Strong in these padawan, recency bias is

Thus quoth ZXSpectrum48k, over on Monevator. From a fellow who does this as a day job, looking at the legions of wannabe escapees from the office


Socrates was the counterfactual, though he defined the Dunning-Kruger problem in his first sentence.

for he knows nothing, and thinks that he knows. I neither know nor think that I know

Or Plato talking about Socrates.
whatever, there still be truth in it

It is part of the way of the world – the young fellow must be ignorant to his faults to make his way in the world and try and put his ding in the universe. ZX was also talking of the younger ermine, and probably even of me now, after all, how would I know 😉

You don’t often get away with thinking that you know, when you don’t. Particularly in the markets. Somehow TA’s article showed that in a harsh light. Let us look at the thrust of his article Should you use cash to bridge the gap between your ISAs and your pension?

In it, TA postulates saving ten years worth of cash, to bridge your spending over 10 years between retiring early (the RE part of FIRE), and reaching 57, the earliest point the Agglomerator, hero of his journey, gets to access their tax-privileged pension savings (SIPP). I confess I haven’t studied his derivation of that requirement, but I was only a little bit older than his putative future Millennial when I packed in work, I was very early fifties whereas Agglomerator wants to clear the workforce at 46.

Let’s just zoom out a little and put that into perspective, the Agglomerator enters the workforce at 21 on leaving university, and clears it at 46, so he works for 25 years. In that 25 years, somehow he saves 10 years of spending as cash and about twice that much in tax-privileged accounts to see him out. That looks like a massive ask to me, saving effectively 30 years of essential spend1 along with buying a house outright and establishing himself.

Today’s FIRE community is very different from that 10 years ago

For a start, fat FIRE is a much bigger thing than it was in the past. When I started it was about frugality first

UK Personal Finance Blogosphere, Source:

there are only 5/13 left standing (I haven’t counted those that haven’t been updated for over a year). It shows how different the world is now that it was just over ten years ago when I started down the FI/RE track. It was about saving and frugality.

Why was this – it was just after the GFC, people didn’t really believe the stock market would come good. Apart from Monevator, who sounded the clarion call into the low-water mark – git your ass into this market- NOW. However, valuations were such that you could get a decent return on shovelling money into that market. Although you were never going to retire early making minimum wage, you didn’t need the fancy City finance pay packet.

Today’s FIRE community is much, much richer than that of ten years ago. Some of that reflects these high valuations – if you want to accumulate enough to retire early now it’s a much tougher job. A safe withdrawal rate of 5% was conceivable in 2009, it’s much lower now, simply because valuations are higher. You need to be working in finance to get enough. There’s much more emphasis on fat FIRE now – starting off with a lot more, and spending at much higher levels. The frugalistas have been run out of town.

If you’re starting out, that’s not so bad, I have the suspicion that valuations will become more reasonable2 in the not too distant future, you need to keep buying into it. You have three decades.

But if you need to make it all happen in five years starting yesterday, then it’s going to be tough sledding. And I would imagine that a lot of getting-on-for-fifty-somethings are going to find themselves heading towards early retirement this year and next.

Talking of padawan, bless my younger self’s cotton socks, I thought I would have edge in sectors. Then I chased the HYP, is some ways because after a GFC yield was easy to find. Dunning and Kruger would be proud of me. I did do well. But not for the reasons I believed. I have no particular edge is stockpicking. But I was next to an open goal. Truth be told it didn’t really matter what you bought at that time. Valuations were in the dumps. My big win was to buy anything. I would probably have done better buying VWRL, except it didn’t exist in 2009 and before the RDR there were all sorts of dodgy practices to do with funds and backhanders. I was weak on the US market, which has been on a tear for most of that time. But I bought in at a low, and while I would have been better off buying a broad index, getting the timing right trumped sector allocation.

It’s not what I bought, it was when I bought – at low valuations. The rest of the journey was slowly coming to the conclusion that I am still a padawan, though not hopelessly so. I did OK, such that now, marked to market at high valuations (now) I have more capital than market to market at low valuations (the GFC) despite living off investment return over the last 8 years.

TA’s article says I was nuts. I agree, if I were starting now being balls-deep in equities other than three years’ essential spend would be crazy. It was less nuts starting from low valuations, because it is the truth that passivistas never allow to be heard – valuation matters, and the other name for that is market timing  😉 . But Dunning-Kruger probably would have the last laugh, because if TA went back in time to the younger Ermine and said ‘my crystal ball tells me you have to have enough cash to carry you for the next 8 years, what do you know that I don’t?‘ I am not sure that the younger ermine would have puffed up his furry chest and say ‘traveller from the future, valuations are historically low now, so the risk is much lower than it will be in your time.‘ TA wasn’t there, though Monevator said pretty much that at the time in his if not now, when?

A tale of desperation against logic

We are all, of course, the hero of our own narrative. Using the flight  analogy from a few weeks ago, I ready myself for the eight lean years in a flimsy craft, refuelling and seeing fire streaking across the runway behind. I am faced with the choice of wealth or health, and choose health. TA would not have cleared me for take-off, I did not have eight years cash saved, I did not have enough to bridge the gap. But enough to be prepared to take the chance. Against the backdrop of the GFC, the increasing value of the shareholdings stiffened the spine enough that I felt I could make it, though I did have to experience the lean years, particularly at the beginning. But in the years after the GFC, many people were skint. The ask is much, much higher now.

The Ermine cast a cynical eye at the Bank of England’s UK’s implied inflation forward curve (H/T Monevator’s should you use cash to bridge gap between your ISA and pension) and thought to myself flipping ‘eck, you lot must think we are born yesterday.

Look at the sedate trajectory On the one hand they’re expecting to write lots of letters to the Chancellor on how they cocked up bringing inflation down to 2%, indeed this will be a regular event for the rest of my lifetime. The Bank of England has a lot of finance bods much smarter than me, and I am sure that they will say well, hey, this is what is implied by the yield curves, it’s not our opinion. Sort of like a variant on guns don’t kill people, people do. Nothing to do with us, guv, it’s wot the market numbers say.

All over the decadent demise of the Western world there is this refusal to take responsibility for the consequences of our actions in favour of magical thinking. I’m all for magical thinking, but in that case let’s have some magic back, eh, rather than pretending we’re all materialist rationalists. Smells and bells, please. At least some of the ride will be more fun. Meanwhile

You’re having a larf, guys

In an exceptionally paranoid moment the ermine looked at what I expect coronavirus to do to the economy, followed by a quick one-two of Brexit, and figured that I see inflation in my future. In the BofE’s favour, if we take a look at the UK inflation rate history

UK historical inflation (CPI) Macrotrends

it looks not so different from the B of E’s prognostications, if we stick to the last 40 years. We have to go back nearly 30 years to the last time it was over 5%. Case proven, m’lud. Along with history, inflation has ended. Obviously you need some inflation, else capital will sit back on its lardy butt rather than get out into the world making good stuff happen in theory, but we’re sorted as far as inflation taking off. Hmm. In other news

We seem to be suffering a general competence deficit

We seem to be suffering a major competence deficit these days. In the battle between ability and craftiness, everyone seems to be losing their grip. The malefic Dominic Cummings seems to losing his mojo – starry-eyed for Big Data, his feet of clay show when it comes to hiring people to do anything with it. Obviously you ask your mates first, because, well, corrupt bastards are like that. He’s of the view that leadership in politics requires a science degree, but his own ancient and modern history degree from Oxford clearly failed him in his/our hour of need. He’s unable to find competence in handling data.

If the answer to your data processing job is Excel, the question is wrong

Back in the day, the Ermine was chatting to the guy at the next desk, who was tasked with keeping records of set-top boxes. Now I had an electronics, not software background, but he was planning on keeping this in Microsoft Excel. “Your problem there,” opined the Ermine, “is that you can’t do ‘owt with the data. What you need is a database”. This guy was going to try and search for repeating faults and that sort of jazz. Now you can do that is Excel, but it’s a bit like Samuel Johnson’s quip about a dog waking on its hind legs, it’s not so much that it’s done well, it is that it’s possible at all. It grinds to ever slower after about a thousand records – I discovered this the hard way when running the records of a club that had about 1500 members at its high water point. I switched to Access3 after about 500 members.

The trouble is everybody can understand Excel, whereas getting your data into a database is a different level of abstraction. Even in DOS days, dBaseIV had the edge on Lotus 123, though wrangling the forms to make it work was a nightmare.

Excel just isn’t designed to handle huge amounts of data – wrong tool, wrong job. This fellow might have had a hundred thousand set-top box ids, and Excel was only good for 65535 rows back then. You don’t use Excel for massive lots of data. I’d get off that wagon at more than 5000 data points, so you don’t use Excel for tracking your set-top boxes. Or your coronavirus victims

Now in fairness to our Dom, he’s busy getting his mates to do his data munging, falling for the old saw of anonymised data. The trouble with AI and Big Data in particular is that the aim is to de-anonymise everything.  AI looks intelligent because it cross-correlates everything, at scale. The public data Dom’s giving his buddies may well be anonymised on its own, but when combined with other data the keys to the kingdom often show up.

Now is the winter of our discontent[…]
I am determined to prove a villain
And hate the idle pleasures of these days.
Plots have I laid, inductions dangerous,
By drunken prophecies, libels and dreams,

This lot seem to have skipped a few lines of Richard III, and gone straight on to the doing evil. The thing that’s saving the rest of us is the competence deficit – in driving out Brexit non-believers, they seem to also have driven out anybody who can spot a bad idea miles away. Or indeed anybody who’s got a clue. Funny old thing, that… Correlation is not causation, eh, Dom?

Brexit zealotry doesn’t seem to correlate with competence

Perhaps driving out those who had a clue was the point – disaster capitalism unfolding before our eyes. Never let a good crisis go to waste and all that. Perhaps it has to be the way- you need moronic slavishness to the Brexit Ideal to Get Brexit Done, and perhaps afterwards we can engage people who understand the art of compromise. A little bit of that on t’other side wouldn’t go amiss, either, but we have to stick with what we can change…

I’m sure we will trade with other people after Brexit. But let’s get some people who can talk in a civilised manner to others, eh, rather than yelling we have the sovereign right to do exactly as we damn well please, and thanks for all the fish. That’s an awful long way towards the Juche doctrine of North Korea, and I suggest Brits are a little bit too soft and used to their creature comforts to want to pay that sort of price for absolute sovereignty, regardless of what Jacob Rees-Mogg and his disaster capitalism compadres in the European Research Group have to say about vassal states.

I am old enough to just remember 1973. Britain was a lot more self-sufficient in many things then, like food and cars for instance, than it is now. We weren’t that good at a lot of this, which was roughly why we signed up to the Common Market as it was then  – we were the sick man of Europe, economically speaking. However, the issues raised by James Goldsmith of the Referendum Party weren’t ever addressed with Maastricht. Brexit will definitely fix those. A little bit like burning the house down fixes bad wallpaper, but some non-ERG eyes can probably make Brexit work right after a few years. Britain’s economy did sort of work before 1973, and hopefully we have all learned something in the intervening 47 years. Just for God’s sake keep the British Eton-educated whazzocks away from leadership of our companies, particularly any that make cars, it took foreign management to make Britain’s car factories make cars that were worth buying…

work is not the route out of poverty for the ability-challenged or those with more children than skill

I confess I will struggle to drum up sympathy for the Red Wall if they find they are vassals to British plutocrats rather than EU technocrats. True, they weren’t to know of the coronavirus pandemic, but the deep compassion for those who fall on hard times of the crew that they voted in to Get Brexit Done has been hidden in plain sight for a very long time.

I still remember the relatively benign version of that looking for my first job nearly 40 years ago, it scared the hell enough out of me to never take any time between jobs until I packed work in for the last time. The experience of being unemployed in Britain doesn’t seem to have improved between Margaret Thatcher and the punitive and nasty Universal Credit.

Let’s take a look at the latest tweets by the bell-ends at the DWP about Job Entry Targeted Support.

Translated: People on the scheme which get a personal DWP goon on minimum wage who is incentivised to make your life a misery and get you to apply for endless jobs for which your skills and personal circumstances don’t fit you

Personalised, like the red dot from a rifle. The personal adviser will be targeted to make your life miserable. If you want to cop a feel of the quality of the personalised advice, knock yourself out on the careers advice beta to gauge the accuracy.In the case of the Ermine, that’ll be

ORLY? The last time I had anything to do with sports was the very last time i packed my PE kit away at school, in the late 1970s…

Because there is a fundamental truth here. Britain is a rich, First World country. That means the cost of living is higher here than in many other places.

Sadly, Brits are not, on average, cleverer than other people. We’re average. Quelle surprise, eh? As a result, the sort of jobs available in the UK that pay enough to live on need to demand a higher level of skill than the global average, and the bar is increasing all the time4. Because: globalisation. If you thought Brexit is going to fix globalisation, then you should have been more careful about the people you gave the keys to.

Elementary logic shows that the result of increasing skill requirements is that fewer and fewer people will be able to earn enough for the average cost of living. Some of them won’t be bright enough. Some of them will have had children too early in life, or split up with the other party involved. That means you won’t have enough time to get a full-time job. As a society while we mouth platitudes about wanting to make up the difference, by our actions we clearly don’t care that much to be prepared to carry your choices for years and years.

We have hidden this in the past by increasing the number of shit jobs in the economy, things that should have been done by machine or not done at all, and priced these at minimum wage. It is one of the reasons why productivity has gone down the toilet in the UK since the credit crunch. For contrast, I started work when this was about 55 on that scale, and left when it was about 95. Britain got better off while I was at work – not due to me I hasten to add. You need an increase in productivity to address poverty. There has to be more shit to go around per head for the country as a whole to get better off – it is a necessary but not sufficient condition.

UK per capita productivity, it’s less than it was in 2016, and pretty flat since the GFC. Source: ONS

There’s only so far this can go. Another way we are hiding this is to create a punitive DWP system for the un(der)employed called Universal Credit, employ young graduates who can read and write to be mean to people who perhaps have literacy issues or generally can’t stand filling in forms. We incentivise the graduates to disenfrachise as many of their ‘clients’ as possible so that they keep their sort-of middle-class jobs, while making it all look like the clients’ fault that they don’t have the natural ability to get/hold a job that pays enough to live on.

Let’s not even start on what we do to the physically and mentally ill, eh? We just don’t care. Oh and then we wring our hands about the amount of homelessness.

Now I’m not saying I am clever enough to know the solution to this problem, but I have learned over several decades is that whistling a tune and repeating inappropriate platitudes like ‘work is the route out of poverty’ isn’t the way to fix the problem. It would be more honest simply to tell some of the people with insufficient skills or chaotic lifestyle choices that there is nothing we are prepared to do for you. Work is not the route out of poverty, for the simple reason that the cost of living is too high in Britain to keep a roof over your head on anything less than the full-time minimum wage, and there are too many people in the UK who don’t have enough aptitude to add enough value to something to even justify the minimum wage.

Some people are seriously short of basic life skills, like recognising food 😉

Ceci n’est pas food

Microsoft offered me this picture of a field of Halloween pumpkins in some American field. It’s a little bit weird, a tad Magritte, IMO. How do I know it’s American – there are no trees, hedgerows, we don’t have one-armed pylons unless there’s a really good reason and we don’t run our railway tracks with no guarding, and I don’t think I’ve seen boxcars like that.

However, it’s in keeping – Halloween never used to be a retail-fest or even A Big Thing until about 30 years ago, and it’s been pushed like hell, imported from Over There. It’s still rather disturbing that a significant proportion of British parents were presumably raised by wolves themselves in being unaware that you can eat what’s inside pumpkins5. Although I had no idea how they grew, I was aware of this by the time I left home, though it wasn’t particularly useful information as Halloween wasn’t a big thing, and I am child-free anyway 😉

However, I am with hubbub – eat your damn pumpkins FFS 😉 Tossing 90% of the pumpkins we grow is just plain rude. Mrs Ermine grows these smaller ones which look the part but taste better. We don’t need to carve them, but with cucurbits size does not correlate with flavour IMO.

It’s not so much that the big supermarket ones will taste horrible, the main failure mode is to taste of nothing much at all. Think marrows as opposed to courgettes. Having said that, if it tastes bitter, then toss it out. Pretty much a rule of everything to do with eating really, but according the the RHS bitter squash can give you bellyache if it doesn’t breed true. So don’t seed save curcubits unless you know what you are doing.

Last year I was in Morrissons and they actually labelled their Halloween pumpkins as ‘not for human consumption’, which makes me wonder what the hell they spray the buggers with. And quite frankly, parents, maybe you want to ask yourselves, if you buy this sort of contaminated shit for your kids, then what sort of world you are encouraging capitalism to build for them?

  1. I know, he doesn’t keep it all in cash and gets some return on his money. But the maths works out at enough for 30 years essential spend, even if it isn’t deployed in that way. 
  2. Valuations becoming more reasonable is otherwise known as a bear market 
  3. Before all the DBAs take the piss, Microsoft Access was the right solution for a club database, easy enough to a tyro to make it work. If it didn’t, the result was going to be embarrassment rather than death. I’m not saying PHE should have used Access ;) 
  4. I took my O levels in the mid 1970s. The typical class sizes of my grammar school was 31, but after the O levels class sizes were about half, because half the kids had gone into the world of work. They were fixing cars, helping in businesses, all without A levels or a degree. I saw far more people as a child building the Goldsmith’s College halls of residence than I saw on the entire Olympic Athlete’s Village building site in 2012. You wouldn’t need to be able to read and write as a hod carrier in the 1970s, I saw nobody carrying bricks onto the scaffolding up a ladder in 2012, there were mechanacal aids t do that. 
  5. While I despise Halloween for being a jumped up capitalist consumerism-fest, rather than an honourable celebration of the turning of the seasons/harvest festival/thinning of the veil, the truth is that parents who eat their pumpkins with their kids and then carve jack o’lanterns out of them use more of the fruit than I do. Upcycling writ large and they should be applauded! 

51 thoughts on “Strong in these padawan, recency bias is”

  1. Sometimes I wonder at my own ignorance despite having originated in the slums of a post industrial town. So it’s little wonder the DWP can run such an unhelpful system.

    The monthly e-newsletter for our rural dales came yesterday. The covid-19 food delivery was hailed as a great success by 90 needy families whose income had been slashed as a result of the crisis. I was surprised to see there were 90 families and up our way! It had never crossed my mind early retired mind.

    Ditto a phone call from a chap who used to worked for me and took early retirement on a smallish local government pension. He is two thirds of the way through selling his house and there might be a delay up the chain. He cannot afford to sell anyway and rent whilst he is finds somewhere else. The margin of error is very slim for him.

    Interestingly my dale is not that far from Cummings Castle


  2. You make a good point about the changing nature of FIRE over the last decade. My sense is that, for younger discoverers of the movement, the RE bit has largely been jettisoned and most are focussed simply on FI.

    They also seem to be interpreting FI a bit differently – using it as shorthand for having no debt and enough savings to be able to pick and choose. They’ve realised that being debt-free, having savings and living below their means is the best chance they have of creating some long-term security and owning their own home at some point.

    But the possibility of retiring early seems like a chimera to most of my daughter’s and son in law’s millennial circle, even though they are all pretty sensible with their money.


  3. Everything is different if you have children. Everything may be different if your parents or parents-in-law live to a great age and need your help. Everything will probably be different if one of a midlife couple falls seriously ill.

    These are extra reasons why anyone with any sense will try to accumulate a decent wodge of capital.

    I wonder whether there is a case at some age to try to swap to a secure government job with a defined benefit pension and generous terms for sick leave.


    1. >dearieme

      IMO, you make a lot of good points!

      Earlier today I stumbled upon this little piece of related info from the ONS:
      “In 2019, more than 9 in 10 (92%) public sector employees with a workplace pension had an occupational DB
      pension compared with only approximately 1 in 10 (11%) workplace pensions in the private sector being pensions
      of this type.”, see:


  4. Another great post.

    When I was a kid you had to work hard for your lantern as we used neeps not pumpkins!!
    This did have one bonus though – just add a couple of other ingredients and cook up: haggis, neeps and tatties!
    And, trust me, hollowing out a neep is hard work and will easily see off inferior tools – like cheap spoons, etc!!

    > I confess I haven’t studied his derivation of that requirement
    It may be be instructive for you to follow through his logic.
    If you prefer, another way to think about this is as a real concrete example of the “safety first” vs probabilistic approach. That is, it is not so much a case of one way is correct and the other is wrong, but more a case of what probability of success (or failure) are you prepared to tolerate. If the answer to this is I need near 100% success then the choice of approach is fairly clear for relatively-short durations. However, as you have so ably demonstrated, going the other way can work out better than fine too – but that outcome is just not so likely according to either the historical record or some selected probability distribution. So maybe the key question is how [un]lucky do you feel?

    FWIW, his consideration of the path followed to acquire the stash prior to starting to de-accumulate is IMO a red herring for the reasons I gave at the original post.

    Re “The incompetence disease” and Excels shortcomings:
    This takes me back, and the solution I used in pre Access days was Borland’s Paradox rather than DbaseIV.

    The DWP example – rather sadly – is nothing new, and, believe it or not, is not confined to this country either!

    Lastly, ZX does produce some very memorable phrases! Another recent one I recall related to the composition of the FTSE.


    1. Cripes, hollowing out neeps is tough enough even with your gnashers after they are cooked! The temptation to take a file to one edge of that spoon must’ve been strong 😉

      > So maybe the key question is how [un]lucky do you feel?

      This is the fundamental conundrum of RE. Particularly for for those who have the sort of jobs where you can consider it, because once you cut the gas at the high-water mark you need to feel reasonably confident you are past the point of no return and can reach the final destination. Because quitting that sort of job is also a one-off. It doesn’t matter how hard I try, I could never get a job earning what I used to again.

      The trouble is that there are other issues. In the choice between health and wealth, choose health once you are middle-aged or more, because you can’t ever buy that back. Had it gone titsup for me I would probably be better off working minimum wage at Tesco and eating ramen rather than walking with a stick looking at at healthy bank account after a couple of heart attacks and/or strokes, which seemed to be the stress failure mode at The Firm.

      The journey to getting to FI/RE changes you, too. It makes it harder to spend. I would say the evidence is that I probably have enough now, and probably underspent. That’s OK at the mo, but I need to get this balance better as I am also running out of time, 24 hours every day…


      1. Having tried to carve a neep I count myself lucky still to have ten digits left to count my FIRE investments with. Totally agree that FIRE is a very fluid situation and life will get in the way more than once but very happy to have found this site to at least have pointed me in the general direction of it. With one week to go until jacking it in I feel a little less nervous about it all. In fact the only stress Ive had this week is the squirrels down the allotment have had a nibble on my sprouts.


  5. Your point about wealth vs health is an important one: running out of money after FIRE is a possibility, running out of life is a certainty.

    Maybe it is because I’ve lived through several period of belt-tightening, but the possibility of cutting spending holds little fear compared to the possibility of dying in office or retiring after my body has given out. This Covid-induced stay at home year has been very cheap and my days have been pleasant (although the disease and its impacts are awful). I see that someone else could feel differently, which wouldn’t make either of us wrong.

    If my choice was to take a risk on the possibility of another year or three without holidays/going out/buying shit or to have the certainty of an extra year of work, I’ll take the hermit option thanks.

    Although you acknowledge that luck was on your side @ermine, the odds were also on your side. The stock market generally goes up, the 4% guide has worked most of the time, the sun continues to shine… Maybe it’s naivety and recency bias, but I’ll take the odds as I understand them.

    Liked by 1 person

    1. Agree entirely re health vs wealth.

      Re “…I’ll take the odds as I understand them”
      I agree with your numerical analysis and say as much above. However, please remember that this is just the maths of the problem. There is a whole load of other “stuff” that really only comes in to focus once you set out on the journey. It is clear – even at long range – that this “stuff” exists, but IMO the way it manifests is highly idiosyncratic. Whilst you may feel (at this distance) you will be entirely rational very, very few folks are truly economan. Or, to use an abbreviation BTDT.

      FWIW, this is the main reasons why I particularly enjoy blogs that describe lived experience – and especially ones that describe it with narrative & colour as opposed to a bullet list of lessons learned. The journey is often far more illuminating than the destination.


      1. An excellent point that the maths is only the start. I’m a couple of years out and finding that the terrain looks and feels more nuanced where I stand than it did through the telescope of a ten-year plan. I agree that it will continue to change but still can’t fully envisage how it will affect me as an individual. All wisdom is welcomed!


      2. @SeekingFire:
        No wisdom here!
        My tuppence worth is as follows:
        1) at your stage being aware that such “stuff” will probably happen is key
        2) understand/accept that how the “stuff” has effected you, and yours, may only be visible in the rear view mirror
        3) read about other folks lived experience – your experience will be different – but at least their stories may give you some clues

        Ermine neatly captured a point I originally omitted, specifically: “The journey to getting to FI/RE changes you, too.”

        BTW, I still seem to default to writing bullet point lists; Ermine, and others, are far better at free-flowing narrative and colour!


    2. > The stock market generally goes up

      It’s not so much the odds in general, it is the sequence of returns where I had good fortune, I started in a hole and climbed the wall of worry. I didn’t have choice about when I started, and my integration time until my main pension could take over was only 8 years. Over a typical working life of say 30 years you’re less exposed to SoR because you integrate over three or four market cycles, typically, but I operated over less than one.

      Say I had started in the 2000 dotcom bust – the crawl from the wreckage was very slow and grinding then, particularly for the first two years. One has to hold one’s head while all around lose theirs, and that’s tough at the beginning of the journey


      1. Another quote. I feel honoured.

        I was that person who started investing in early 2000. Those units took 50% in the chuff within three years. Edged their way back to flat by 2008 and then took another 50% hit. It was 2012/13 before some of those units got back to flat in real terms. Now I was poor in 2000 so the amounts invested were trivial. In fact, the drops in 2000-03 and 2008 allowed me to pile in during early 2009 with far greater savings. The sequence of return risk (SoRR) worked out just fine. It demonstrates, though, that a decade of equity falls is perfectly feasible. So how is it so few remember?

        I’d also point out something else. What makes the last forty years so pleasant for investing isn’t really the equity returns. You had three up decades (80-89, 90-99, 10-19) and one down decade (00-09). Not so unusual. It was the four consecutive decades of positive bond returns. Unparalleled. Those 60/40 and 70/30 portfolios had it easy. The hedge (bonds) always worked. That lifted returns and smoothed out SoRR hugely.

        Going forward, though, the hedge may not work or it may turn out to be a Texas hedge (it’s loses money when equities lose money). That makes SoRR all the more dangerous.

        Liked by 1 person

      2. Entirely agree that 2000, 1929, 1973 were all bad years that would have endangered retirement. There are many more benign or good years than awful years. The odds are in your favour that any one year will be okay (far from guaranteed, but in your favour).

        As @ZXSpectrum48k rightly says, the future odds could be fundamentally different if bonds change everything, and we can’t look only to the immediate past to estimate our odds. For me, the certainty of another decade in health-eroding work weighs heavily on the scales compared to the possibility of 2022 being another 2000 (and the extra decade only buys me another decade of data, more cushion and the equal possibility that 2032 will be another 2000). Am I missing something?

        Liked by 1 person

      3. > another decade in health-eroding work weighs heavily on the scales compared to the possibility of 2022 being another 2000

        If you are privileged enough to have the choice, if it’s health vs wealth choose health. That’s what I did – I haven’t had, touch wood, the heart attacks and strokes that afflicted some of my colleagues in that last decade of working. I am poorer, but I weigh less and am fitter than when I left work despite being getting on for a decade older. I have not wanted for food, entertainment or opportunity, but I am poorer in financial wealth. But money is but one dimension of wealth – having control of your time is another, and I have had more of that.


      4. @Ermine:
        >but I am poorer in financial wealth.

        Did you mean to say this or did you mean to say something more along the lines of:
        I am poorer in terms of the financial wealth [and I guess DB pension benefits] which I could have accumulated had I stayed at work.

        I ask as my understanding – from previous chats – is that having traversed your Gap you more than preserved your stash – so strictly speaking no poorer, ignoring perhaps, the effects of inflation.


      5. Poorer in the opportunity cost of the money I didn’t earn had I taken the fork in the road I did not travel down 😉 I left work at the high-water mark of my real-term earnings, eight years of that would have added up!

        In real terms I am not poorer in financial wealth than when I left. The markets were extremely kind to me, and I failed to spaff enough of it on lobster and more house. As Monevator highlighted, the reversal of accumulator to decumulator is not straightforward. I was nervous and fearful, particularly against the background of the GFC in the early days, but there is some argument that perhaps I should spend more. I suspect lobster will be off-limits after BoJo’s all personnel broadcast tonight. What’s a fellow to do, eh?


      6. Thanks for the clarification/confirmation.

        As we have discussed before, sounds to me like you are in a very good place, and – when it comes along – your SP’s will be the icing on the cake!

        Judging “enough” is tricky.
        Deciding when to jump ship (unless this decision is imposed upon you) can add another layer of complexity.
        However, real de-accumulation seems to be the most difficult aspect for lots of folks – especially those with DB pensions!

        Liked by 1 person

  6. Thanks for another great post, FI blog lurker for ~5 years, first time poster.

    RE the changing nature of FI: For myself, high valuations for all asset classes pushes early retirement far down the list of priorities worth focusing on at the moment. Sure, it’s been shown to be possible in ~10 years with help from a strong tailwind of asset price inflation, but it seems foolish to bank on the same going forward.
    Couple just starting our 30s, 2 young kids, at the point of looking for our first home (well, when 90% LTV mortgages return 😉 ). Always been savers, but looking for balance in life too, so buying a decent family home then in the medium term (5+yrs) building a ~100K portfolio would offer enough security and flexibility in life to get FI ‘feels’. Making any more definitive plans for further into the future feels futile in an inherently uncertain world.
    Though I count myself fortunate to have frugal ways and an ‘interesting’ job with decent terms, and really feel for the other half of my generation in much less favourable employment.


    Liked by 1 person

    1. > high valuations for all asset classes pushes early retirement far down the list of priorities worth focusing on at the moment

      That’s a wise tradeoff – and perhaps FI is becoming more important in today’s working environment than RE. Having options to walk away from a bad deal, regroup and move onwards and upwards without the immediate pressure of meeting expenses is getting more valuable that more time on the golf course in future!


  7. On the ‘millennials need a job in Finance’ thing, technology is not too far behind. I know of three people who graduated in Computer Science this year who’re working for US Big Tech on £70K+. My ex-employer is now offering well over £40K + retention bonus + profit-related bonus + shares to 21-year old Electronics graduates (and in a large northern city too, not just in Cambridge) and still having to find most of the recruits from outside the UK. I imagine those numbers will rise sharply with a few years experience. I think young Ermine would do very well for himself these days, and in a much more amenable working environment. Of course, most of this year’s graduates are going to find it pretty tough to find anything.

    Liked by 1 person

    1. Electronics (and engineering in general) seems to be in a bizarre state at the moment in the UK. For a long time I had thought this moribund, but I am doing some work for a small firm (because: this and even the generalised remnants/experience seems to have some value, firms appear to be struggling to get competence in that area. If you look at the immigration jobs list supports this in categories 2121 through 2129.


  8. Personally I can’t stand the taste of pumpkin but there does seem something very wrong with encouraging the purchase of a massive food item only to then throw the edible bits away. I’m not a fan of fake plastic alternatives either, surely the supermarkets are missing a trick by not bundling some sort of “everything you need for pumpkin pie”?

    Interesting your points on DWP and job ‘coaches’, especially given my wife and I have become recent involuntary ‘clients’ of theirs. We’ve not had the pleasure of engaging with universal credit though as many years of saving/investing certainly (and possibly correctly) counts against any such entitlement. I ran my figures through the entitledto site and it gave a figure of about £35 a week JSA.. frankly not worth the effort claiming. If I were to liquidate all our savings and pay off the mortgage with it our entitlement would then apparently skyrocket…


    1. “figure of about £35 a week JSA.. frankly not worth the effort claiming”: could be, but you might want to check whether it could protect your entitlement to State Retirement Pension.


      1. That’s £300 p.a. for a couple, plus the sacrifice of around £3,500 p.a. JSA. Call it £4k p.a. in total. Not everybody would wave that away as trivial.

        Liked by 1 person

      2. > That’s £300 p.a. for a couple, plus the sacrifice of around £3,500 p.a. JSA. Call it £4k p.a. in total.

        Trouble it it’s not 4k. Contributions-based JSA where you don’t have to go through the torture machine is only good for 6 months. After that it switches to income-based JSA where if you have savings you are prohibited, it is targeted to the poor and asset-poor. Anybody considering FI/RE would be eliminated from that. Although it was a cause for celebration when the income from my ISA crossed the calculation you just made which was after a couple of years of starting the journey, that calculation wasn’t realistic then and still isn’t. You’ll get the first six months maybe. After that you’re either not aiming for FIRE or you will do without.

        I was happy to kiss goodbye to the potential £1800 of contributions-based JSA even at the start of my journey. Because: health not wealth. Perhaps in Covid times the DHSS isn’t so horrible to their claimants, but it’s a Tory government, I’d be surprised if that sticks for any useful amount of time. Being horrible to welfare claimants is what they do 😉

        Liked by 1 person

      3. Ermine is dead on; the issue is the contribution-based JSA dropoff after 6 months.

        My wife does claim JSA as she would get the full ~£75 weekly entitlement. I get less due to my occasional advertising/affiliate income which often fluctuates making the whole thing of claiming benefits even less worthwhile of hassle.


  9. It has been quite noticeable that many of the new people aspiring for FIRE are actually only aiming for FI and don’t really want to think about the RE bit. For those who have been around the block (by which I mean me!) and worked 25+ corporate years, the thought of sailing off into the RE sunset is very much part of my plan.

    I had a go on the gov careers advice thing too and the top job category it gave me was manufacturing, a line of work I’ve never done before so perhaps something to consider if my FIRE plans go pear-shaped and I’ve gotten my numbers all wrong!

    Interestingly, I only discovered pumpkin carving a few years back (never did it as a child) – the seeds get roasted and the innards put in soup. The lanterns themselves are put in the garden and we watch them slowly rot to become fertiliser!

    Liked by 1 person

  10. Very on point. So in effort to stimulate debate, I’ll try to take a counter view on a couple of points none of which I really believe with conviction but have a weather eye to hedge myself.

    The prospect of a bear market and UK Equity valuations. The difference between 2008 and now is that long term gilt yields were circa 5% / Index linked gilts were showing a positive real return vs circa 0.3% nominal / -2% real return now. That’s quite relevant imho. FTSE All Share / 100 CAPE Ratios are back where they were in 2008. So the delta between LT earnings yields and safe bond returns are much much higher than they were in 2008 and indeed higher than in any recent memory / ever?. The counter to that, which I have a lot time for, is the UK FTSE earnings aren’t coming back as the top ten constituents in the FTSE 100 are shot away and on a path to no where. Nonetheless, on the balance of probabilities I postulate that investing in UK equities (particularly the FTSE250) will prove materially more profitable than UK Gilt investing over the next decade. Contrarian investing does somewhat require you to do what everyone else isn’t and everyone hates UK equities now. Anyway I’m overweight to the tune of about twice the global UK weighting. It’s not a lot of difference really in the scheme of things but enough to feed the monkey. The logic can be moved across to the S&P 500 albeit it’s much narrower delta – mind you the constituents don’t look shot away do they…..

    Inflation. I also believe inflation is a likely end outcome here but…..there’s a surplus of capital, ‘free’ energy is a real possibility, technology can offset the effects of an ageing population and increased debt has acted as a deflationary force to dampen spending. So I think it’s quite feasible we see limited inflation that shows up in RPI for longer than we expect and maybe never. That said I’m deep in US$TIPS in my liquidity portion as I don’t know. And I always find it amusing when people say there’s no inflation and then comment how impossible it is to buy a house in an area they want to work etc. The same applies to trying to buy an annuity with your capital.

    Try as I might I cannot disagree with you on the following issues

    – people blindly using the 4% rule based on history are driving with a blindfold on
    – the UK relative to other countries is in decline and things may get a lot worse. Living in a country that’s in relative decline is a riskier place to be relatively speaking – things may get better over the coming decades but not before the risk of them getting a lot worse plays out – FI can help you here as the other commentators have rightly noticed

    Liked by 1 person

      1. Al Cam. I hadn’t but many thanks for sending. I don’t really know on inflation so know enough to look to try and hedge my bets. My bet is we continue to see asset price inflation and then possibly at some point cost inflation. If the nominal risk free rate of return is zero then why can’t the FTSE 250 be on an earnings yield of 4%, which is a p/e of say 25. Half of it out as a dividend – yields 2%. That seems eminently possible to me and means you should buy equities. That is what I mean by things being different now to 2008. Very reasonable to take a different view and if rates go up well that changes everything. I occasionally read mdonfire – he’s clever but wants to see everything through the lense of we’re doomed. We maybe but it does colour your thinking – you look for reasons to convince yourself you are right when you should look for reasons to convince yourself you aren’t right if you see what I mean.


      2. Yeah, good old GASEM could be viewed as a bit of a doomster. I first came across him as a commenter at Big ERN’s blog. As you say, he is clearly a clever chap. Also, he seems to have the courage of his convictions – e.g. have you read about how he has relatively recently re-organised his portfolio. Having said that, my reading of his blog suggests that he is a man of sufficient means to be able to make such experiments at relatively little risk to his overall lifestyle.
        Nobody knows what will happen and that is why I like to read different views. I found the first interview with Jeff Booth interesting. Who knows if he is correct – but the tension he describes seem real enough to me.
        What I think is clear is that the traditional balanced portfolio mix of equities and bonds (as the so-called risk free asset) is ever more questionable. I have been working my way through a set of Robert C. Merton Retirement Finance lectures, and a favourite phrase of his that goes along the following lines: what is the best risk free asset; keeps ringing out.


    1. > UK FTSE earnings aren’t coming back as the top ten constituents in the FTSE 100 are shot away and on a path to no where. Nonetheless, on the balance of probabilities I postulate that investing in UK equities (particularly the FTSE250) will prove materially more profitable than UK Gilt investing over the next decade.

      I am buying a FTSE250 ex ITs unit trust monthly. ZXSpectrum’s wise words on the FTSE100 ring true

      The high street was obsolete anyway, airlines should go bust, the petroleum industry needs massive downsizing. The FTSE is not coming back because it full of crap companies with obsolete business models.

      I guess I am betting on a successful Brexit. What can I say – sometimes you have to buy what you don’t believe in. And everyone hates the UK at the mo. In theory the 250 will be the engine of the recovery… hahaha

      > ‘free’ energy is a real possibility

      Bless. We’ve seen this movie before – before my time, in 1954 😉


      1. The comment I made regarding the FTSE that you quote wasn’t intended to imply that it couldn’t outperform at some point in the future. More that it was unlikely to bounce back in the short-term like US equities could. Eventually we get some resolution to Brexit. Eventually, ‘value’ stocks will outperform. Eventually, they will produce real dividends. Eventually. Let’s be honest: after everything else has rallied and become expensive, you often get a ‘trash rally’. Sound appropriate for a good chunk of the FTSE.

        Those DB schemes are weighing our companies down. The fall in Gilt yields has added £150bn+ to their liabilties. That’s 6-8% of the FTSE market cap lost on pension scheme liabiltiies they have no business or expertise taking risks on. Why didn’t they hedge that 20 years ago? Why did they punt on HYP equities and commercial property, rather than invest in R&D and increased productvity? Rentier capitalism strikes again.

        My problem with the FTSE is nicely summmed up by BT. That stock has dropped 80% since 2015. In a world where everyone is WFH, our national telecoms ‘champion’ is down 40%+. WTF? Market cap about £11bn … a pittance in global terms. BT is basically now a DB pension scheme with a small telecoms company attached. How did it get to that dire state? I suspect Ermine may have experienced why at close hand.

        Liked by 1 person

  11. With banks being warned to prepare for outright negative interest rates as opposed to current negative real interest rates, cash will not only be already devaluing, but will then have a new cost (storage) associated with it. Investing it instead will distort balance in portfolios as that has to increase overall risk, with diversity and accessibility reduced. Mattressing it (get a home safe?) is just another risk, but worse is the message it sends out on the UK economy and currency before the pandemic effect has passed or brexit has even started. Selling FI to a newbe today is getting harder.


    1. > but will then have a new cost (storage) associated with it

      SGLP 😉 You might as well… Having said that, I’m not sure retail punters will be introduced to negative cash interest rates.


  12. The problem I find with trying to encourage the uninitiated to invest today is that they associate investment with a scam minefield and whilst acknowledging that not all investments are scams, say they don’t have the ability to tell the difference, nor the confidence in the ability or honesty of those with professional knowledge like financial advisors. This is actually a really valid point as illustrated by a quick random example given in the article below from one of the more rapacious industries we are often forced to deal with:

    Now you know why the smallprint agreements blocking you from proceeding when dealing with almost any company on their product/service(s) are so aggressive, they’re milking you of data in the hope that it makes them more profit. In the incredibly complex case above, the shareholders are being set up to take the losses while it’s all beautifully legal.


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