Ten years of leisure wrested from The Man

I stopped working for The Man ten years ago, at the end of June. I spent my last working day in the Athlete’s Village in the 2012 Olympics. It was a little bit odd to end my career working off-site, but I had a little bit of annual leave to use up. I did return the The Firm at lunchtime at the end of June for a valedictory round of drinks at a local pub and a send-off, and that was it, three decades of working life came to an end. It was a good way to finish off, on a high as the last manager said. I look at the pictures and they are good, though I see the signs of three years of the stress and the effects of drinking too much to dull the pain.

Not many FI/RE people are still writing after a decade, so here are a few takeaways from the ride. It has been against the background of a long bull run that is only just fading, as the firehose of central bank interventions begins to surrender to the irresistible force of the accumulated pathologies stoked with it.

I did not get bored

Honestly, I still can’t understand why bright young fellows like Monevator still link to cruft like this. Seriously, if work is the best thing you can think of to do with your limited time on Earth, then you need to get out more and get some hinterland in your life. Preferably half a lifetime ago, but now is better than never. I am sure that for 1 or 2% of people their profession is their one true passion. They tend to be outliers, often psychopaths like Elon Musk, or Mark Zuckerberg, and that passion tends to be unbalanced. That leaves over 90% of us who can probably do more congenial things with our time than working, if only we could solve the conundrum of dreadful things happening in our lives if the flow of income from our jobs were to stop. You know, like losing your home or your kids starving, that’s the sort of thing that keeps most of us working past the point that the Do What You Love, Love What You do meme has transmogrified into Suck it Up, Our Way or the Highway. Solving that is what financial independence is about, but too many people end up with Stockholm syndrome with work. The Escape Artist summed up the problem. Don’t just load the gun. Pull the trigger.

The world is plenty interesting enough to reward an inquiring mind and an inquisitive snout. Learning new stuff has never been cheaper or easier, though it pays to remain critical as there is also much more misinformation about. In many areas of factual learning, favour books over online, and I personally almost always favour the written word over video¹.

I got less hard-line about working than my younger self, who was running away from a crap situation. But the key takeaway is still the same. Don’t rely on income from work after you have become FI. Save it, spend it on champagne and caviar, but never, ever, set up your life so you depend upon it again. Otherwise you are no longer financially independent. This severely limits what the financially independent can safely do with the proceeds of work.

Spending FI/RE earnings on  lobster is OK. You can live well without lobster, but perhaps better with.

Breaking that rule is fair enough if you opted for thin-FI/RE and came to the conclusion you don’t want to live that way – financial independence is not worth more than anything else, and if you want to live high on the hog, or live in London, or send your kids to private school, then you are probably not going to be financially independent as early as someone who can eschew some of that and drink prosecco rather than Dom Perignon.

Unlike the savings of my working self, which tended to be towards specific targets, the savings from earnings of my post-working self means I can spend ~4% of them more year on year. As time passes, I get more relaxed about some of the toxic trifecta Jacob ERE railed against –

buying tickets, going to restaurants, and shopping

Probably still not so much buying tickets. I was never a huge fan of sports and not a great fan of crowds. But there’s some inflation – AirBnBs rather than camping. Restaurants, yes – we eat out more, and arguably much more than when I was saving to quit work. MMM was quite right, you are not buying the food at a restaurant, you are buying the experience.

Consider restaurants a treat that allow you to live like a king for one night as a reward for being debt-free and saving so much of your income, rather than a convenience because you just happened to have nothing in the fridge that night.

So that is still well under once a week, rather than the typical habits of London city mice. Anything, no matter how great, gets old if you do it too often.

Shopping – maybe. The 24 hour rule² is still worth having, and extending to a week for more than £1000. But I don’t deliberate endlessly.

We are all likely to be rather poorer in five years time than now, possibly by a third to a half, so go easy on that lifestyle creep. But you’re also running out of time, there’s a balance to be had, with YOLO on one end of the scale and ending up the richest body in the graveyard on the other.

As for getting bored, it doesn’t have to happen. If you fear that, start developing your hinterland in terms of connections with other people and other interests that have nothing to do with work while you are still at work. Grab a hold of your life and make it better, because work really isn’t all that, and if work sums you up then I venture you are living life at half cock.

Some aspects of the journey are hard to describe. I got to understand myself and those around me better. That is not always a comfortable process, the benefits often better seen from a distance than up close. It is a continual surprise that some of the assumptions I have made through life are shown to be false when examined. If you don’t transform and grow, however, then arguably you are ossifying. There are no easy answers there, everybody’s journey towards individuation is different, the clue is in the name.

Not everyone chooses to do that inner work, either. Some choose to run away from self-awareness, taking refuge in activity, in the reflected achievements of their progeny, or any number of other things. As long as they don’t end up with regrets, no harm done. There are no right answers, although the aphorism that nobody on their deathbed said they should have spent more time at the office is a hint that work shouldn’t be the default option when faced with ‘what shall I do now’, assuming you have that choice, of course.

I did not run out of money

It’s every FI/RE retiree’s greatest fear. I retired three years after the GFC of 2009. That made me paranoid, and I was a long way off drawing my company pension, and I am still a fair way off getting my State Pension. Hindsight shows that timing was a grand move, because valuations were terrific compared to the intervening period, particularly the last half-decade, covid flash crash notwithstanding. I did not pick the time of the battle – the GFC meant that The Firm hired nutcase American management consultants to squeeze headcount by driving enough people round the twist that they would quit rather than get redundancy. Be that as it may, it wasn’t a bad time to start lobbing decent amounts of cash into the markets. I think of those days now when I tell Vanguard to buy VWRL, VFEM and VMID at ever-lower prices 😉 I haven’t seen the bat-signal go up like last time, indeed the bat-signaller’s feeling un-chipper.

My portfolio has been battered for over a year.

Chin up, old bean. That happened in 2009 too, no? Besides, it could be worse. How’s the crypto portfolio? Anyway, in the absence of the bat signal, I am slowly loading my Vanguard ISA this year.

Arguably I should have spent a little more in the early days and probably not cleared the mortgage, to give me some spare in the early days. My younger self was poorer and my current self is richer for getting that wrong. You can’t get everything right, better that way than the other way round.

There was luck in there too. What is happening now, in terms of inflation and general malaise, would have been a bad hit in the early days, and I did fear it ³. I don’t regard this as a transient problem all due to Covid or the Russian invasion. I think that it contains a lot of the failure to properly fight the problems of the GFC down. The thoughts that it’s all different now that prevailed after the Covid suckout didn’t ring true for me.

As for the idea that tech and the virtual world are the wave of the future and will eat everything else, well, bollocks to that. I will buy SMT when it falls to 640, because tech has some value, just not as much as the soi-disant opinion leaders thought when they and the other well-heeled were WFH on Zoom 😉

I look at markets now and think to myself that I got a long free pass in that it took ten years for the chickens to come home to roost, and I am lucky enough to be in a better position to take the impact. The nominal amount in the ISA roughly doubled and a bit compared to original ISA + AVC-derived SIPP. There has been inflation, the Bank of England indicate £100 in 2012 was worth about £120 in 2021, so say £130 now. This increase isn’t all the bull run, some of it was moving the SIPP into the ISA, which ought to work out neutral as they were the same sort of asset classes, and some of it was adding modest earnings. On the debit side, however, I had living costs from 2012 to 2019 until my company pension kicked in, and I bought more house when I moved from Suffolk. Cynical wags would say that today’s Great British Pounds are a damn sight less Great than they once were, compared to something like IMF Strategic Drawing Rights, largely due to the events of 2016.

GBP versus IMF Strategic Drawing rights, a sort of GDP-weighted basket of foreign currencies (including the GBP)

Fallen by 10%, and still heading down, down, deeper and down. It would have been a bastard for this particular crisis to have happened three years after I quit. So yeah, inflation of 10-15% for three years is a bit of a shit, but less of a shit than it could have been. So let’s say some 30-40% of the uplift can be discounted as depreciation due to inflation and the price of buying sovereignty. Most of my holdings are foreign assets or UK assets exposed to foreign markets so their numerical value will be uplifted inversely to the rot of the £, but I still won’t be able to buy more with them.

there are no guarantees

That’s not to gainsay that there’s a lot of serious pain coming down the pike. How that pain will be parcelled out and dealt with should really be an issue for collective discussion via politics. That’s unlikely to happen because currently the political establishment seems to be out for the count, incapable of addressing the problems in a coherent or useful way. Winter is coming, guys. So there should be a caveat that I did not run out of money so far. It is by no means impossible to imagine scenarios where I could lose the fight. A  roughly six year old young Ermine recalls sitting on a hot summer’s day in a German old people’s home listening to my mother listen to her grandmother describing losing her life’s savings. Twice, once to hyperinflation and the second to war. What saved them so she got to live out her days is relative peace had been owning a farm, and the occupying forces being the Americans and British, not the Red Army, under which property claims might be moot.

My six-year old self did not understand most of the German. But the use of tone colour in speech is similar in German as in English, and the intensity of feeling is still with me. There are no guarantees. Real assets can fight inflation, but they tend to have disadvantages – unlike financial assets you can’t pick them up and run with them in the night, so luck plays a big part in their utility.

I did not travel as much as I thought

In the first few years that’s because I didn’t have the spare money, and I travelled a bit more in the UK because of that. But in my last few years at work I also learned that I hated airports, air travel and being around people and their kids more than I valued the novelty. That’s not to say that I have never travelled internationally, but I have flown less often than my working self, even if I take business air travel out of the equation.

I did fly to see these prehistoric temples in Malta

That isn’t because I’ve gone all Greta Thunberg on it. When you are working you have to be miserly with your time and put up with the crap of flying. Flying from Bristol now is a lot less horrible than flying from Heathrow, Stansted or Gatwick then, but air travel really rams home what Jean Paul Sartre said about “l’enfer, c’est les autres”, with a noble supporting role for les autres’ children. Personally I would like to see all high-volume low-cost airlines destroyed and the business model buried for ever – Freddie Laker started an awful lot of shit, and the external costs are born by all of us in terms of increased noise and pollution. I would much rather pay £600 for a short-haul flight if there were fewer aircraft in the skies and far fewer punters in the airport, but the opinion is not widely shared for some reason 😉

The Firm used to pay about £200 for my flights to European airports for a project in the 1990s, and the Bank of England inflation calculator tells me that’s about £400 nowadays, I’d be prepared to pay more to reduce the noise and price more people out of the air, basically to fly infrequently but have a better experience when I did, as well as reducing the rumble of aircraft noise over the countryside. And jet fuel really ought to start paying its taxes. The exemption of jet fuel in the 1944 Chicago Convention has been overtaken by events, I don’t think that mass tourism plays a huge part in nation speaking peace unto nation these days.

Devil’s den, Wiltshire, closer to home

But I have travelled slower, and perhaps spent more time in places nearer to home, and gained in quality of experience. As I get older, I start to value comfort more. As a couple our days of camping are over, particularly with the rise of AirBnB, and more gracious living all round. On my own I will still camp for some sorts of remoter wildlife and some of the more out of the way prehistoric sites.

Pine Marten, Scotland. A fast lens is king here, not the rubbish f5.6 kit lens I had at the time. A beautiful mustelid with a luxuriant fur and bushy tail.

Even after a decade there is still too much of my erstwhile worker bee self in travel and exploration. I cover a little bit too much ground in too short a time, and that’s despite having slowed down massively compared to my working self. In general I don’t do paid entry attractions, which are usually insanely manufactured and child-centric, although I make an exception for historical and NT sites, and pine martens. I don’t recall attractions being a big part of holidays as a child, either these didn’t exist or we were too poor to use them. On a positive note, however, there’s room for improvement, which should also result in spending less and appreciating more. More moments of being rather than the stuff advertisers stick on the billboards. I haven’t spent that much time on the beach, more looking for birds, a some challenge in hillwalking, prehistoric sites and some history. The worker bee often favours escapism on vacation, but a retiree should perhaps take the time to be changed a little bit from their travel – learn something, or master or create something with the different environment.

The National Trust’s keen gardeners make this. It’s far too much like hard work to do it at home!

I also take some pleasure in the results of National Trust’s keen gardeners – we don’t have the patience for ornamental gardening, Mrs Ermine focuses on growing veg, so the efforts of others are appreciated without the work.

The four phases of retirement

I liked this TED talk about the four phases of retirement, though I recognise them easier in other people more than I do in myself.

1 – the vacation phase

He describes the first phase as the vacation phase, lasting typically a year. I missed out on this, because arguably my first year or two were decompression from saving hard to clear a bad workplace situation that was getting worse. The erstwhile wage slave who retires normally revels in their free time. This is one of the reasons I’d say make no irreversible lifestyle changes like moving in the first year of retirement, until you work out what matters to your retired self – your vacation phase retired self doesn’t count, because it is still rooted in your working self. At some point, and while it didn’t happen to me it has happened to nearly everyone else I have seen go through it, they get to some sort of unsatisfaction plateau, is this all there is, which he lists as

2 – losses and being lost

Riley cites that many people find they feel significant losses catch up with them associated with leaving work, the loss of

Routine
Identity
Relationships
Purpose
Power

And they observe the Ds

Depression
Decline (physical/mental)

I’d say these guys should try starting from a hole if they find the transition that rough, but if that’s their experience, I don’t want to gaslight them. I don’t feel a mental decline, some things even get easier with time, experience and just slowing the hell down to to do it right – measure twice, cut once. Of course it could well be the case that I am a happy cow raving and drooling and haven’t noticed being put out to grass, the camera can never photograph itself 😉 I have lost some upper body strength, and the amount of force I can apply to something fades quicker, and the recovery period before I can apply that force again stretches longer. It is easier to sprain muscles, and they take longer to clear.

Against that, some of the experience I gained means that I can build things quicker and with fewer mistakes – I constructed a big log store for the new wood burner, and compared to my younger self I was able to pound in all the hundred or so nails without bending any, and didn’t end up with too much wood left over or anything missing which is an improvement on earlier construction projects.

I am generally fitter than when I left work, though I have not darkened the threshold of a gym ever since leaving school. It is a combination of more time, and also the area I am in is more walkable, both practically for things like groceries, it is attractive, indeed being a tourist area and I can walk for ten minutes and be in fields. Walking is good for the soul, nobody ever got a sports injury from walking, and done right it can get you places as well as help you think. But it takes time. Modern weather forecasting like Accuweather‘s minutecast is good enough to minimise the chances of getting rained on. Retirement is good for being more physically active, even for the unsporting.

I have been fortunate in so far not suffering any of the big hits that tended to hit people in their fifties at work – stroke and heart disease. I have, sadly, seen a significant amount of this in people I have known, so it is an ever-present hazard.

All round, I didn’t experience the second phase in the same way so many others did, but perhaps they started from a position of strength. Observation shows this is easily a thing for other retirees, and it is perhaps more visible with the Great Resignation. It is a hazardous thing to be retiring because you are sick of work, if your sense of value and meaning is still attached to working. It is easier to find your way towards the light than to run away from the darkness. Extroverts in particular are likely to suffer with this. You have been rewarded throughout your working life by an extrovert-friendly workplace culture, but some of that reward goes away with retirement. Introverts may come into their own 😉

3 – trial and error

Falls in the general category of be open to new things, try them out. Also meet new people. Eight years ago an Ermine noted that

Observation shows that one of the big ways people go wrong when they retire is they stop growing, because most of their challenge was at work. Too much TV and too little curiosity kills the cat…

Don’t do that. Seriously. Just learn summat new every day, FFS. Magazines are free at my local library and the e-versions can be read on a tablet, sometimes just look at a different field of endeavour just because. I read a model railway mag a couple of days ago. I am not about to start modelling trains. But I learned something new, both about precision modelmaking and tools I had never come across, you never know when that might be handy, and I learned a bit about the history of trains in Britain. Theoretically I am old enough to have been on steam trains I never was, because South London and the South East had been electrified I guess. Perhaps I may take the steam experience on the West Somerset Railway to see what all the fuss is about, and see a different perspective on the landscape that inspired Coleridge, well, when he wasn’t off his face on laudanum.

I’ve read gaming mags, again, not because I have a passion for video games, but it is a big thing for many people, and sometimes you just have to stick a mustelid snout into a new place and go WTF is happening here? Be interested in the things people get up to. I read JB Priestley’s English Journey – again, a different take on the world, and the poignancy of knowing what was to happen⁴ as I read his narrative of places like Coventry.

I find books and magazines have by far the edge for this sort of serendipitous inquisitiveness than online, and the radio works OK at times – recently there was a programme about Bruch and his violin concerto. I’d never heard of Bruch or his work, but the story of how people related to it was good on the drive back after getting soaked on a hill. The radio play of The Machine Stops and for The Limits to Growth weren’t bad either. I read the magazines online, it is probably the curation of dead tree media that improves the signal to noise a little bit, you don’t actually have to read them on dead trees to get the benefit.

Like online, I find TV surprisingly unsatisfactory, although I will go through the Radio Times (also free from the library) and record some things – I never stick the TV on to ‘see what’s on’ because, well, life is too short. Of course the modern way is streaming and Netflix and Amazon Prime and watching things on your mobile phone, but I a rich enough to leave all these things alone⁵. I don’t do subscriptions, and presumably these bingewatching consumers have 48 hours in every day where I only get 24, and good luck to y’all. I don’t need more TV, I could use better TV but that’s not the zeitgeist AFAICS.

Riley’s take on this is experiment and do new things with new people, as well as the things you know and love. It’s not a bad way. I tried paddleboarding, and even managed to stand up for a short while. I am a very weak swimmer and managed to get some sort of stomach bug afterwards, so it’s probably not a burgeoning passion. But it’s a different take on the world, for example you get to see birds at eye-level and closer than you would otherwise.

Reinvent and rewire

I’m going to admit that this doesn’t ring true with me. I see elements of it, but ten years is still too close to the memory of buzzword bingo for me to do anything other than spit bricks when invited to consider What is my mission? Seriously, I didn’t fight for three years to escape the workplace only to invite that sort of bullshit in through the back door, no, sir. And there’s the Walt Whitman problem – I am large, I contain multitudes, I am so much more than your puny mission statement. But again, it appears many people define themselves by what they do not what they are, so hell, if it works for you, go get it.

I see some of the sense in what he says, collaborating with and for people can have reward in itself, but some things in there strike me as worthy and make-work. Having said that, volunteers in these sorts of things keep the wheels many of our environmental, heritage and wildlife organisations running, so it’s not all bad at all. I didn’t recognize the scenery of his last phase, but I do get the mood music. If you are doing well, spread some of the joy around, with people and projects you are interested in. Another non-financial investment, arguably.

the financial side of things

I was overly cautious in spending when I started, so my then future, now current self is better off. I am yet to actually dip into the ISA, which has continued to grow. My original plan was to use the income from a HYP to bridge the gap until I was able to draw my company pension. In 2014 Osborne changed the rules, and I was able to run out my AVCs into a SIPP, so I never got to use the income from the HYP, because I ran the SIPP out, below the personal allowance, augmenting it with savings and some earnings. A fair amount from that SIPP ended up transferred into the ISA over the years.

MMM observed

Right now, most of us are still earning money and accumulating more shares. Even Mr. Money Mustache, as a person who retired 17 years ago, is still in this boat for the simple reason that my retirement income from dividends and hobby businesses is still greater than my annual living expenses

I am nowhere near as gung-ho as MMM, but while I assumed I would be a net decumulator this does not yet hold. It would if I got all my income from investments, but so far I have not overtopped my pension. I hold a very significant amount of gold, and also too much cash, partly as a result shorting some of the Covid suckout and partly from hating valuations late last year. Sure, the ISA is about 5% off its high water mark, but I am not going to start crying into my beer at this stage.

I am not a passive investor. Passive is grand if you can take 20-30 years to build up your stash, integrating enough market cycles and staying employed. But for all that I have done fine over the ten years. Much of that is the bull run, which is only now surrendering to the forces of gravity, but some of it was shorting Covid, some was plain luck, some was paranoia. There’s no point in trying to deconstruct it. Everybody can be passive in the same way, but no two active investors will take the same path. Most will screw up, but so far I don’t see twisted wreckage behind me. I don’t feel anywhere near as beaten up as Monevator, but then he’s probably made much more than I over the last decade. I just couldn’t make myself buy into the tech boom, perhaps because of my dotcom days. I get an easier ride now.

I have also held for quite long periods of time, when I look at my ISA, so far I see red ink on six out of 24 lines of stock, and the sums aren’t horrific. This doesn’t show two lines I have sold – the Russian debacle did soak me on two stocks, sold after a >20% fall⁶. I sold HRUB several years ago for a 7% uplift, else I would have taken a 100% hit on that, an interesting object lesson that even collective investments like index ETFs can get frozen out/reduced to zero under certain kinds of force majeure. Bit of an uncomfortable prescience in 2014’s observation

Like it or not, Europe is going to have to cut deals with Russian companies, unless a large part of Europe would like to freeze its rocks off this coming winter. Even if they do, the Chinese might like some too.

There are a couple of sales of gold, to buy other lines of stock, because I can’t add any money to the iWeb ISA this year. There is a steady trickle of buys, adding to existing holdings, these are reflected in the current balance. Although I have overpaid for VWRL this year, my average cost is £70, so my passive self is still up, though not outstandingly so given my first purchase was around this time in 2016 at £47, and I have never, ever, sold VWRL.

Passive is probably easier for a decumulator, because there is only one thing to sell, if you take the Lars doctrine. I have done that in the passive part of my portfolio, which holds VWRL, but the paltry yield of 2% isn’t enough to live or die on unless your stake is massive (50 * annual running costs), so you will end up selling some of it off annually. A HYP is meant to save you from that what do I sell and how much? issue, and I’d say that it probably would do that just fine, I have held on to my HYP which steadily pays me dividends which I reinvest elsewhere for now.

It’s reasonably clear that we are in for some serious inflation. Pencil in over 10% for three years, at least. I wasn’t convinced it was a supply shock in the first place. Ray Dalio is a perma-bear, but I have lived long enough to see the truth in his description of can-kicking until the trash surrounds you so much you can’t see over it any more:

That’s because most everyone wants the ups and not the downs, so the stimulations and debts that central banks produce typically add up over time to produce more ups than downs until the debt assets and liabilities get unsustainably large, at which point they have to go down via some mix of inflation (due to money printing to reduce the debt burdens by monetizing them, which is inflationary), debt restructuring, and paying the debt service in non-depreciated money (which is depressing).

This is not a blip. We are also in a cold war with Russia again, and war is inflationary because it destroys capital without delivering a service, well, other than freedom. The price is most obvious in a hot war, but all those munitions don’t make themselves. And eschewing a relatively cheap source of fossil fuels does make the price of energy go up, and oil shocks are inflationary too, see the 1970s for a worked example. Three years of 10% inflation will knock a fifth off the value of my pension in real terms. My aim here is to lose less by adding to the income from the ISA, to slow the fall. Not all the investments are financial, some are along the resilience axis

Resilience – a non-financial investment. Winter is coming…

I am buying in my Vanguard ISA with new money, and have managed to make myself swap a little of the gold in the iWeb ISA for shares along the value and income ITs axis, building up the HYP a bit. Hindsight shows I jumped the gun a bit. But you have to do it, because they don’t ring a bell at the low-water mark. I am moving some cash into my non-ISA GIA and buying some dividend income with HYP shares, because holding cash in Great British Pounds is a mug’s game, particularly now they have knocked 20% off stocks. There’s no law saying they won’t knock another 20% off by Christmas. But we pretty much know that this time next year they’ll have knocked off 10% of the value of cash in real terms. So if I buy now and stocks are worth 10% less in a year I won’t have lost anything I wouldn’t have otherwise, which drifts me more towards buying into this bear market even though I don’t think it’s reached the low-water mark. There is much rotten in the state of the worldwide economy, but there is something quite specific and needlessly rotten in the UK’s economic prospects.

History shows fortune favours optimists. MMM’s chart shows the S&P has returned to trend, which is hard for Brits to appreciate because we have the distorting effect of a falling currency which makes this still look a bit high. The US is the largest chunk of the world index, about 50%. Prices will undershoot the trend, but how much they will undershoot is currently unknown. I am OK with buying in at these saner levels, acknowledging that the unknown unknowns may make these look less than sane in 6 months or two years time. Your average bear market takes lasts about a year and the suckout is 30-40%. That would put us about halfway through, but the spread on average is quite shocking, of which more later. Personally I feel inflation will be with us longer than the bear market, particularly in the UK. Three years of 10% inflation would be a permanent bear market in pounds, whereas stocks tend to recover faster. Still, at least in the UK we can confuse the last couple of generations by selling things in rods, perches and pecks, amongst all the other multifarious merits of telling our nearest neighbours to piss right off. Again and again.

I can see that the suckout of a few years of high inflation could make ISA income and GIA income more important for me, because that inflation will permanently erode my company pension. Defending the long term is the point of the ISA now.

If I had a big mortgage, I would be very afraid now.

We have a generation of homeowners that have never seen a typical base rate or the mortgage rates that flow from them. This means their frame of reference will now need to adjust

Yeah, BTDT, it wasn’t the greatest fun. I keep on trotting this story out, perhaps by the time it is ten years old we will have seen the spectre return to hold another generation of homebuyers’ feet to the fire, but so far I have been Chicken Little on this. I see housepricecrash is still going, so I am not the only one keeping the flame alive. It still hasn’t happened yet. The market can stay irrational for longer than you can stay solvent, though it’s a bit rough that we do this to people trying to buy an essential good early in their working lives. Imagine we did that with water, or air. If the recent generation of overextended homebuyers is really, really, lucky then a) they will retain their jobs and b) they will be hoping we are back to the 1970s, because then house prices don’t have to fall in nominal terms. The value will crater in real terms, but that’s good for mortgagees who retain their jobs and can get pay to track inflation. This is how my Dad paid off his mortgage earlier in life than I did – 27% inflation can make a mortgage easier to pay down very quickly indeed. As long as your pay keeps up…

As for BTL folk, well, I am of the unfashionable view that no bugger needs to own more than one residential property on a small island with a dearth of res prop for people to live in, so I guess it’s payback time. Housing is toxically borked in the UK, and far too many people profit out of the borkage for it to be fixable in a controlled manner. Not actively making it worse could be a worthwhile start – let have a shout out for the craziness of Help to Buy which really should have been renamed Help to Pay More, stamp duty holidays, the whole sodding lot. UK housing is like Hunter S Thompson’s

cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs.

I have paid my dues at the altar of high interest rates – 14% as the UK got ejected from the ERM, but I don’t have a mortgage any more, so the main impact high interest rates have on me is in beating the stock market up. Some things have to get worse before they get better, the sinewy spirit of Paul Volcker is what is needed here, rather than puny gesturing by the Bank of England. Go big or go home, guys. Higher interest rates should mean lower house prices, which I am all for despite owning the asset class. But interest rates need to be a lot higher. The historical long run average for UK interest rates is about 6% and it was higher than that on average from the time of Margaret Thatcher to the year 2000.

At the moment the rhetoric reminds me of Britain in the 1970s, and there’s a fair amount of rhyme in it – an energy shock, union demands for high pay rises, rising inflation. Let’s hear it from Monevator’s report of 1972-1974 – I was an ankle-biter at the time so blissfully unaware of the stock market crash.

A property market bubble, secondary banking crisis, massive oil shock, falling pound, rising inflation and interest rates, industrial unrest and global recession were the toxic feedstock for a rampant bear market that inflicted bigger losses than those sustained during either World War or the Great Depression. The UK market fell -73% from 1 May 1972 to 13 Dec 1974.1 That is 32 months of historic misery.

So far we have had, what, six months. So if it follows that pattern it could be only two years to go. Perhaps there’s the argument that it’s all different this time because the investing world was very parochial in the 1970s. On the other side, the energy situation is strategically poorer now than it was in the 1970s, because we are 50 years of consumption further towards depletion, and the whole Energiewende thing⁷. Oh and we are in another cold war, this time not just with Russia but probably China too at some time in the not too distant future, and that’s likely to cost money. Looks like the peace dividend just got cancelled. I don’t expect the early Seventies to happen again, but something like it could. I would start to struggle against that sort of backdrop. If Putin invades East Anglia, then I am fucked like everyone else. Some things you can’t fight.

So it’s not like the financial side is flawless, but I am not up against it yet. Because: ten years of insanely low interest rates inflating asset prices and throwing free money at stock market investors. There will be challenge in future, and if this is the beginning of the fall of the west then there may be a lot more challenge in the future.

At some stage I will get the state pension, which should buy me some more time. Many people in the FI/RE space seemed to normalise the bull run in a this time it is different way of thinking. It is never all different this time, but the length of the bull run was quite a historical anomaly. Let us sincerely hope that the length is not the direct result of the fiddling Ray Dalio described, else we are probably looking at the 1970s version rather than the dotcom bust version.

I was fortunate to be relying on savings and investment income in the bull run, before my pension came into payment. I never really learned properly how to believe in investment income, it would be hard to implement against this background. Hindsight shows I was overly conservative. But if you’re going to fail, fail that way. You have to be quite rich to go for Die With Zero – everyone else needs contingency, specifically for times like these.

An awful lot of the narrative about successful retirement, aimed at the sorts of folk that earned enough to afford to entertain the idea of early retirement, seems to to be along the lines of

You are successful, productive, driven, talented. You will miss all this when you finish work. So replicate it in some other form, because you are what you do, and need the reflection of your greatness in the praise in other people’s eyes to lend meaning to your life, because this does not well up from within.

It can be that way, but it doesn’t have to be that way. Let’s hear it from Carl Jung, in a letter to a patient in 1916

Who looks outside, dreams; who looks inside, awakes.

What I felt was omitted about Riley’s talk was it leaves out the internal transformation. If the aim is to replicate the sense of meaning you derived in your working life, then why make the break in the first place? Life is about more than work and its proxies.

---

1. With perhaps the exception of DIY and how to open the case of some piece of consumer electronics that needs fixing, although in the case of DIY knowhow I always try and second-source info on anything that is totally new to me. ↩
2. that is, note the prospective purchase or leave it in the shopping cart, but wait 24 hours before buying it. That’s often long enough to reconsider its value to you, if it’s still good, go for it. ↩
3. I still have all those ILSCs, wonder how they will dodge paying the indexed inflation out in future, though axing RPI will help them no end. ↩
4. A certain A Hitler’s Luftwaffe was going to flatten it – English Journey was written in the years between the First World War, which Priestley served in, and the Second World War ↩
5. Thoreau observed A man is rich in proportion to the number of things he can afford to let alone. ↩
6. as learned from the Art of Execution though I was slow on the uptake the first time 😦 I like TAoE – it has paid for the price of entry and then some! ↩
7. Germany is putting a brave face on their repudiation of the Energiewende in the face of the realisation that Ostpolitik and Wandel duch Handel was a mug’s game, and their decades-long tendency to Atomkraft – Nein Danke means that Putin has them by the balls. ↩

Advertisement