as a bond holding and favoured gold. Again. I have far too much gold, and in an ISA.
And the stock market is meant to look a year ahead, so on UK mid-caps that’s post Brexit and post pandemic given the market;s nonchalance on the latter for big fish. It seems to be currently of a sanguine viewpoint about coronavirus – pandemic, what pandemic, it’s not the economically active that are at risk and clearing out the dead wood may be all to the good* but that there be much pain and twisted wreckage lower down the capitalisation scale. Which I guess is why it’s cheap. In the past I’ve done well out of Russia via HRUB and IBZL, though the latter more by luck than judgment I fear. I’m not quite sure I have the balls for that sort of thing. Bolsonaro seems to be making a pig’s ear of CV19. Indeed, what’s up with dictators like Trump, Bolso and Putin, can they not comprehend that there is something bigger than their abilities to shout over, and sometimes showing a clean pair of heels is the sensible way to take on overwhelming incoming force…
* for the sake of clarity this does not reflect my view on coronavirus. But it does seem to be the stock market’s view on it, the sociopathic collective it seems to be…
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If you don’t need the reward don’t take the risk.
If you do need the reward spread the risk.
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If you’re convinced there’ll be a better buying opportunity later in the year, then leave the cash in premium bonds for now. The planned cut in the prize fund has been postponed
https://nsandi-corporate.com/news-research/news/nsi-supports-savers-unprecedented-time#
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Ah, but ’tis the tragedy of the bear market and the Uncertainty Principle. You must buy when you know it makes no sense. In 2009 I bought, though my fur knew it was all going to go titsup and never return.
It did return. I am convinced now is not the low water mark. But I do not know. Which is a little bit why I need to do like Magnus – spread myself out. I will lose some men. But hopefully I will win the war…
In bear markets the enemy is yourself. You have to make yourself buy, else you will stand on the sidelines for certainty. I was a bear then, but I did buy, a lot of the heavy lifting happened then. I’ve seen this movie before.
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Ha, I also bought midcaps.
There is a significant sector of the population in the U.S. that is chomping at the bit to get back to restaurants, salons and the outdoors, from my indoors I saw them all congregating with friends last weekend, and this in Seattle where we have been staying at home for a solid 6 weeks and people are generally rational. So while those 50 and younger will go back to normal activities quickly, the 50s and older will prudently and permanently draw in, the difference of hope between a 1.3 and 3.4 mortality rate. So goodbye to mall stores, movie theaters, much business travel and anything that has depended on the spending of Generation X and older. The car industry and suburban housing could suffer long term, but those things the young are into—renting in cities, Amazon for everything, ride shares, avocado toast, $10 smoothies—I think those will recover. Obviously not WeWork, or anything with a ludicrous business model.
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> sector of the population in the U.S. that is chomping at the bit to get back to restaurants, salons and the outdoors
Seems like the POTUS is right behind that movement too, which looks quite surreal from a distance, sort of like the Federal gov set against the State governors. But it’s probably a lack of understanding of the different administrative levels – gov is much more vertically integrated here, being a much smaller country.
Perhaps this age disparity is why the S&P is way up there – the FAANGS are a young person’s game. And unlike the US and UK, I’d say Amazon, Facebook, Netflix et al are having a good pandemic
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Just as surreal from this side of the pond. The virus was political before social distancing, but it has lately pivoted to center on lock-down policies. The president says one thing in a briefing then trolls twitter with opposite messaging an hour later with eyes on November.
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I sold a traunch of gold on Friday, having been a buyer since 2016 in order to rebalance following the loss in net worth from the fall in equity values. The pandemic can obviously be terrible on a personal level, but I also wonder if the wider economic damage will be as great as is being forseen, especially comparing it to the cost and destruction of the two world wars. There’s an interesting article on the LSE here about the effects of the previous pandemics in history https://blogs.lse.ac.uk/politicsandpolicy/covid-19-and-economic-lessons-from-previous-pandemics/
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This will get so much worse. The exit strategy will just mean a second wave around the corner. It’s been a shit show from start to finish. The current lockdown is a joke, lots of people out and about. If you want to achieve an R0 of zero you need to lock people in their houses and send the fear of God into them. The Army could deliver food parcels and medicines. Any thing less than this will fail, and take the entire economy with it.
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One should also be aware that revenue and profit have an assymetric correlation. Typically a 25% fall in revenue means a 50% fall in earnings per share. Many industries are also finished, I mean how the hell will North Sea oil recover? Lloyds Bank balance sheet is all commercial and residential real estate, my bet is they will be the first bank to be nationalised. Be bloody careful.
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“Any thing less than this will fail”: there must be a fair chance that everything will fail. If no vaccine is developed then a large chunk of the population is going to be infected eventually, since lockdowns of most of the population can’t be sustained forever. Death rates will fall because (i) the supply of frail people will have been depleted, and (ii) shielding of the ill and old will have continued, and (iii) perhaps there will be some development of herd immunity, in competition with the virus’s mutation rate,
It may end up like the common cold or flu, albeit currently distinctly nastier, i.e. an endemic virus that returns year after year or perhaps winter after winter. It would be welcome if the various experiments on treatments for it were to prosper; maybe they will, maybe they won’t. After all there’s no successful treatment for colds and the flu, short of putting the worst affected into the ICU.
Maybe after, say, five years, and an attempt to sort out the data so that it’s useful to compare different countries, it’ll be found that every country – or at least every advanced one – will have been roughly equally badly affected but that a few didn’t destroy chunks of their economies by ill-advised lockdowns. In other words, Sweden may prove to have been wisest. On the other hand the damn thing may dwindle away for no known reason, and the countries that bought time by locking down will seem wisest. Though at God knows what cost in deaths, suffering, and unhappiness.
The point is that Nobody Knows. Nobody Can Know. Drawing grand conclusions on three months of data is a mug’s game, a rush to judgement.
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My point about the lockdown was simply, if you are going to sacrifice six weeks of business revenue, and throw £350 billion of tax payers money at it, then do it properly.
Paying people £2500 per month to drink wine, watch Netflix, and then go around to the neighbors that evening for a BBQ is quite frankly taking the piss. That old saying, ‘give an inch and take a mile’.
However, I do agree with you. Nobody knows. Charlie Munger has put this in his ‘to hard to do pile’ – https://uk.advfn.com/stock-market/stock-news/82257803/when-buffetts-phone-stops-ringing-wsj
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I brought into GVC a fortnight ago (£4.10). I believe the sports market will eventually pick up and meanwhile people are in lockdown with nothing to do except lay games online. Some of the ‘winners’ may not make it through the covid 19 crisis and therefore not be able to collect their winnings (shame will have prevented them from telling family members about their habit), so win win ….. ok not for those with a gambling problem. Will get out soon as I really shouldn’t be dabbling in active shares but sticking to my passive etf approach.
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A barrel of oil is now $14.65 as I type. RIP North Sea Oil.
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Oil now $10.94! Shit is about to hit the fan. Potentially $trillions in stranded assets.
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I’d imagine IG will let you short it 😉 Or indeed buy long, depending on your time horizon…
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Now $7.72.
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And now $2.72. Deflationary, cash in king!
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$1. Fact is stranger than fiction
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72 cents per barrel – buying into madness indeed!
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One barrel of oil is approximately 159 litres or 1700 kWh, that’s the equivalent of 340 hot baths.
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17 cents!
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5 cents. Over and out!
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This is the way that the world ends. Not with a bang but a whimper It’s negative now.
However, it appears to indicate a storage crunch, not necessarily that Tesco will pay you to fill up 😉 The contract expires tomorrow.
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POO is always a lead indicator. Expect the stock market to test new lows!
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> stock market to test new lows!
drums fingers… remember that the value of money is also testing new lows. There’s a lot more of it being made at the mo 😦
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They were discussing on the Animal Spirits podcast that inflation is perhaps not caused by printing money but by its “velocity” – how fast it circulates in the economy. Presumably velocity will stay very low for some time…
On more general matters, I was pleased to discover https://lockdownsceptics.org/ I’m not sure if I’m sceptical, but it’s nice to see some alternative views.
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Dear Ermine
Unrelated to recent post, but would you be able to update us where you are regarding your deferred DB pension from the ‘Firm’
Did you decide to take it earlier than scheme retirement age & suck up the reduction for doing so or are you still deferred and waiting for NRA.
Reason for asking is that I am following a similar retirement strategy as you were. I jumped at age 56 and am drawing down my SIPP ahead of my Deferred DB pension which I can get at NRA of 62 in 4 years.
Wondering now if its worth taking it this year at age 58.
Would be good to know your thoughts on the subject.
Keep up the good posts – always an entertaining & thought provoking read.
IB
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I took it late last year. But I am an old git now so the actuarial reduction was very low, less than 2%. For some reason the actuarial reductions were dropping throughout 2019 (not just because I was getting older) but would have risen had I waited for January this year. Comparing with other ex-colleagues this was a peculiarity of my case, but I did ask the Trustees if they really meant what the modeller said and they said yes. So it would have been rude not to take it. I took a small amount as a tax-free PCLS though nowhere near the maximum possible. I shoved that into premium bonds and my ISA last year. I couldn’t really bring myself to buy a lot of shares, however, given valuations end of 2019 so I bought gold in terms of SGLP, some VUKE which I jumped out of in March eating a loss. So I am currently cash and gold rich, but didn’t move into the suckout early enough.
I take solace in my flat-footedness in observing that Warren Buffett is also taking stock 😉 Yes, I bought some mid-caps and a bit of IWDG. But it’s amounts I can afford to lose, and some of it is from experience. You have to buy something in bear markets to unfreeze the OMG it’s all going titsup and the end of the world is coming part of the lizard-brain, because that makes you sit on the sidelines until it’s clearly OK, which is usually two years and three-quarters into the next bull market.
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I guess you are about 2 years into what I assume was a planned 6 year “Gap” before NRA.
May I ask: what has changed for you to now be considering taking your deferred DB pension early?
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It’s not particularly early. For the vast majority of my nearly 24 year career there the NRA was 60. So although technically the NRA is now 65 they couldn’t steal that from me, and I have to get quite old before the loss on the residual NRA65 accrual outweighs the loss due to not taking the NRA60 part for 5 years.
I drew it less than a year early for that large part. The actuarial reduction was not so much, plus the curious anomaly that delaying from late last year to any time before June this year would give me a loss. I have no explanation for that anomaly. But I wasn’t prepared to eat it.
My Gap was 8 years. In the first three years I earned lousy little bits and pieces as self-employed, a bit of scientific research , a bit of engineering, a bit of bookkeeping. I was more or less catatonic after leaving work, my outgoings were not so much 😉 So while I did slowly lose the battle of outgoings against income, those bits along with savings kept the wolf from the door for four years.
Originally my ISA was going to pay me across the rest of the gap, but it so happened Osborne changed things so that I could burn up my AVCs by transferring to a SIPP. I started buying AVCs in March 2009. Three and a bit years of that via salary sacrifice in a big way worked well for me 😉
My ISA would have carried me to 65. But its role is now to defend my long term against the 1970s style inflation we will run into in 10 years time at a guess, and in the meantime to give me some extra income until I reach State pension age. If, of course, I do reach SP age, this has gotten somewhat less likely since Feb, though there is nothing wrong with my health at the mo. I have never drawn an income from the ISA. I probably won’t for the next year. What the hell is there to spend money on nowadays? Over and above my needs and modest wants which my pension can do fine.
So I reached the finish line of the Gap. Just as the world went titsup. Still, compared to many people I have been relatively fortunate, and having gratitude is good for the soul it seems, according to Harvard and Berkely. Although not if you’re an uptight Guardian journalist is seems. So I can stand back and take stock, and salute my younger self for playing a weak hand relatively well, aided by a shedload of decent fortune. Had I started in 2016 it would have been a different story… There but for the grace of God and all that.
I do wonder if this will set many FIRE plans back somewhat – FIRE was not a thing in the depths of the GFC, though that was the best time to start. It’s been all the rage as the markets got puffed up to high valuations. I’d hazard a guess that about a year from now will be a damn good time for some starry-eyed twenty something to discover the creed. It is in the midst of winter that one needs the promise of the invincible summer most.
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Ermine – thanks for the additional info.
Apologies for not making it clear but my question was to Ian.
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hehe – self-obsessed – moi 😉
Having said that, to answer Ian’s second question if I were him I wouldn’t draw early while I still had a SIPP to run down. Despite the much increased risk of inflation (IMO) in the medium term.
However, that would be modified if Ian had health conditions greatly raising his CV19 risk profile and were married, which would shift the balance to taking early and a larger PCLS lump sum. Particularly if the spouse pension remained 50% of the original amount which seems an anomaly of many schemes including mine. Although the actuarial early reduction applies to the spouse pension too, the lump sum seems not to affect the spouse pension for some bizarre reason.
But that’s because I don’t currently have a good idea of what would hold value in the future. If I had TI’s sanguinity about the high stock market valuations (or that these large numbers reflect the fact that the value of money has just tanked because of the wall of new money that has been thrown at asset prices) then the course of action would be to draw early and commute as much as possible, because the future income stream will be worth less in real terms. However, you then have to ask yourself how you will store that value and ideally turn a return on it for the next say 40 years, and what exactly it is that you know that Warren Buffett doesn’t, since BH seems to claim they are sitting on their hands at the moment until the fog of war thins out.
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No worries.
As it happens, in principle I am with you re Ian’s second question – but there are some other scenarios that could give rise to compelling reasons to take his DB earlier than originally planned. Hence my question.
Thanks again.
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Unrelated to the post but thought I’d share this with you by way of appreciation. I had a similar work scenario (arsewipe boss and pm poison)and started reading your blog early 2015 at age 55. I jumped ship Aug 2015 with the same concerns but with different investments (BTL) I have been using the lockdown period to catch up with all your posts prior to that and to understand more of your journey and to compare it with my own.
I have learned that we are quite different personalities with different risk profiles and strategies but since quitting the firm have experienced very similar things, recovery being one.
As a Yorkshire boy I never had the spendypants gene and never had kids . I have overspent on weddings though. I have a plan to reduce my BTL exposure and rebalance my portfolio over time. My DB pension although not large will smooth out the bumps.
Thank you for your humour, opinions, different outlook and ideas.
I look forward to your next post and more pictures of old stones.
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It’s always good to hear of other breakouts! Congratulations. Old stones, eh, now that’s something to look forward to once this is over!
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I’m long term buy and hold. I currently have about 900k across our tax sheltered/general accounts invested entirely in VWRL/VWRP. Bought on the way down and at the bottom by liquidating the emergency fund and premium bonds.
I’m just going to stick with my one fund portfolio. I’m too lazy to bother slicing and dicing. I’ve got another 8-13 years before I think about retiring on with my DB pension at 55.
I’m confident keeping it 100% simple and boring with VWRL will do the job better then be trying to beat it by using logic and intelligence.
On checking now, VWRL is only down about 15% from its all time high. Hopefully some more panics to come so I can continue to accumulate at lower prices
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