FIRE in the news, liar, liar, pants on FIRE

Escapism seems to be the norm, people have got back from their hols and the rude awakening of life back at the office makes for good newspaper copy. It seems the Torygraph is working on this sort of thing, and let’s hear it from the Grauniad –

…the secret to never having to work again – but does it work for everyone?

Ah bless ’em. There are people who get to live in London and retire early. They aren’t the Guardian media types, though, who asked themselves this question and failed to detect yes in the echo from the walls of the city skyscraper canyons.

The ermine already established part of the dirty little secret to retiring early. You need to earn more than average for a decent amount of time, or massively more than average for a shorter time. The Times qualifies that as having £600k in the bank and a fully owned house, H/T Monevator for breaking down the paywall.They also say that Barney from Surrey managed this as a modestly paid accountant after 20 years. WTAF, guys, compound interest is irrelevant over a period of 20 years so there’s an implication this modestly paid accountant was on a screw of ~£800k * 2 / 20, assuming he had a savings rate averaging 50% and his Surrey place cost him about £200k1. That’s about £80k net pa, which is way over the average UK income. Now it’s possible he got lucky on the stock market, let’s face it the stock market probably worked the equivalent of three years of an ermine at the office, but there’s another little dark truth here. We are several years in to a bull run that is long in the tooth by historical standards.

Oh yes, and half our blessed fellow countrymen decided to devalue the pound in a rush of blood to the head a couple of years ago, which made the numbers bigger by roughly the same as the loss in currency value. It ain’t real guys, the tide’s gonna run out at some time, and much shorter than the 40+ years a fellow retiring in his forties and drawing down needs it to last… Let’s hope Barney has some other plans, eh?

I only earned a bit more than the British average wage compared to many others in the PF scene, but I did it for thirty years. Let’s get that into perspective, however, I earned getting on for twice the average national income for more than half my working life. Many PF writers earn a lot more than I did, but they are in industries where burnout is rife. So it’s pretty darned obvious  that it’s not going to work for everyone, d’oh. And we really shouldn’t be bullshitting people, if you are earning the average wage, and get up to the average level of spendyness and the average number of kids, there’s not a snowball’s chance in hell you are going to retire early. End of. Sorry about that. You might get it so you don’t have to wait to 67, but 40? Fuhgeddaboudit.

Let’s look at a poster child  – MMM. That was deconstructed by Flannel Guy a while back. It’s still an impressive achievement – most people who have a household income of $100,000 for ten years don’t end up retiring early, they rack their lifestyle up to spend that and then gaze longingly at the people earning $500,000 and wishing they were them. Yacht envy is a thing2, y’know.

So you gotta earn more, but that’s not enough. Not only do you have to do an MMM and know when to stop, you need to have a stroke of luck, or at least avoid some types of bad luck. The prime example is for God’s sake don’t have kids and get divorced before they all come of age. So the answer to the rhetorical question

but does it work for everyone?

Is even more a great big fat no. Not a prayer, Guardianistas. If you want to live an average life, do the things everyone else does, well, you ain’t gonna retire early, because that’s not an average thing to do.

There probably aren’t that many people who live in London and get to retire early in London. For two reasons. Just about everything about London, with the exception of transport and art galleries/museums, is dearer than pretty much everywhere else. So you need more to retire there, unless you bought your house 40 years ago on a teacher’s salary. Plus you’ll have more going out the kitty day-to-day, though perhaps that is compensated by the fact you can earn more in London. The operative word there is earn, which implies w-o-r-k.

The other reason is that of sample bias – if you are the sort that flourishes in London and earns shitloads of money you are probably driven, and would find doing without the finer things in life a massive privation and you’d feel out of kilter with your peer group. You’re more Wolf of Wall Street than the Good Life. Jeroboams of champers and fine dining don’t grow on trees. If you want to stop working and enjoy that, then you either need to have earned stratospheric amounts of money, in which case hitting the off switch early may be tough though necessary, or you need inherited money. Take Petra Ecclestone, for instance. A great way to retire early is to get Daddykins to earn the money 😉

Petra Ecclestone – one way to FIRE. They still can’t mend the holes in their clothers, or in her case get shoes that fit [irony off]. It’s a tough life at the top, eh?
Wikipedia says about herPetra Ecclestone (born 19 December 1988) is a British-born heiress, model, fashion designer and socialite.” I’m guessing here, but probably the modelling and fashion designer income wasn’t quite enough for a 29-year old to buy the $90M Chelsea place and the 57,000 sq ft LA place. Thanks, Dad, is probably the order of the day, here…

The Times did a feature on FIRE where apparently 900 good people from London piled into a pub to hear about how they could retire early. Several things vaguely disturb me about this –

  1. London
  2. In a pub – you’ll find it easier to be an introvert if you want to retire early, because to be different you have to do different 😉
  3. but the #1 thing that worried me was if they were paying to hear how to retire early, because they’ve started off on the wrong track. Retiring early is usually about spending less, and spending to find out how to spend less has a delicious irony of its own. If it was a general shindig to chinwag and you got to cover room hire, fair enough, but if it’s like one of those make-money-fast trading seminars then it’s wrong foot forward, people.

Update 30/9/2018 – it was a Facebook meetup and the only cost was the price of your beer, see Luke’s comment below. I am getting too much of a cynical S.O.B. I’ve been punted too many payable London events but I should roll back my guns in this case. There’s everything good about the extrovert wing of the FIRE clan getting together and drinking beer. I’m all for it. Mea culpa

The Times headline is modest earners find formula to retire in their 40s, which should be banned under advertising standards regulations. If these are modest earners in London they are stuffed. Has anybody told these poor saps that we are ten years into a massive bull run fluffed up by funny money? You don’t have to be clever to have made money on the stock market in the last 10 years. Weegee’s quip on how to get a great picture applies – f/8 and be there. The f/8’s irrelevant, it’s the be there. Where you gotta be clever is holding on to that wedge over the next 10 years – and if you’re retiring at 40 then you need to accumulate and hold on to that for the next 40 years.

How do you make a small fortune on the stock market? Start with a big one, or start when it looks like it’s going to hell in a handcart. That time is not now, dear modest earning office workers, so if you want to start your FIRE journey on your modest earnings, then don’t start with the stock market, start with racking back your spendy ways. Some of your spendy life choices have probably already been made, but don’t add to ’em.

So no, the ermine is not going to add to this pipe-dream. If you’re on a modest income in London looking at a bull run that’s one of the longest in recorded history and you are looking back at what would have happened if you had invested along with Monevator in March 2009 then stop right there, breathe in deeply and remind yourself that it was all a dream.

I’m not saying you can’t retire a little bit earlier than normal, if you invest sensibly and consistently, and control your spending, and you have reasonable luck. But look at the sort of privations RIT had to put up with to retire in his 40s – and he was an above average earner, again. But if you are looking at the stock market to do the heavy lifting, then forget it. If you are beginning to aim at retire in your forties, assuming you have started work, you are between 20 and 30. You can’t retire on a modest salary from a standing start in 10 years without having given it any thought beforehand. Really you can’t.

Take it from me – at 49 I wanted to retire early, from a standing start. By then I owned my own house almost (bar £1000) mortgage free, had a decent built up pension and I was earning a decent salary. Plus I was starting in a stock market swoon otherwise known as the global financial crash. Try as I might to munge the figures to give me a shorter timescale, I had to work another three years saving as much as I possibly could, living on less than the national minimum wage after all the saving. That really wasn’t any fun at all. 3

30 year-olds on a modest salary in London probably haven’t paid off their mortgages and you’ll have 20 years less pension savings than I had. You’re unlikely to cross the finish line in 10 years, and you have to stretch it for 15 years longer. And whatever you read about the magic of compound interest, forget it. Over a 30 or 40 year working life, compound interest sort of doubles the real value of your pension savings, as long as you leave them  alone to grow. Over 10 years, not so much. If you don’t believe me, listen to RIT. There is no snowball in FIRE.

There’s a general rule about investment. By the time you read it in the papers, it’s too late. Beware Greeks bearing gifts. It’s going to be a tough ask for somebody starting now to replicate RIT’s work of retiring by 40. Oddly enough your greatest hope of doing that is for the greatest humdinger of a stock market crash to occur ASAP, provided you get to hold your job. But remember Weegee. You gotta get in there and stay there, and stay the course.

Passive investing aficionados will no doubt tell me that’s market timing, to which I would say yep. You want to retire in only 10 years, you need a bit of market timing on your side to get yourself a place most have to work for more than 30 years to get to. RIT reached the finish line using passive investing. But he sure started at a reasonably good time, too, like me. Methinks he earned more than that average British wage for much of that time, too. RIT also highlights some very serious social costs that will be more of a load on younger people – to wit:

The vast majority of my friends and certainly my indirect family are still from my pre-2007 days.  This means that over time a big shift between our once reasonably common values and beliefs has occurred.  […]

At the same time I have found it very difficult to find “new” friends with common interests to my new self (it really is amazing once you have shunned consumerism to see how much it dominates people’s lives).  They really do seem to be few and far between.[…]

my day to day contacts and colleagues have changed and because their standard of living matches the salary they receive today I am now starting (if I’m not there already) to be seen as very obviously different.

The social contact is more important when you are younger. I didn’t experience these issues because I didn’t really rise through the ranks as I was saving to escape, I did that from the high-water-mark of my career. So while I experienced a much more dramatic adverse change to my lifestyle than RIT, I didn’t have so much of a drift away of common interests.

Beware newspapers bringing you promises of freedom from The Man through the stock market. It’s doable, but as a marathon if you start now. The starting pistol for the sprint probably fired over five years ago.

The stock market gets all the attention because of the promise of free money if it goes right. The other things – getting out of debt and reducing your spendyness are the Mr Boring of the FIRE world but they are reliable. They will deliver dividends just as they always did. FIRE wannabees should start with those first – get out of debt and spend less.

Don’t believe all you read in the papers…


  1. I know, you don’t get to buy a garage in Surrey for £200k. Let’s assume Barney got lucky at some stage in the housing market. It’s what the asset cost Barney when he bought it that matters, not what it is worth now. 
  2. I wrote that before googling the supporting reference because a lifetime of studying the human condition taught me yacht envy would be a thing ;) 
  3. The fellow who introduced me to using pension contributions to save the loading of 40% tax, who opined that you have to be mad to be working here after 50? He’s still working there as far as I know. Absolutely nothing wrong with his theory. It was selling the lifestyle to his wife and kids that was too hard. Let’s face it, there’s nothing in it for his kids but privation, they don’t have to earn the money for their nice middle class lifestyle. I can see their point ;) 
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Battening down the hatches and exploring the opportunities of Brexit

Regardless of your views on Brexit’s ultimate desirability or not, it’s likely to bring choppy waters to the UK in the near future. You’ve heard quite enough of Remainers saying that, but the view is shared by some Brexiters. Take a random look at LeaveHQ’s contentAfter all, Britain is about to set up a new startup called UK PLC in the world, and we have good people like Liam Fox and Boris Johnson at the helm, what on earth could go wrong…?  In my youth the British elite seemed to be able to screen for competence and eliminate buffoons like BoJo and fops like Fox, but clearly this process has broken down. There’s nothing wrong with saying that Brexit is a tough job with notable risks, let’s spit on our hands and get to work to maximise the utility and minimise the costs. But that’s not what’s being done. The ruling party is a house divided, and so it doesn’t know what Brexit means. Other than Brexit, and I think we all got that over a year ago.

What we do know is that Brexit will be a point of change, the nature and type of change is uncertain, but in the short term will not be increased trade, the date is reasonably set though subject to late-stage fudging. There will be threats and opportunities to be had. It’s worth considering these ahead of time. I’ve already done an investing for Brexit post, but the inflation of the stock market since then makes the stock market more dangerous.

The boy scouts bit

It’s reasonable to expect shit to go down on the transition. There are some obvious things to do – stockpile water, bogroll, tins, dry carbs and motor fuel (outside the house and in approved fuel cans, people!). The Ermine is fortunate enough not to consume medication, but if you need this then having some advance supply would be wise, and do all this before Christmas, because the history of the world shows that if you are going to panic, then panic early or not at all.

I would hope Brexit would be a transient supply chain disturbance issue, but let’s face it, the government seems to be ill-prepared for some of the obvious interruptions to local trade. If you want to get more into this then UK Preppers are your friend. I’m not sure I want to live in their world for more than a couple of weeks…

Personal Finance – threats and opportunities

One of the great things about Brexit is that it is a planned and a local shitstorm. You don’t normally get advance warning about financial challenges, and nor do you usually get a massive store of assets that are definitely not involved with the crisis. Brexit isn’t going to threaten the world economy. The Brexiter Peter North was offering us a ten-year recession.

Britain is about to become a much more expensive pace to live. It will cause a spike in crime. […] Basically it will wipe out the cosseted lower middle class and remind them that they are just as dispensable as the rest of us.

The Ermine has already dealt with some of the threats, before the vote, by shifting into global assets and gold. There are other aspects of derisking:

I owe nobody any money, other than the credit card which is paid off each month. This is a big win in times of trouble, and I am probably not exposed to the jobs market1

I have ramped down my allocation to equity markets over the last year, not to do with Brexit, but to do with overvaluation. Tragically that increases my exposure to Brexit induced devaluation.

I was going to draw my DB pension early, but I can’t think of anything I really want to invest in at the moment, so I run down cash, indirectly buying more annuity. Everyone else lucky enough to have a DB pension seems to be asking how much the CETV is. I wish I knew what asset class promising a good future income stream they were going to invest it in!2

I made several mistakes shortly after the vote, and several wins around it too, but overall I experienced a very significant numerical win from Brexit in my equity holdings. One of the problems now is that stocks are on very high valuations worldwide, buying equities anew is not so attractive. Monevator made a good move with the Brexit dividend, buying his flat with it, so he is less exposed to the overvalued stock market to the tune of one London flat3

the threats are more important to me than the gains

If Brexit is an economic success and I adopted a brace for impact position, then I look a bit stupid, but I get to live in a country that is doing well, though I’ve lost money on my ISA I have gained it in the future income stream of my pension. That’s a win as far as I am concerned, apart from the hurt to my pride in being wrong. I’ve had a lifetime of practice in being wrong, it’s no big deal. You Brexiters can have a jolly good laugh at my expense. I’m big enough to take the ribbing for my lack of faith in Bulldog Blighty.

If Brexit leads to a 10 year recession, that’s at least a third of my life blighted by that from now on, and my globalised ISA becomes a larger proportion of my future assets/income stream. Just to add spice to the mix, the stock market is at very high valuations. I hold two years worth of cash expenses because that’s how long I have to reach the age to draw my pension without penalty.

I hold most of last year’s ISA contribution in cash in my ISA, and may do the same with this year, because there may be opportunities in Brexit to buy UK assets cheaply in the turmoil. This is hard to execute because you never catch the low-water mark, so you buy stuff, then see it plunge 20% and have to be prepared to take the chance of buying similar assets and holding the trash you already have. While all the time you have this horrible screaming noise in your ears from the media telling you all is lost. What I need is for Monevator to do this again, at a suitable point, to stiffen the spine in April 2019. Let’s look on the bright side, it’ll be a new ISA year…

I already hold a lot of gold in ETF form. Rather foolishly I hold it in my ISA. In general you should hold gold outside an ISA, since it pays no dividend. Should the price appreciate to approach the capital gains limit, then sell the ETF and buy another gold etf. I hold SGLP, I could sell that and buy say PHGP at the same time, crystallise the capital gain but stay exposed to the same asset class. As long as there’s not a flash hike in the gold price in the 10 minutes between transactions I am OK. However, given it is in the ISA, the gold gives me some more working capital, if I have the balls to sell it and buy pounded-down UK stock indices.

Repositioning myself for Brexit

Cash and gold represent about 12% and 9% of my ISA. A lot of the shares part is sky-high, and fortunately a lot was bought before this time two years ago. The cash, however, is bad news, it’s GBP.

What can I do with it to get it out of the country?

  1. Buy foreign currency
  2. Spreadbet foreign currency
  3. buy global government bonds
  4. buy gold
  5. buy world equities
  6. buy world equities hedged to GBP

5 and 6 aren’t attractive, because I feel equities are overvalued now. I already hold a lot of VWRL and IGWD anyway. 4 isn’t that attractive either, because I hold a lot of gold ETFs from the first round of this Brexit aggravation in 2016.

1 and 2 are difficult for me because I want to do this in my ISA, the cash is already in the ISA. I could take it out and try and put it back in, unfortunately the Brexit date 29th March 2019 is very awkwardly close to the turn of the tax year (5th April), it’s possible that the financial system will seize up. It did after the original Brexit vote so it is likely to do so again4. They’re a possibility for next year’s ISA contribution, I guess.

For this year’s ISA, one obvious thing to do is to buy bonds. They are supposed to be the yin of the equity yang. Not so much corporate bonds, which seem to vary with equities these days. I’m already jumpy that the stock market is overvalued, so it’s government bonds I want. I know absolutely nothing about bonds, never been interested because my defined benefit pension has always been more fixed income than I would ever need for a notional 60:40 equities:bonds balanced portfolio for someone of my age and risk tolerance. There was an interesting thread on Monevator about bonds, but I am not sure I understand it well enough. The pointers seems to be to use currency hedged bond funds, which make great sense except for a guy who is explicitly looking for safety against the pound going down the toilet, I don’t want to hedge to the GBP. I read youngFIGuy’s piece on how he invests but it’s for the long term, and I am trynig to forestall a particular short term adversity. Here’s Lars Kroijer on Monevator taling about government bonds. He says:

If your base currency has government bonds of the highest credit quality (£, $, €) then those should be your choice as the minimal risk asset.

Err, no, Lars. With all due respect, not £. The last UK government took the piss having the referendum to alleviate a cat-fight in the Tory party. Not only did that shit on my future to feed tossers like Jacob Rees-Mogg, but the entire prosecution of the process of leaving the EU has been dominated by internecine fighting and precious little effective progress. I’d rather live in the UK than say Uganda, but I don’t view the £ as having the highest stability at all. So the last thing I want is UK government bonds for this particular job. That’s a no to YoungFiGuy’s VGOV, although that is fine for his purposes. Given that premise that UK government bonds may be risk-free in one way, but track the fail I am trying to hedge, Lars carries on

If your base currency does not offer minimal risk alternatives, you have the choice of lower-rated domestic bonds where you take a credit risk, or higher-rated foreign ones where you take a currency risk. Keep in mind that any domestic default would probably happen at the same time as other problems in your portfolio, and your domestic currency would probably devalue. That would render foreign currency denominated bonds worth more in local currency terms.

Exactly. in his next paragraph, it’s basically short-term foreign bonds i want. But looking at, say this US bond, I see shocking volatility.  And given it’s only a year, I am chuffed to discover currency ETFs – a class of thing I didn’t even know existed. Let’s take a look at SGBB

The ETFS Bearish GBP vs G10 Currency Basket (SGBB) is designed to provide investors with a short exposure to the British Pound relative to a basket of G10 currencies by tracking the Diversified GBP Short Basket Index (GBP) (TR) (the “Index”).
That’s about right, what did it do over the referendum?
Pretty much what you’d expect. It’s a bit dear, at 0.5% p.a, and of course I eat buy and sell costs plus the spread at iWeb. So I put it into iWeb to see how much it would cost and what the spread was, and couldn’t find it. I asked them on web chat if they offered it and it seemed to be frowned upon:
Thank you for waiting, it looks like the company may be a derivative and if that is the case we won’t be able to offer it. We will need to do some further checks for the company which can take up to 2 working days.

Blimey. Well that’s pissed on that idea then. I didn’t think ETFS securities was such a bunch of dodgy geezers, but it seems they are viewed with suspicion5. Hargreaves Lansdown do this one but disturbingly they say the ongoing charge is 1.24%. I suppose I could do it in my SIPP with them. I pay £24 on the turn, couldn’t work out if I get to pay the 0.5% Stamp duty on this.

Surely the market has priced Brexit in

and will do a great big meh on the day? I’m not sure the market has priced the stupendous incompetence that could be displayed, the danger of a no deal Brexit seems to be mounting. Some of the trend to no deal comes from the bad faith of the likes of Rees-Mogg and the shadowy European Research Group, the quality of whose thought is to be seen here. These are cakeists6, and I’m not personally convinced that Britain has such a compelling offer. Leo Varadkar has a point when he said

“We are two years telling people that it can’t be cherry-picking, it can’t be cake and eat it, so it [the white paper] needs to understand we are a union of 27 member states, 500 million people.

We have laws and rules and principles and they can’t be changed for any one country, even a country like Britain. Any relationship in the future between the EU and UK isn’t going to be one of absolute equals.”

The ERG hasn’t got that yet, to wit:

Which is why we are writing to reassure you of our continued, strong backing for the clear vision of an internationally-engaged, free-trading, global Britain which you laid out at Lancaster House.

That’s the internationally-engaged Britain that has just told the 450 million strong nearest trading partners to f*ck right off.  I’m not convinced a no deal Brexit is priced in by the market at all. I’m prepared to lose money if we do better than that and there’s a stonking rise in the £.

Obviously it may all be a grand game of chicken, but I’d say that the EU can do without the UK better than t’other way round, and it’s pretty obvious that there will be less UK trade with the EU when we are outside the EU than before. That’s fine, may be a price well worth paying to cut ourselves adrift from these moribund losers as some would see it. We don’t have to be members of the EU to trade with it, other countries seem to manage. But there does have to be some sort of agreement. At the moment it’s we want to have our cake and eat it, or we’ll walk away. Looks like walk away it is, then. That’s not in the price at all, IMO.

 


  1. probably is because at the moment my deferred DB pension is easily enough to live on, so my ISA holdings and residual SIPP give some buffer. But it is possible to imagine inflation and taxes rising so I struggle, in which case I am stuffed. I am not going to do engineering again after five years out of the field, I am not entrepreneurial by nature and I am too old. 
  2. OK, I know the answer. The asset class is BTL residential property, FTW! 
  3. He’s of course now exposed to a differently overvalued asset class, London property, but given it’s his first purchase and he wants to live in London, the utility value is high, and if it’s the Brexit dividend then it’s free money anyway… 
  4. that could mean that for all this fine talk I will be unable to take advantage of any Brexit opportunities, squeezed out by all the shares selling going on in the market jamming retail websites. 
  5. iWeb has since rung me up to confirm, this is considered a derivative and therefore not available to retail investors on their platform. It is news to be that not all listed shares are considered tradable. Need to sit down and think about this, because perhaps this red flag is there for a reason and ETFS really are dodgy geezers. 
  6. they want to have their cake and eat it 

The concept of financial freedom is an unattainable chimera

according to Gerd Kommer, H/T MeineFinanzielleFreiheit (My Financial Freedom) from Germany Austria – in both of these I sadly discovered that my German has degraded through disuse to below a sufficient standard to comprehend them freely1, so Google Translate was my friend. I am looking at financial independence from the other end of the telescope from My Financial Freedom (Google Translate version of MeineFinanzielleFreiheit). MFF is under 40, and assumes most readers are of a similar age, perhaps I do not have the optimism of youth and our Gerd is no spring chicken either, cynical old gits that we are.

Gerd had an interesting taxonomy of routes to financial freedom. I presume from the website that Gerd is what we would call an IFA, though my rotten German may mean I am missing some subtleties. Let us count the ways to financial freedom, with the soundtrack of Paul Simon’s Fifty ways to leave your lover (in this case The Man):

Financial Freedom method 1 – clever investing

Hmm, BTDT. This is the dream of every day-trader and spread-better, and while I avoided those particular pathologies, I was a get-rich-quicker in the halcyon days of the dot-com boom. Dividends, I don’t need no steenking dividends2, the aim was to buy and flip to a greater fool

what not to do – contract notes from my dotcom days. Do. Not. Churn.

Yup. Didn’t end well, because in the end I was that greater fool and ended up holding the baby. The existence of Warren Buffett probably proves that some people have hot hands and are good stockpickers, this is not widely spread in the population. If you want to make money from spread betting and trading, buy shares in IG Index. Most of us don’t have hot hands, and the odds are tough. Some of us have lukewarm hands, but the fat-tailed statistics of stock-market investing can be dangerous in that case. Those with lukewarm hands can do well to consolidate some of their gains into passive investments frequently, fiddling around the edges. The challenge is to recognise the presence of some ability but also of some mediocrity, and humans just aren’t wired to do that. I am sadly still at the stage where more knowledge seems to degrade confidence, the confidence high-water mark for me was in 1998…

Socrates said that “the more I know, the more I know that I know nothing” but the absence of that sort of self-awareness is widespread enough to have a special name

FWIW I don’t believe markets are totally efficient, and if you have a long enough time horizon than I would consider valuations and CAPE a possible route to market timing, but most of us are in too much of a hurry at the start. Making money in the stock market is deeply rate-limited most of the time and depends on opportunities arising that you can’t control, so doing more is not a recipe for success, unlike in many other fields of endeavour. You don’t have to be condemned to the returns of passive investing. FireVLondon3and TEA show it can be done. I would suspect Monevator does better too. I have been happy with my own performance though it is poorer than theirs and it is shifting closer to passive because I am getting more lazy and passive, when you have enough you have enough. The gains in my AVCs/SIPP were enough to carry me the eight years to normal retirement age because I started in 20094, when the market was in a deep hole.

Round one to Gerd. He’s got a point. By all means try, with money you can afford to lose, to see if you’re the one with hot hands. It’s very unlikely to be you…

Financial Freedom method 2 – downshift

Took me a while to boil down Gerd’s incredulous take on the sort of whazzocks that say

regain control of your life – don’t exchange five days of work for two days of free time. In the books and financial blogs, a curious recipe mix is ​​propagated to “breaking out of the hamster wheel”, “ending the treadmill of employee life”

I guess that’s me, Gerd. Oops, I even used this image on this post.

It’s a fair cop, Gerd – “micromanaging jobs and people in a never-ending treadmill”

I checked out of the middle class in 2009 to escape the workplace 8 years early. It’s going fine, thanks for asking, bud. But I do have to acknowledge a lot of luck on my side, holding a decent job for 23 years and being close enough to normal retirement age for my savings and gains to bridge the gap to company pension, plus investing into a stock market that was flat on its back cheered me on. You can’t design for that sort of luck when you’re 20. So let’s call that a draw, Gerd.

Financial Freedom method 3 – start your own business

This is the classic way – the business owner captures a lot more of the value the business adds to the inputs than, say, shareholders. That’s why the long-term average returns on a diversified passive portfolio of stocks are at best around 5% p.a., which isn’t enough to live or die with unless you start off with a decent amount of capital5, which you usually save from working at your job for somebody else, in most cases. Run your own business and you can do a hell of a lot better than that, capturing the entire added value, less taxes and then selling the business as a going concern.

The downside, of course, is that the odds against you being one of the successes are terrible. It’s the same hot hands problem as method#1 but in a different dimension – few have the hot hands for business success, and a decent helping of luck helps too.

Advantage Gerd

Financial Freedom method 4 – Frugalism

Originally popularised by Jacob from Early Retirement Extreme, although the current poster-child is Mr Money Mustache. It’s a variant of downshift, but usually adopted by those in the flush of youth and earning above average. When you are young and preferably single, you can screw your consumption down and put up with privations many can’t. But you will get older, and some of the ultra-frugal lifestyle may pall. Lock yourself into an ultra-frugal lifestyle too early and take advantage of that fact by not having to earn too much, and you may find your style cramped in mid and later life.

Both ERE and MMM worked high paying jobs, and frugality let them drive their savings rate up. If you can stick this for long enough you can retire early. A lot of personal finance blogs run along these lines (eg The Escape Artist), but if the writer is working in the City, then they have an income that is probably more than five times the average British wage. If you earn five times the average Brit but can run on the average outgoings, then you can probably get to early retirement in ten years6 rather than 35. There is more incentive to do that, because these jobs tend to be punishingly stressful.

Gerd is right in that most people don’t earn enough, but if you earn well over the norm then Gerd is wrong, this is a perfectly sensible way to do it. I had some of these advantages – I earned reasonably well and lived outside London so my costs were lower, and my employer contributed more to my pension than is usual now, so effectively my pay was worth more.

That’s a draw, Gerd.

Gerd is right for most people, you can’t get there from here

Whatever the drivers for FI, regrettably I am with Gerd that financial independence is an unattainable chimera for people earning average incomes. They’re unlikely to be able to reach FI/RE except in edge cases. It’s perfectly possible for MeineFinazielleFreiheit because he is a freelancer for an international service company, which puts him on a well above average wage I would imagine. I’d initially jumped to the conclusion that Dienstleistungsunternehmen meant a management consultancy rather than service industry, which is another sort of job like finance where going for FI/RE is almost mandatory because the stressful nature of the job burns people out early. Dictionaries and Wikipedia don’t support that interpretation, although oddly the sort of pictures Google Images comes up with do lean that way.

Gerd then goes on to ask an interesting question –

What makes some people value financial independence whereas it is generally a minority pursuit?

He refered to Holger Grethe’s article about financial freedom (Google Translate). He references Steven Reiss’s book  Who am I?: 16 Basic Desires that Motivate Our Actions And  Define Our Personalities which offered some insight, his taxonomy of 16 values of motivation is as follows:

  1. Acceptance, the desire for positive self-regard
  2. Curiosity, the desire for understanding
  3. Eating, the desire for food
  4. Family, the desire to raise children and spend time with siblings
  5. Honor, the desire for upright character
  6. Idealism, the desire for social justice
  7. Independence, the desire for self-reliance
  8. Order, the desire for structure
  9. Physical Activity, the desire for muscle exercise
  10. Power, the desire for influence or leadership
  11. Romance, the desire for beauty and sex
  12. Saving, the desire to collect
  13. Social Contact, the desire for peer companionship
  14. Status, the desire for respect based on social standing
  15. Tranquility, the desire for safety
  16. Vengeance, the desire to confront those who offend

I’d lump some of these under the same class of thing – 4 and 13 and possibly 14 look the same class of thing to me, 10 and 16 look related. Reiss excludes traits that he does not find some hint of in all the respondents, I wonder if excluding the tails of the distribution makes this limiting. But heck, a hypothesis doesn’t have to be perfect to be useful. Reiss’s thesis is that there is a different balance between these motivations across people, but those motivations are fairly immutable in any specific case. The curious child becomes a curious adult who becomes a curious old man. Satisfying these desires is transient, you have to keep on doing something to sate them. Holger Grethe riffs on this –

“Anyone seeking financial freedom or “early retirement” is very likely to save an above-average need for independence in connection with the urge to save money.”

Conversely, other needs are more important for most people

For some, the quest for power may play a bigger role:

“Power motivates to willpower, the need for achievement and how much you want to work on it … Power influences your propensity to be a leader and to give guidance to others.”

For others, it may be status thinking that outweighs the need for independence:

“Status is the need for social prestige because of wealth, titles, social class or good origin. The satisfaction of this need evokes feelings of self-importance and superiority, while non-gratification leads to feelings of insignificance and inferiority. “

Those who retire from working life to enjoy their financial freedom can neither give commands to others nor bask in the glow of their professional position.

This helped me understand some of the observations I couldn’t really make sense of. Monevator has an extended and insightful blog about the things you need to do to become financially independent, and he served me very well, yet he has no desire to retire, even though he could

I’m pretty much financially independent these days, by my own terms. I once wanted to retire early. But I tried doing no work and discovered it wasn’t for me – or at least not yet.

My expectation now is I’ll earn at least some money for the next 30 years.

I’m incapable of understanding that, other than in a theoretical and intellectual way. I think that if I’d been rich enough to avoid working when I left university I would have done just that. Let’s hear it from Reiss on power

Power is the basic desire for influence or leadership. It motivates willpower, the need for achievement, and hard work. It motivates us to seek to influence people, events, or the environment. Power motivates the desire to lead and to give advice. It has been said of some powerful personalities that they cannot stand to see somebody go in one direction without urging the person to go in a different direction.

I got on okay with work for 30 years, it was just something you did. I’ve led teams, given presentations at international meetings, that sort of thing, but it was a means to an end, it didn’t feed a deep desire within me. In Reiss’s nomenclature I have a weak basic desire for power. I would challenge his claim that these are immutable, however, earlier in life I probably had a stronger or at least normal desire for this7.

Until I grew sick of the way work was going – all the management bullshit, the performance management targets, the needing to justify one’s existence every quarter, began to really piss me off, and then something snapped.

Yesterday was not soon enough to get out of the workplace and I never, ever, wanted someone to be able to hold that gun to my head ever again. It took three years and much slog, but I made it in the end. I have never worked since. I have earned some money, generally hit and run jobs with no ongoing commitment. I have never needed that money, and I have not changed my lifestyle as a result of it, and in some cases I have given it away to people who needed it more. The above average need for independence is writ large in all that. And yet that did not apply for 30 years of my working life – I had no burning urge to retire earlier than the normal retirement age of my company pension.

Clearly the quest for power and the status thinking were either weak in me or they were destroyed in the split second that I realised that a manager was trying to improve his numbers at the expense of my future and realised I had no power. Or perhaps it was the quest for power, but in its inverted image. Reiss presents power from the subject’s perspective – Power, the desire for influence or leadership. Making people do your bidding gives a guy a rush. But there is a corollary for the object of that exerted power. I never wanted to be the underdog again.

I can therefore never use money I would earn from employment, because as soon as I build it into my lifestyle I become a prisoner of The Man again.  No consumer shit tastes as good as financial freedom feels. It’s not like I live like an ascetic monk – I did buy the Naim 272 mentioned in that post, and I have been to Malta and the Orkneys this year in search of megalithic wonders. I could afford to go on more vacations. But I can do that from existing reserves, rather than new earnings, which would link me to The Man and his blasted hamster wheel again.

Not everyone who is financially independent can retire early

Skewed by my own experiences I assumed most people who reached financial independence would retire early, and this was supported by the common FI/RE8 acronym. Sure, five decades of living have taught me that there is much variation among individuals, but it puzzles me why somebody would go through all the privations of achieving financial independence if not to retire early, as TEA said, don’t just load the gun, pull the trigger.

Those who value influence and leadership (10), and those who get status from the work they do (14), and perhaps, in the case of men, the desire for peer companionship (13) may reach financial independence, but should reflect on whether they get something non-financial out of work that they might miss. The poster child for this is Jim SHMD, who appears to be working a job that bores him but delivers valuable side effects:

I really wasn’t looking forward to returning to the actual work that I do – but I was looking forward to catching up with the people there, both my co-workers and my customers.

I personally would be saddened if the best thing I felt I could do with my time was going to work, but that is because other motivations are higher – the curiosity (2) and independence (7). For me, independence and power are related – independence is the absence of people with power over me. However, that didn’t bother me for most of my working life, while I had enough bosses I thought were tossers I probably had more that I had some respect for. As management changed from values to processes I came to despise some later bosses and box-tickers rather than leaders, but that’s what metrics and performance management do to people, they turn good and mediocre people bad.

The boss that convinced me I needed to get out of that place  was intelligent and an expert in his own field but while fine in calm waters became a psycho under pressure. You don’t hire engineers for their great way with people, I suppose. I would challenge Reiss’s immutability theory. Power and status (10 and 14) mattered more to me earlier in my career, but independence (7) became more important than these as I grew older. Drawing on Carl Jung’s observation that what is true in the morning of life doesn’t hold in the afternoon, my self-respect shifted from what I did more towards what I am.

Reiss’s positive description of 10, Power, the desire for influence or leadership, isn’t totally absent in me – I do take on things where I have skills that aren’t in other people, and therefore indirectly lead or at least define. I don’t generally volunteer in the pure form, I always want the ‘customer’ of the work to pay something, because this world has an endless supply of wouldn’t it be nice if requirements when the cost is zero. But if the project is interesting enough or I like the people enough, then the job doesn’t have to break even, that is a different expression of financial independence.

Reiss’s book is a fascinating read

It was available on Amazon Kindle Unlimited for cheaper 9 than on Kindle and it was an interesting read – Reiss considers his 16-point taxonomy a deconstruction of Maslow’s hierarchy of needs, which is often cited in the PF scene.  I didn’t really expect to come across a reference to chakras, to wit:

Maslow’s pyramid is similar to Hindu scripture, specifically the Rig Veda, which refers to the chakras. This is a seven level energy system that maps to specific psychological characteristics.

Gosh… He makes some big claims

People are more or less motivated by the same basic desires throughout their adult life. Maslow’s idea of human development — that values and motives change as we mature — is mostly an invalid, romantic myth.

Well, that’s the idea of individual human progress through the lifecycle done for, then. Nevertheless the art of reading is to open the mind to new ideas that don’t necessarily square with one’s own. On this point, he found a 19th century Oxford professor of philosophy, George Ramsey, who delivered  this wisdom in 1843:

“The same difference of feeling and dullness of imagination in men explain what often has been observed, that one half of mankind pass their lives in wondering at the pursuits of the other. Not being able either to feel or to fancy the pleasure derived from the other sources than their own, they consider the rest of the world as little better than fools, who follow empty baubles. They hug themselves as the only wise, while in truth they are only narrow-minded.”

That’s me ranting on about Calvinism then 😉 As a working hypothesis the quest for power and the status thinking isn’t a bad way of comprehending that working satisfies deep innate non-financial needs in some people, and it is likely that these people will appear ambitious, earn more than the average and be more likely to be in a position to get to financial independence.

They just shouldn’t retire early, in fact perhaps they shouldn’t retire at all. FI still improves the power balance with employers – I have never had the experience of not being a supplicant when applying for a job, and I stopped applying for jobs when I didn’t need the money. But it never harms your negotiating position when you can walk away without fear.


  1. Oddly enough after reviewing this and working through the Google translation which was a bit rough around the edges I was able to understand other articles in German reasonably freely, like this one wondering whether all PF blogs and their readers were under 40, not me guv ;) 
  2. These days if I add up all the dividends I have received since re-entering the stock market in 2009 they are about 14% of the current market valuation of my ISAs, dividends matter. The older Ermine is a very different animal to the youthful exuberant one. Dotcom flippers relied purely on the greater fool to buy the shares at a higher price, typical dotcom companies didn’t pay dividends, because they generally didn’t make any money. At least I didn’t buy boo.com or lastminute.com 
  3. FireVLondon is in Gerd’s category 3 not 4, his achievement in keeping a positive portfolio return is even more impressive given he didn’t work in finance
  4. I would really love to be able to say that I started in March 2009 because I am a frickin’ genius that monsters the market. In fact the reason was that it took that long for the financial crisis to crush The Firm’s bottom line that they introduced psycho management and ridiculous performance management metrics. I was desperate enough at the right time. I will claim being bright enough to read this and turn the sentiment into action. That was probably easier for me because I had no equity holdings that had plunged in value, so it seemed worth a punt. Success bred success, I learned to run towards fire and be fearful at times like now. If you want to learn what to do in the stock market, then start when it is down the toilet, not when it is high as a kite and everybody is saying how great it is. That’s a general rule for any asset class – equities, gold, bitcoin, housing. tulip bulbs. If it’s in the papers as a sure win, short it. 
  5. Let’s try the thought experiment. Using Monevator’s compound interest calculator and imagine our young fellow starting off saving a whole year’s worth of UK average wage at £20k that he somehow manages to not need to live off. After a 30 year working life of compounding at 5% in real terms without any platform costs or taxes he ends up with about £90k. A worthwhile improvement, but it’s not going to make you rich doing that as a one-off at the beginning of your working life, and subsequent savings have less time to compound. A successful business will compound much faster than 5%, and under certain circumstances can use other people’s money to scale up quicker. 
  6. 35÷5 is 7, but you are probably paying more tax earning >5x average salary than the average grunt 
  7. You don’t normally get to earn significantly more than the average with the traits of a weak desire for power, Reiss characterises that sort of individual After graduation from school, these individuals may continue to avoid hard work. They may have a tendency to underachieve their entire lives, not because they are incapable, but because they are motivated in different directions. 
  8. Financial Independence/Retire Early. Early retirement is in the name
  9. Kindle unlimited is best tackled on a hit and run basis – sign up and then immediately unsign up (so you don’t forget to unsubscribe). You are then a member of KU for a month for about £8, hit it for all that it’s worth. 

Escaping the avaricious paws of Interactive Investor – again

I opened my S&S ISA in March 2009, with Interactive Investor (III). I was used to their system, had used it for shares research in my dotcom boom and bust days, and their charges were OK. What I want in a ISA platform is pretty simple. No ongoing fees, and specifically no percentage fees. I am happy to pay for buying and selling shares, not to hold them.

Before the Retail Distribution Review (RDR) this was common. Platforms made their money on kickbacks from funds. I had been educated to this problem so I didn’t have any funds. Simples. The RDR was supposed to help the common people, but I took the shaft. I was perfectly happy to have my platform costs subsidised by all those fund holders. III introduced a £80 p.a. fee, apparently for our own good. From their guff at the time

We believe that customers should be engaged with their investments and actively manage their portfolios. To support this, we are introducing a quarterly fee of £20. If you already trade twice or more a quarter then this fee will make no difference to what you pay – it is effectively an advance payment of those first two trades for the quarter. If you are trading less than that then you will still have the right to your two trades in each quarter without any additional payment and hopefully feel encouraged to more actively manage your investments.

I’d go to IG Index if I wanted to trade, guys. That’s not me, so I jumped to TD Direct. Not without pain, indeed iii’s attempt to make money out of their 2012 switchers showed that they are moneygrabbing scum, which is something I had forgotten over the intervening five years.

Moving a S&S ISA is tedious and slow

It took ages to move that ISA, I moved it in stock format. Don’t know why we suddenly resurrect Latin and call this in specie, but that’s the convention. You have to watch it because some platforms charge a transfer out per line of stock. OTOH you get to pay the transaction charges twice if you convert to cash and rebuy. Some people say there’s the extra hazard of being out of the market, and I suppose since bull markets are longer than bear markets that’s probably the case for a randomly chosen time period.

I had five years with TD, where they generally did what I wanted them to do, and didn’t give me any trouble, other than starting to charge for holding funds. So I got rid of funds I’d acquired with TD and switched to using ETFs. That gets easier as the ISA becomes a bigger beast. I don’t really buy less than £2k of anything now, £12.50 out of that is 0.63%, on a par with stamp duty. So I take a 1% hit upfront. On the £500 transactions when I started out in 20091 that 12.50 was an ugly 2.5%, which is why everybody used funds in those days. Paying the 3% in kickbacks and fees, no doubt 😉

Having laid the beast of III to rest, the zombie comes after TD Direct and buys it up. Other TD Direct customers were more savvy than me and jumped early, I left it until III tell me they are bringing their ugly “annual fees but not if you trade lots” fee structure to TD Direct, and get caught in the crush for the exit. I initiated a transfer to iWeb end of October 2017. Every month after I chased them in their private message system and nothing happened. Continue reading “Escaping the avaricious paws of Interactive Investor – again”

Millennials can chill about not having massive savings

… because they’re young. Young people generally don’t have savings, and it beats me where the idea came from that they should have. H/T to Monevator, who introduced me to the idea that people in FT land are feeling troubled that only one in six millennials have £100,000 in savings. My personal reaction to that was WTF, what do these guys know that I didn’t?

I was in my late 40s before I ever saw an account with six figures to my name. Apparently you need a deposit of £100k to buy a house in London. Housing has always been expensive in London. I was born in London, went to university there, and spend the first decade of my working life there. I had job-switched a few times and the Bank of England inflation calculator tells me I was earning reasonably well for a twenty-something. I was single and child-free.

What was the best housing situation I could afford back then? A single rented room in a HMO in Ealing where I had to put salt round the periphery to prevent black slugs invading the place. This was an upgrade on the various rooms in shared houses I’d lived in before. I was in my late 20s, and no, I didn’t really have any savings either, other than about £5k, because I had believed that I needed to pay the fees of my MSc course myself, but it turned out that the Manpower Services Commission gave me a grant. It still didn’t help me buy a house in London.

So I moved out of London. The problem of not having a deposit was still there, but when I moved to Ipswich I was earning better and the prospects for salary increases were better for me. So I borrowed about £10k from a MBNA credit card on interest-free credit for a year to put down as a deposit for a house, perpetrating the single greatest piece of financial folly in my entire life – buying a house at a market high. I used my better salary to pay down that interest-free card over the year – I really did pay 0% on it. But I didn’t have savings of £15k from the start. Those were more innocent times, when mortgage companies looked at only your salary and didn’t ask about CC debts, because such debt was not as commonplace as now.

That £15k deposit was the equivalent of £40k now. Earlier generations of Ermine weren’t any better at saving than Millennials. There is an argument that young people start off more skint now than they used to. There is a compensation for those working in cities that they observe much faster career progression in their early 30s than previous generations

so it’s difficult to tease this appart – I would say that average and middling talented young folk had an easier time in my generation that Millennials, but high-flyers have much better opportunities now, part of a general winner-takes-all trend.

The Hemingway law of motion – Slowly at first, then all of a sudden

In Hemingway’s The Sun Also Rises, there is this passage summarising  economic change

“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”

Continue reading “Millennials can chill about not having massive savings”

UK FI/RE folk are fortunate compared to other Europeans

I guess we’re still European at the moment 😉 Though I do wonder if our good fortune is perhaps connected with our impending departure from the continent. I came across Mrs W of whatlifecouldbe.eu1– who is already FI at 32, this is their story. Basically Scottish lass goes to work in Germany in 2005, meets handsome young Romanian fellow starting college, ten years later they have a couple of nippers and are FI/RE. Even my grizzled and cynical old heart is warmed by the tale of chutzpah, enterprise and general derring-do.

I confess that when I read the story of what makes them FI, invested 100% in a single asset class of German rental property it makes me feel a little bit squiffy for the FI part of their future, particularly when I hear Mr W’s diatribe about the SWR and equities in general. But then I recall that he is still in his early 30’s at a guess, so while I intensely disagree with Mr W’s approach to diversification and cavalier use of leverage,  it will probably work out just fine in the end though probably not exactly as planned. These guys have got human capital in spades. It’ll be all right on the night even if something goes wrong with the FI side of things. This fearful Ermine would be scared of with the mix of leverage and lack of diversification. Unlike the Ws, I have already earned all the money I will ever earn, so I have to be more timid, because I have no human capital in reserve.

What makes you FI/RE in your 30s is very different from what makes you FI/RE in your 50s

The world is too unstable to convincingly clock off in your 30s, unless you have a very serious trust fund behind you. Yes for Petra Ecclestone2

Petra Ecclestone. unlike you or I, doesn’t need to earn the money to put into her investments

no for people who have to earn the money to become FI.

In Petra’s case her dad did the heavy lifting, though I believe her mum wasn’t a pauper either. Mr W nails it, however, when he says passive income is worth more than net worth. Back in the dark days of 2009, I took the same line, albeit in a different asset class, and started building a high yield portfolio – at the sorts of valuations one was getting then it was possible to envisage getting there. And in all fairness I still have that HYP, and it’s paying a decent steady return in aggregate for what I paid for it then. The bad odds for FI/RE are written in the stats of the SWR – if it’s 4% then you need to save 25 times your desired annual spending rate that is a big ask for a working life of 20 to 30 years. You ain’t got years enough to get there from here if you are looking to live a normal life of spending most of what you earn.

You can get there if you earn a heck of a lot more than you plan to spend, but you then have the living like a celibate monk in a brothel problem because you will be surrounded by spendy peers. You can get there if you are prepared to work for 50 years, because the faint whisper of assistance of compound interest may give you a bit of a leg-up3. But otherwise it’s a very, very long stretch. In your working life it’s also good to be able to buy a house, which is a hedge against paying rent, otherwise you will have to lift your savings target to cover renting for the rest of your life, so it’s all a tough ask.

Having an unleveraged stash of wealth it’s the canonical way older people look at becoming FI – you build up enough stock of assets that the flow of income from them is enough to make up for the flow of income you aren’t getting from selling your time or skills for money.

At this point most Brits would yell Get into BTL in my ear and indeed that’s what an awful lot of people do. If you still carry a mortgage on that BTL then it’s a bit like taking out a mortgage to buy the assets in one’s SIPP or ISA, it obviously reduces the upfront costs and you can get a lot more bang for your buck. For someone like me that would be insane, not just because I loathe real-estate as an asset class with a deep and heartfelt hatred born of the way it hurt me early in my working life, but also because I don’t have any earning potential left – my human capital is close to zero. You just don’t carry debt when you are all out of human capital4, because it’s a drag on your financial capital. But looking at how Mr and Mrs W do it, I wonder if perhaps leveraged BTL is more healthy in the young than in the old.

We are greatly privileged in the UK in terms of tax-sheltered accounts

We can shelter £20k a year in ISAs tax-free and up to 40k a year in SIPPs tax-free, which is stupendous compared to the paltry $6000 annual limit for the US equivalent of a SIPP, an IRA. In Canada that’s about $15000 CAD, about £9k p.a. Here we have people bitchin’ and a moanin’ about the lifetime allowance of £1M, our North American FI colleagues would find it hard to get that much after a normal lifetime of working. Then there’s free health provision, which is a whole world of hurt for US FI/RE people, which is a lot of money you don’t have to save for.

Then let’s look at the situation in Europe – countries like France have a wealth tax, and countries like Switzerland charge tax on the imputed rent of a house. In Belgium No More Waffles is battling a dividend tax rate of 30%.

There is, of course, a case to be made that is all a byproduct of the way British elites are keeping their money to themselves, tossing a few crumbs for the upper middle classes, making it look like anybody could do that. After all Britain has an ignoble tradition of government facilitating large scale tax evasion through looking the other way as far as tax havens and things like trusts to circumvent the already generous IHT allowances. Perhaps the FI/RE community is just slipstreaming the kind treatment of wealth and its owners, because they have to save much more money at a much higher rate than normal workers are doing. The generosity of the ISA allowance is roughly the same as the median UK household income of ~£23,000. Your average FI/RE saver is chuffed if they get to a savings rate of 60%. Getting to 90% is a serious stretch, so let’s face it, that £20k ISA allowance is one for the rich – FI people earning £50k p.a. net and probably normal people earning at least twice that. The rest will struggle to fill it each year.

Of course all this lost tax probably makes living in Britain a bit more shit for other people, and as a result said elites get an angry howl of rage when they hold referenda. So perhaps we might have had a better collective quality of life if the tax-sheltering regime were not quite so generous, but you have to work with the world as it is.

It’s not all upside, however

There’s trouble brewing in the increasing shitstorm being made of Brexit, where none of the protagonists can agree what success looks like though they all have very fixed but orthogonal views of what it should be. That, combined with flatlining productivity could lead to serious unrest in the years to come. There are some things historically peculiar to Britain – the general godawfulness that is hideously expensive housing. The horribly unequal distribution of jobs with all the investment happening in the southeast and London. You can find cheap housing in the UK, just not near any work of substance. Then there’s expensive tertiary education, which could be circumvented by studying in Europe as Mrs W did, but is no longer an option5

Be grateful for what you have, UK FI/RE people, and sweat it while you’ve got it.

Gratitude is good for the soul, and British FI/RE aspirants have a massive leg-up in tax privilege compared to many other First World countries. Celebrate your good fortune, and hit it while you have it…

 


  1. I was surprised there are so many German FI blogs, and surprised to see German blogs are written addressing the second person singular not the formal third person plural 
  2. Queensberry rules require me to point out that the Graun makes out that Petra earns her crust. Do you believe that explains how you get to own a Hollywood mansion at 25? Me neither 
  3. A bit like NASA’s ion drive, compound interest’s action is feeble compared Saving Hard, the equivalent of the sturm und drang of chemical propulsion. But it keeps going steadily, and over timescales longer than a FI/RE working life it can add up significantly 
  4. there are specific times when it’s okay for FI/RE people to carry debt because of the 55 limit on drawing pensions, but as a general rule, don’t 
  5. Whether the Erasmus scheme that served Mr W (and Mrs W perhaps?) carries on for UK students after Brexit is unclear but probably no because of the issue with free movement despite the Brexit boosterism of the torygraph – even they have to confess the Swiss had to craft a replacement after they voted to can free movement. For the Torygraph scenario to be right the UK Government would have to craft a Swiss style UK Erasmus replacement and fund it for cheaper studying in EU universities than the high cost of studying in England. In other news, a flock of pigs was seen flying to the coast 

iii take an Ermine for a ride – again!

A few years ago something bad happened to the ISA platform III that I was with. Presumably they were taken over by some hedgies yelling at  them to sweat the assets. They came to the conclusion they weren’t making enough money off the punters after the Retail Distribution Review pissed on their fireworks hiding platfom fees as OEIC class variants, so they jacked up their fees wildly. So I cleared off taking my shares with me to TD Direct, who have served me well over the last five years. But now the big bad wolf is back, since III, realising they still weren’t making any money, decided to come along and buy TD Direct, and impose their ugly inactivity – punishing fee structure on them. They call it simple, clear and fair, well, it’s simple enough and it’s too bloody much. Not much has changed since my 2012 summary of their attitude

Here is a message from the CEO describing just how we are going to obfuscate our previously simple offering to you. We will obscure things by bundling some services, charging more for others and complicating the process of comparing our charges with other ISA providers. Of course we are going to make out that we are doing you a favour, but basically we want you to trade a lot more often so as we get more money. Geddit? No, well, what we will do is charge you for two trades a quarter, constraining what you can do, and enticing you to churn more. Oh and we’ll wrap it all up in fluffyness of how we believe in the stuff we’ve been forced to do. Unfortunately, Mr Ermine, you weren’t using any of the funds that we were stealing some of the proceeds from every year, because you identified them as a ripoff. So you get to take the shaft, this time, buster. That OK with you? Because if not you know what you can do but it’ll cost ya. Bwahahahahahaha

Pretty much rinse, repeat – I was happy with TDs costs – basically now’t if you do now’t[ref]ETFs and shares – I got right out of funds in TD when they started charged platform fees to hold them[/ref], and £12.50 per trade. As opposed to £90 p.a. with III, which is reduced if you trade often enough. ‘Cos that’s where money is to be made for III, on the turn, they want to nail you in transaction fees or in annual fees.

End of October I requested a transfer to iWeb, and TD Direct acknowledged this by email on the 1st November.

We’re sorry to hear that you’re looking to move the assets you hold with us today but we’ll work closely with IWEB to ensure your transfer is completed as quickly as possible. If you change your mind and decide you’d prefer to stay with TD Direct Investing, please let us know and we’ll look after this for you.

Moving is a big step

We know that moving your assets is a big decision and we want to make sure you know what to expect during the time it takes IWEB and ourselves to complete this for you. Please take the time to read through the points below so you know what’s involved. We won’t charge you for moving your assets to another provider but it’s worth checking to see whether IWEB will charge transfer or exit fees if you decide to move your assets again in the future.

Things to consider

• Some providers will only accept cash transfers in pound sterling (£). If IWEB will only accept pound sterling (£) you’ll need to convert any cash you hold with us in other currencies before we can move your cash. Foreign Exchange (FX) rates will apply to all currency conversions you carry out.
• Transferring assets can take up to 6 weeks, sometimes longer, depending on the complexity of the investments being transferred but we’ll work closely with IWEB to make sure this happens as quickly as possible.

Since then they have done diddly squat, to the extent that IWeb sent another letter saying they hadn’t heard from TD Direct on the 24th. Which pretty much confirms my initial feelings about III from five years ago – shysters. From this thread on MSE I’m not the only one to be taking the shaft here.

The RDR has been a bastard from my point of view – I was mainly a shares/ETF sort of guy and was quite happy to pay my way in buy/selling costs and for the massed ranks to pay for their free fund buying/selling via the various kickbacks on funds/OEICS. The information was out there that you were being ripped off annually in charges, and if you couldn’t be bothered to learn about it then I figure it’s fair enough. Whereas the shares proposition was always that you pay for activity. Not churning your portfolio was the win there. In other words don’t do this:

bunch of contract notes from two years of my dotcom days

Then the RDR came along and said it isn’t fair that the sheeple are being gouged, so we now have this problem of platforms being incentivised to make their punters churn their portfolios to generate some transaction fees, and changing their fee structure to try and catch people out. It’s a little bit like the way regulation of the power market means you have to shift supplier every few years, because all the best prices are aimed at new customers. The FCA come along all self-congratulatory and say that early signs are that the RDR is working, well it sure as hell ain’t working for me. I was quite happy for the fund buyers to pay their hidden platform charges, after all if you don’t want to pay annually then shares and ETFs are your friend 😉

You see the background radiation of the old system in the new charging structures. Platforms made their money on fund kickbacks, so they didn’t charge for buying or holding funds. They didn’t make money on shares, so they charged transaction fees on shares. Now that they don’t make money on fund kickbacks, they charge annual fees just for having funds, and just because they can, they extend this ripoff  and charge annual fees for shares. The likes of Hargeaves Lansdown at least have a little bit of shame about that, inasmuch as they cap their annual fees on holding shares at £45, while fees are unlimited on funds until you reach £2 million assets under management. HL would actually be half the price of iii for my ISA, as their charges on shares and ETFs top out at assets of £10,000 under management, but £45 is still too much to charge for inactivity. The one greatest lesson I learned in investing is the power of sitting on my backside. Time in the market is your friend. I don’t want to be paying for it.

UPDATE 27 Nov 18:00

III have acknowledged the poke about the transfer and say

Dear [griping mustelid]
Thank you for your secure message in respect to transferring your ISA
account to Iweb. 
We have received the transfer form – transfer reference nnnnnn and we are due to send a statement of your account to Iweb.  Due to a spike of activity in the transfer team, transfers are taken longer than normal to process but I will make them aware you have been in touch so they can expedite this for you.   
 I can assure you that as we can see you have already requested a  transfer out, you will not be expected to pay the fee.  If your account is still open in January just email us again at this time and we will waive or refund it.
Should you have any further enquiries, please do not hesitate to get in touch again. Our response time to secure message is usually 1 working day,
although in times of high volumes we may take up to 5 working days.