16 Oct 2014, 11:32am
personal finance
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  • The difficulty of managing money in silos

    Pensions, ISAs, NS&I - they all break your capital down into silos isolated from each other  Image: dsearles/Flickr

    Pensions, ISAs, NS&I – they all break your capital down into silos isolated from each other Image: dsearles/Flickr

    Silos are bad for organising a lot of things where the contents should all be pulling in the same direction, singing from the same hymnsheet and other associated buzzword bingo 1. All through my working life companies have moaned about ‘silo mentality‘  – well WTF do they think is going to happen when you reward people for individual results using S.M.A.R.T. metrics, the stupid berks? Knowledge is power, and you don’t want to be an interchangeable outsourceable meatspace unit x – you want to be the irreplaceable kingpin…

    The same intractable problem is easily introduced into our personal finances – some of it by foibles such as mental accounting, but a lot of it is by government action – if you want to take advantage of certain tax breaks you are pretty much forced to split your money into different silos. Pensions are the obvious example, a one-way silo that you can draw on after 55 2, and ISAs, which only have tax protection inside the silo.

    The whole reason humans invented money was to create a divisible and fungible token of wealth – later on that became a fragile store of wealth 3 too. That’s all very well, but in practice we don’t really seem to like operating in a miasma of undefined cash or debt swilling around, so we often break it all up into itty bits and tackle each one of these on their own. In doing so we often lose the big picture – the classic case is somebody carrying credit card consumer debt who has savings, or even worse, has money in the stock market. There is no point in having savings if you have debt that is at a higher interest rate than the net return on those savings unless you have a specific reason for it. If you are carrying chargeable consumer credit you have no business being in the stock market – fight the nearest fire that is burning faster before worrying about the flames on the horizon.

    The Silos of Tax-advantaged Savings

    The biggest and most complex of these taxation silos is the pension. It has the greatest restrictiveness, and is therefore the hardest to manage. It’s also usually at a high-water-mark in your 50s.

    As you get closer to the magic 55 the problem of silos gets a lot more acute, and doubly so if you are an early (pre 55) retiree. For an early retiree with a defined contribution pension the decision is clear – draw the pension from the age of 55, because you have no other earnings income (that’s what retiring is) so you get more of your money back paying less tax by choosing the longest time period to draw it. That favours drawing from 55, all other things being equal. If you’re still working that’s nuts, but if you aren’t, knock yourself out.

    However, just before 55, you have pension silo that is a dead hand that demands maximum feeding at the expense of the ISA silo, or indeed your general free cash flow, because it is the most lucrative. For instance, the Ermine specifically took out a DC pension when Osborne’s pension reforms were mooted, because, well, it’s rude to turn down a guaranteed roughly 10% p.a.  uplift on about £7000 in cash, tax-free if you swing it right. The fact that this allows me to defer my main pension increasing it by 5% is an added bonus.

    Trouble is, you have to design your savings plan and glide path while you are still working, and I predicated mine on an ISA allowance of £9,000 p.a. and being able to ignore pensions, because I didn’t want to have to take out an annuity at 55 or wait until I was old enough for it to be worth it.

    I’ve only been retired for two years, and in the meantime they’ve mucked around with the silos so much that the original plan is in tatters. My original aims were simply to fill my ISA each year, basically by selling unwrapped holdings up to the CGT limit and tossing them into the ISA and topping it up a bit from savings. The increase in ISA allowance means I want to top it up a lot – there’s another £5000 p.a. to find. And then Osborne changed pensions so that it’s worth tossing £9000 into one to win £2000 of tax that I paid years ago back – even if you’ve never paid tax the deal is on offer, though it’s only really favourable for people close to being able to draw the prceeds in a couple of years.

    Fortunately I overestimated my spend rate; I expected to have to draw the pension after a year and a half, so the start of this year. When I do draw it I get hold of my 25% pension commencement lump sum which is a shitload of cash saved up for this, and then have to push that into ISAs for a few years. It is this which makes me keen to max my ISA allowance across the intercession between stopping work and getting hold of the AVCs.

    Then I needed to find about £10k for an opportunity that has come up, and so I am now up against the end of my free cash flow. I still have deep strategic cash savings in NS&I and a Cash ISA, which would easily cover that but I am loath to break into them, because God knows when I will be able to save and preserve cash in real terms with NSA&I again, and I don’t want to lose the ISA capacity. So heck, it’s time for the Ermine to borrow money!

    Lenders are all computers these days, and all lending is predicated on income

    The last time I borrowed money from a bank as a loan was in the mid 1980s. At that time there was this quaint custom of going into the bank where you would talk to someone about what you want the money for and what your income was etc, so I went into my bank in South Kensington and showed the fellow the payslips and how much I wanted to borrow for a car. Arguably what the bank manager should have said was don’t be such a damn fool you young whippersnapper, a car is a wasting asset that will depreciate faster than you will pay down the loan, but for some reason he didn’t, I had another £2k in my account and everything was fine. They got their repayments on time every time and that was that. It was a damn fool thing to have done, don’t ever borrow money to buy a car, particularly as cars as much cheaper now in relative terms. But I got away with it.

    It so happens that I am still with the same bank, branch and account because I can’t be bothered to fiddle about with this, I never go overdrawn so many of the so-called benefits of switching aren’t of value to me. So I spark up their website and inquire of a personal loan for £8k, using the non-credit referenced query. Income – 0 (I suppose I should have put in my ISA income, but what the hell). Now bearing in mind this is my own bank and they should damn well know that my Cash ISA has more than enough money to cover the £8k, but the answer is basically

    Computer say no, fuhgeddaboutit m8.

    There’s apparently a hidden assumption that has crept into lending money these days, and that is that you are a good li’l consumer trying to buy more consumer shit than you can afford at the moment, but your income is enough to service the debt. There seems to be no concept that a member of the consuming proletariat may have the money but because of the silo structure it is in the wrong place and he may lack liquidity. Let’s face it, who would you rather lend money to – some kid wanting to buy an iPhone or somebody with financial assets of many times your loan but ensiloed in a pension AVC or shares that can’t be sold till the next tax year? There’s no question – go for the iPhone toting kid any time ;)

    Now in the 1980s, I would have gone to see Mr Bank Manager, I would explain that I have these CGT embargoed shares to cover it, and if that isn’t enough that in two years I would have my AVC of way, way more than the loan amount and I am being sensible in deferring my pension so this loan is in fact there to use my capital to make more money. It isn’t for a wasting asset like an iPhone or a car, and he would look back over 20 years of running that account, figure £8k isn’t quite enough to do a runner to Rio and advance the cash. But we aren’t.

    Computer says no

    Now unlike many people I never go on the assumption that I have the right to have people lend me money, so that’s just the way the cookie crumbles, more loss Mr Nat West, because compared to most people they advance personal loans an Ermine is probably a good bet.

    Where can a skint Ermine borrow from – aha – Wonga and Credit Cards :)

    My main problem comes around the turn of the next tax year – I need enough liquidity to max the rest of this year’s ISA, and to max my SIPP this tax year. There’s no point in drawing money out of a Cash ISA to fill a S&S ISA – it’s the old Silo problem again, that money is already in the ISA silo so there’s no point taking it out the bottom and chucking it back in at the top. That silo needs new money.

    As soon as the tax year is done, however, I get a new CGT allowance, so I can sell some unwrapped shares and pay off the loan 4. For a short period I even considered Wonga or The Money Shop, despite taking the piss something rotten a while ago. A two-week period over the 6th April would actually be the correct use of a payday loan, but the thought of being spammed shitless for the next 10 years by their ilk wasn’t really an attractive proposition. This from Moneysavingexpert is pretty much all I need to know.

    1402__wrong_way_signage

    Yup, got that. Wonga is probably more crafty than I am clever…

    Mrs Ermine didn’t really approve, either. So let’s take a step back. Now it so happens that every month Barclaycard entreat me to borrow money from them. I don’t use the card, but I have it because I figured that after leaving work nobody will give me another credit card until I become a pensioner, so I may as well hang on to the ones I have got. Presumably Barclaycard still think I am working for The Firm, because I told them truthfully that I was when I took it out and they haven’t asked me since. So like clockwork, every month they send me something like this

    1410_bcard

    Now I don’t know how ‘king stupid Barclaycard think their customers are, but a 0% interest cash loan with a x% fee is not 0%. At first sight this is a loan for 9 months at 1.9%, ie a loan at an APR of 12÷9×1.9%=2.6%. It’s actually a little bit worse than that because you have to repay a credit card loan at quite a high rate, about 3% of the loan outstanding per month, so you don’t get to use all of the cash for all of the time. The car loan was so long ago I can’t remember if you have to repay a bank loan every month. Here in practice you either get not to use the full loan amount or you effectively borrow a smaller amount at a higher interest rate, say about 5%. And you must must must ensure you repay the minimum amount every month, I’ve always taken card firms up on the Direct Debit pay minimum amount off each month, so the first thing you have to go on getting the loan is chuck some of it into the debited account ready to pay the loan down.

    I actually prepaid the 1.9% fee – ie paid too much into the card account before taking the loan so the fee is taken from the existing credit balance and not the loan, because I suspect they would charge monthly card interest on the fee, which they can’t it it’s not carried :)

    Then I repeated the operation with MBNA, who offered me a year and a half loan for 5%. They also offer this every month or so. I still have a soft spot for MBNA – 25 years ago they lent me £15,000 interest free which was a significant part of the deposit on my first house. And I really didn’t pay any interest on it – in those days 0% interest really meant 0%, no fees involved. The fact that it was a tremendously stupid time to buy a house, very much like the present time, indeed, can’t really be blamed on them.

    That will take me into the time when I can draw my DC pension, and all of a sudden I am rolling in liquidity, particularly as the impending stock-market rumble means I can probably liquidate more unwrapped holdings CGT free as they fall to par. Which is dead good, as stock market rumbles are exciting and opportunities to get stuck in and pick up value. I love the smell of fear in the markets in the morning. And it so happens that I have a fair amount of uncommitted cash in my ISA. Maybe I can stop writing articles like this and write more like this. If I can have just one word in Mr Market’s shell-like, if he could just delay the denouement a teeny bit, so say Q4 of next year, I’d be in a better position to use it. If he has to throw a benny earlier, I may have to switch some of my AVC fund that is currently in cash into say a FTSE100 index. The trouble is my AVC fund is currently already exactly 25% of my pension capital by design, so I can’t really use any increase that much…

    Oh yeah, about that classic bad case of somebody carrying credit card debt but with savings, indeed who has the temerity to be in the stock market to. Well, that’s me. What the hell, do as I say, don’t do as I do ;)

     

    Notes:

    1. you can take the Ermine out of The Firm, but not yet the biz lingo out of the Ermine, it was drummed in over 20 years
    2. corrected 20 Oct from earlier version “only fill until you are 55″ which wasn’t what I meant
    3. money in terms of cash is a fragile store of wealth because it tends to depreciate over time as it is created at a higher rate than the value accumulating in the economy
    4. I was dead chuffed when IDJV that I hold unwrapped fell to the price I paid for it in the current market loathing for all things European. That means there’s no CGT to pay, so I sold them and that will give me some extra liquidity at the turn of the tax year – or I can simply to an internal transfer of the cash into my ISA this tax year, leaving only 2k to find this year. It’s an ill wind…
    10 Oct 2014, 12:42pm
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  • The incredible lure of day-trading

    Ah, day trading, the ultimate signal of feel-good in the markets 1. It’s the harbinger of doom, because it is a signal of irrational exuberance. A bunch of day-traders were on the telly a few days ago, hat-tip to Under The Money Tree who flagged up Traders – Millions by the Minute as an object-lesson in what not to do.

    There are two fundamental approaches to trying to make money out of the stock market. One is to regard it a way of purchasing a selection of productive assets, and then becoming a rentier, sitting back and taking a slice of those productive assets without having to do any work. Don’t knock it -that’s the way the super-rich are getting richer. They’re not saving from income, that’s soooo 20th century, dahlink. You need to have inherited wealth or stupendous good luck. The latter is how Russian oligarchs get rich, the former is how Paris Hilton and the Ecclestone daughters got rich. You don’t get to have a pad at the Odeon Tower Monaco if you’re on the side of income no matter how clever you are or how good a footballer.

    Capital, not income will get you here

    Capital, not income will get you here

    Half a billion is doable as income, but you need a turbo-charge from the stock market to keep you there. CEOs and the like have managed to get into this area by getting on the side of the stock market, but they don’t day-trade.

    The second is to regard the stock market as a casino, and to attempt to pick a smidgen of signal from the noise the market throws off. In Traders-Millions by the Minute the punters were taking this line, using spread-betting. The Ermine has indeed had dealings with spread-betting. I’m a fan of it in dealing with sharesave, because you can lock-in profits.  Though I lost money on that side of the trade I achieved my goals. Every year I get on the wrong side of the trade with my house insurance too, and lose money. I am cool with that.

    WTF? The Ermine is a fan of trading and spread-betting?

    Sometimes you have to hold shares for a particular period. Sharesave and Employee Share Incentive Plans are a classic case, particularly the latter. You have to be a special kind of mug to lose money on Sharesave, but on ESIP you can, because you purchase the shares from pre-tax income but have to hold the shares for five years from purchase, else you get to pay the tax and NI you didn’t pay to buy the shares.

    So say you buy 100 shares of Megacorp at £1 a share using £60 of your hard-earned cash post-tax. The £100 only costs you £60 because the taxman doesn’t thieve £40 from your income in this instance. But you have to hold those shares for 5 years. If they go down to 60p at the end of those 5 years you break even, less five years of inflation.

    If you short the number of shares you buy, then you will cancel out any gain or loss on the shares, though it will cost you something to do that. But you do get the benefit of the 66% tax bung. Why 66%? Because you forgo £60, but you get £100. Thus a profit of 40/60 or 2/3 = 66%/ Less three years of inflation, say about £10, so you come down to 50% up.

    I used this towards the end of my time at work with ESIP and Sharesave – to protect myself against significant falls in The Firm’s share price. As it was The Firm’s SP went up, and I got to pay IG about £1000. I was easy with that – it was worth paying to insure myself against losing a lot of what I had gained already.

    Social Trading and Trading Superstars, a new development in the trading universe

    Apparently you can now track some other trader’s trades if you can’t be bothered to do the legwork yourself. It really puzzles me whyit’s not obvious what’s wrong with this. The long-term rise in the stock market is roughly 5% p.a. real 2 , though you have to be invested for long periods of time (about 20 years) for things to settle out like this. It’s one of the reasons why I believe index-investing’s studious ignorance of high CAPE/valuations is am issue. But that’s something for another day. So traders, every day, are exposed to  1/7300th of their stake on average in real stock appreciation if they go long, less the cost of the spread on every turn which applies going long or short.

    Now trading tends to be a short-term activity – that daily gain from the stock market going long isn’t going to speak for much there at 0.01% per day. So you profits as a trader have got to come from somewhere, and it comes from either the punters or the casino your spreadbetting firm. Seen any spreadbetting firms go bust recently? Nope. So it’s coming from the punters. In theory it could come from the markets, because the SB firm presumably hedges any major shifts building up over time, but the programme seemed to indicate most of the profits were from the spreads on the trading, which stays within the system.

    And therein lies the rub. If all the punters start getting ahead, the odds will lengthen. Particularly in spreadbetting, where you are running on a model of the real thing, not the underlying market.

    The trick with day-trading is to quit when you’re ahead

    Over a dreary telephone conference at work way back in 2010/11 an Ermine extracted £400 from IG index on gold, trading per tick, and gave up £350 of it by the end of the meeting. It was sheer luck. Some while later I dabbled in forex trading, using a VAR spreadsheet to control risk. After a few months 3 I looked at the results, observed how much risk it was necessary to pay the fees. I experimented with IG’s automated trading system, where you try and craft a black-box strategy based on the previous charts price history, and back-test it on historical data without using real money.

    I could find no strategy that permitted risk to stay bounded as time passed – everything seemed to trend towards a martingale situation where you can always win – if you have infinite wealth and infinite time. If you have infinite reserves of wealth you don’t need to piss about with spreadbetting, cos you don’t have infinite time. I was never tempted by the breathless folks offering courses and training to learn how to trade xyz because of the natural suspicion – if you can make me rich then why the hell aren’t you in some darkened room making yourself rich, dude? Cut out the middleman. I guess it’s the gonzo version of the active fund charges.

    I was Frankie, although I derived the result in a different way from The Escape Artist, by observation and hypothetical experimentation. So I took my £800 gains plus the £1000 stake, and stopped doing that, because it was the logical thing to do. MMM has a nice post on get rich with science. It’s harsh, but when you see the statistics tell you that this is more luck than judgement you can either ignore the results or take the insight offered. If I want to make money out of a spread-betting firm, I will buy their shares. I did learn from this, however, and applied the knowledge to my investing. Trading costs you money. So I stopped selling, and made it a priority to sit on my backside and take the dividends.

    That, fundamentally, is the trouble with day-trading. In the end you are part of generating the wall of noise – for you to gain, somebody else must lose. This does not necessarily hold with the stock market over the years – because in aggregate returns accrue to capital. But those returns accrue very slowly. To actually get rich from a 5% p.a. real return you need to live frugally and ideally you need to take a multi-generational view. If you have talent and/or cunning, you are much better off leveraging your capital with a business and then selling it.

    How do the rich get rich?

    Take a look at the top 10 of the  Forbes Rich List There are more Mark Zuckerbergs,  Bill Gates et al than there are Warren Buffets. If you look through the top 10, the sources of wealth are typically from running or selling a business, followed by ancestral wealth of some sort. Four are self-made, and six are inherited wealth. Forbes trumpets this as saying the American Dream is hale and hearty. I’m not quite sure I want to imagine what it looks like when it’s poorly – holders of old money outweighing new in the top 10 shows maybe the rags to riches isn’t quite as easy as it’s made out. But it can be done. Something else of note is: no actors/actresses. No musicians. No sportspeople. None of the ways teenagers hope to get rich. Something else of note is that most of these are no spring chickens – it’s the greybeards who have all the money. And they’re not a pretty bunch, eh, indeed some of them probably can’t have intact mirrors in their homes.

    Of those ten, only one  ‘made it on the stock market’. And curiously few in the top 25  ‘made it day-trading’ ;) Mind you, Sheldon Adelson comes in at #12 from running casinos. There’s nothing wrong with casinos as a way of making money. It’s just that most people go the wrong way about it! Don’t walk through the casino  doors. Own them.

     

    Notes:

    1. I wrote the first draft at the end of September. The feel-good doesn’t quite ring true now – exciting times ahead?
    2. this comes from the BarCap Equity study
    3. I had a similar temperament to the timid trader in the programme, if in doubt I did n’owt. This is apparently not the route to success in this field
    7 Oct 2014, 8:48pm
    living intentionally:
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  • the season of mellow fruitfulness is on us

    Nutscape

    and it’s time to look at the non-financial investments. In this case, indeed, the non-financial investments of the local Squire, the Fonnereaus. Not only did they build this gaff

    Christchurch Mansion

    Christchurch Mansion

    but they planted some chestnut trees, and the chestnut harvest is awesome this Autumn. The recent winds have brought down a fine crop, and it’s before the weekend when World + Dog will have got to these. The trick is to win your chestnut harvest from the spiky hulls

    Herein dwells a fine nut

    Herein dwells a fine nut

    Sweet chestnut

    Sweet chestnut

    with the minimum of cursing.

    a fine  nut harvest

    a fine nut harvest

    and win a fine harvest of fresh, sweet chestnut from veterans like this tree

    one of the chestnut trees

    one of the chestnut trees

     

    Now there may be some of you reading this that think to yourselves

    goddamnit I earn £200,000 p.a which boils down to £125 an hour and I can get loose chestnuts from Tesco delivered to me for £7/kg so all round so WTF? Why would I be pissing about scavenging nuts in the park

    And I would respect your opinions. But I would venture you’re missing out of some little piece of being human as you sit behind your  screens oblivious to the passage of the seasons. Being a flâneur is one of the good things about owning my own time and if I want to go pick nuts then I damn well can ;) It’s the sheer optionality of it that adds to the sweetness. As summed up delightfully by The Escape Artist – the Ermine tips his hat and welcomes yet another soul across the event horizon of FI.

    2 Oct 2014, 7:54pm
    economy:
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  • It’s Election year, lots of lovely pork is up for grabs

    now this looks like trouble...

    not that sort of pork…

    Bank of England to Government – we need powers to rein in the housing market

    Threadneedle Street is asking the chancellor, George Osborne, for powers to restrict the size of mortgages compared with the value of a property and borrowers’ income, in what is a major policy shift following the 2008 banking crisis. The buy-to-let market will be part of its considerations when deciding to apply any restrictions.

    Government to, well pretty much anyone

    Sod that for a game of tin soldiers, we want more people paying more money for homes – so we’ll give them a 20% bung to make it happen

    Are they ever going to learn? Imagine a parallel universe where house prices were half the cost they are. Where the Bank of England operated credit controls, like they did in the 1970s, so that you could only borrow so much of your wages. We still wouldn’t have any more houses, because we hate everything about building houses. Niccolo Machiavelli told us why, in The Prince

    It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them.

    So it is that everyone who already lives in a place, no matter how mean and ugly their hovel, thinks “I don’t want that development of mean little hovels, because it will inconvenience me/spoil the view/just piss me off”. So no more houses would be built than now. Some would say fewer would be built, but the cost of a house is determined not by the cost of building it but by the value of the land. If stupid people could be stopped from overbidding for this, these costs would fall. Nevertheless, there would be a massive boost for the common weal.

    Why? Just think of the extra fun we could all have with the money that’s no longer ticking up the numbers on our mortgages, at least. The poor could go on holiday/afford to buy food and the rich could afford to send Tarquin and Jemima to public school, although they would probably bid the price up with the new found money they weren’t pouring into housing. That’s not such a bad thing as nobody needs public schooling, whereas everybody needs to take shelter from the rain.

    No more bloody pork for the housing market, Dave. Just don’t go there. Don’t fight the tape, don’t add fuel to the fire, butt right out of it. Everything about housing is so deeply wrong in the UK, this is an area where we need Government – to stop the self-harm. But until we can put something in the water supply that cans the meme that paying rent to a landlord is wasted money, because paying rent on the money rented from a bank for a house you will never get to own outright is so much better – even though it’s just a change of counterparty. The Telegraph tells us the average working life is no longer long enough to be able to afford to buy a house. So you are renting that money.

    It’s been a bad week for a lot of proposals that will have some ghastly consequences. At the risk of sounding like David Icke here’s some obvious actions and reactions

    Death taxes, eh? Wanna know what a death tax is? This fellow knew how death taxes work, and it's not the way the retired colonels of the Torygraph were fearful of...

    Death taxes, eh? Wanna know what a death tax is? This fellow knew how death taxes work, and it’s not the way the retired colonels of the Torygraph were fearful of…

    Action:

    Ros Altmann tells us  Seven things you need to know about George Osborne’s abolition of the pensions death tax. Dear Ros, and all the others who call this a death tax –

    You can’t take it with you you stupid berks, there are no ‘king pockets in a shroud!!! The dead pay no taxes.

    Reaction:

    Rich people will featherbed their kids, who will outspend their compatriots on housing. After a couple of generations of this, we will have a dog-eat-dog society if we are lucky. If not we will have the English Revolution as the dispossessed battle the possessed in a war of all against all. The Ermine is not of the opinion that people’s children have unlimited rights to the fruit of their ancestor’s labours once these ancestors are pushing up daisies. An awful lot of people died in the past to wrest the wealth of the country, first from the King with all that Magna Carta malarkey and then from the aristocracy after the World Wars. I am all for property rights and the rule of law, and I don’t want to see the politics of envy and wealth creators stripped of the fruit of their labours. In life their property is theirs, but in death, well, they really can’t take it with them.

    wealth distribution in the UK

    wealth distribution in the UK – a 300k IHT tax-free lump sticks each child into the 5’th wealth decile of people at the high-water-mark of lifetime wealth accumulation

    To forestall the usual I worked hard for this blah blah blah, note that a) you can give money to your kids tax-free over a period while you are alive, b) ahem, you’re dead, pal, and past caring, and c) a couple can pass £600,000 to their children before IHT is charged. Divvied up across two rugrats who have zero other wealth would put each of them into the 5th decile of wealth in the UK. It would be sad to see a New Aristocracy rise from the ashes. I am sure that solutions can be found to address Pa deceasing when the child is a minor and other edge cases, but in general we are living longer – particularly the richer among us.

    I know it’s an unpopular view, all I can say is be careful what you wish for the precious fruit of your loins, and hope there’s no afterlife so you never get to hear about the results of these best laid plans ;) The obvious side to be on in this Hobbesian choice is on the side of ancestral wealth. Just don’t mention this dude and the Reign of Terror, eh? The trouble for the ancestral wealth is that all the bad guys are already inside the country’s borders, and they will have little to lose. Also see #3 – they may not have to take up arms…

    Action:

    Help to buy, or any other cobblers like that under the banner of “assistance for people to pay too much for a house”

    Reaction:

    People pay too much for houses. D’oh. That’s what you want, Mr Cameron. yes? So that ties up loads of capital in an unproductive asset. In theory if I own a car factory and invest twice as much into it I get to make more cars in the same time, or better cars, or cheaper cars. If I pay twice as much for a house in real terms than the last person who buys it, it still keeps the same amount of rain off my head. The only people who win from that game are Buy to Letters. Who can look after themselves, thanks.

    Action:

    Loads of the proletariat earning less than £12k get to pay no tax at all. And yes, an Ermine will benefit no end, indeed I may shift my affairs as to get a higher proportion of income from ISAs if necessary.

    Reaction:

    Loads of people vote for stuff without any regard for the cost of provision. It’s a particularly hard one to undo because of all the new losers in a one person one vote system where an increasing percentage of the voters pay no tax at all. Let’s face it, turkeys don’t vote for Christmas, do they?

     

    23 Sep 2014, 1:42pm
    personal finance:
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  • the trials and tribulations of the rich poor

    Or should that be the poor rich? Anyway, it’s hurting, and particularly would like to make it known that Things Are Not What They Used To Be. It seems to be particularly through their kids that they are hurting, more specifically that, y’know,

    one does everything one can for Tarquin and Jemima, even, good lord, shopping at Aldi, driving a secondhand Fiesta and forgoing the annual holiday to Tuscany. But it’s really, really hard to make the public school fees, yah?

    Shock, horror, even on £370,000 p.a. we can’t afford to pay to send them to private school these days. Whatever is the world coming to?

    I indirectly know a couple who have had to send the SAHM out to work after 10 years at home to pay for the school fees. Obviously they think this is terrible, along with the beastly Government not giving them child tax benefit because he earns more than 60k. Oh yes, the ermine nodded. How terrible. dreadful, indeed, while secretly asking myself how it was that myself along with the other good taxpayers of England were subsidising their lifestyles and how it’s perfectly reasonable to ice child benefit for people paying higher rate tax FFS. He worked harder than me and earns more than I did, which is fine and as it should be, but me, and indeed someone earning 15k a year for that matter, paying for someone on well over the average wage to have kids? Don’t get me wrong, he was perfectly entitled to take it up when it lasted, but I’m not that amazed it was canned, and can’t imagine it made a huge difference to their lives ;)

    Every so often the Ermine thinks back to the guys getting on their bikes to cycle out or get the bus to the old glass factory in Charlton when my Dad once worked, and where you’d see the wives line up outside the factory gates on Friday which was payday to make sure the money didn’t get flushed down the pub when the end of day siren blew 1. And I ask myself how the heck has Britain gotten so damn soft in 45 odd years that the rich need sponsoring like that – I believe CB was originally targeted at the poor though the history of child benefit is so convoluted I don’t really know.

    How do you know you are rich?

    Easy. You look at all the shit in the external world that tells you that you are great because you have it or consume it. The stuff you have, the size of your house, the services you buy like the au pair, the holidays, the cars you drive, how often you change it, the public school for your kids. For the sake of any non-British readers, in the UK if you deem the universal education paid for from general taxation to be beneath your dignity/requirements you pay for private schooling at what is called a public school, as opposed to a State school which is one paid for from taxation.  I believe Americans quite sensibly called State schools public schools and public schools private schools, because they are logical that way. Go figure.

    I look up to him and down to him - seminal comedy skecth on being rich

    I look up to him and down to him – seminal comedy sketch on being rich

    You look down on people that have and spend less, and you look up at people that spend more. You are rich if roughly speaking there are twice as many people below you as above you 2. To save you the embarrassment of doing this publicly you can head over to those guys at the IFS on where do you fit in. There is a hidden implicit assumption at the IFS that you spend everything you earn with that tool, which is of course not a way to doing well financially

    So why are the rich feeling poor, then?

    The problems for the modestly rich is that they also look back along the time axis at their parents. Say you’re a GP on about 100k, the daughter of medics, and your parents sent you to public school. Assuming you’re married to another GP so the combined income is 200 kilosods, you are still short of sending both Tarquin and Jemima to Eton 3

    Fundamentally the problem is too many other people are getting rich. Although your absolute living standard 4 is vastly greater than that of your parents, your comparative status has dropped, and you feel the draught. You feel poor and hard done-by. Your parents simply had the benefit of fewer rich people to compete with them for finite resources. You will live longer, have better food, better houses, better health than them but there are more people above you in the income scale, because this happened. I know it’s US data

    the 1% are falling back - it's the .01% you want to be in

    the 1% are falling back – it’s the .01% you want to be in

    so I am winging it a bit assuming the pattern is followed in the UK. Interestingly if you look at general plot of the S&P500 over the same period you get to see some similarities

    this is price, not total return, of the S&P500 over a similar period

    this is price, not total return, of the S&P500 over a similar period

    So how do the .01% get rich? From the Atlantic

    How’d they all get so rich? It wasn’t the way the rest of us get rich. It wasn’t their wages. It was something else.

    The richer you are, the more likely your riches come from stocks, not salary. For the three groups graphed above—1 percent, 0.1 percent, and 0.01 percent—capital gains account for 22, 33 and 42 percent (respectively) of their average income. [...]

    Practically all the growth in average income at the top comes from stocks. Between 1992 and 2007, the average salary of a top-400 tax return doubled, but average capital gains haul increased 13X. Wages are for normal people. The richest get richer from their investments.

    So now you know what to do. Listen to that Monevator fellow and get on the side of Capital, because that’s where all the action is, and it’s slaughtering Income.

    So what’s with all this public school stuff then?

    That’s the problem for our doctors, and indeed our rich poor. Capital is riding into town and eating their lunch, outcompeting them. The public school system has increased, but not by as much as Capital is increasing. These poor rich people’s mental picture of what it means to be rich is formed in their early years from their parents, but their parents weren’t in such a competitive space. So it stands to reason that the merely rich are feeling poor, and they’re pissed off about it.

    Something that struck me, listening to Mr 60k+ and his SAHM about to go out to work after a 10 year break so they can pay for the school fees is that there’s a category error in their assumption. They assume that by sending their kids to public school they will earn more.

    This isn’t the only reason – public schooling buys you influence, connectivity 5. The fact that entry into public school is selection by parental wealth 6 means you of course keep your kids away from chavvy poor people who make up the 93% of Brits that can’t afford it. You aren’t meant to say many of these things, but observation shows me that people become extremely tribal when it comes to their children – if I had them and I had earned enough I am sure I would send my children to public school too. Just whatever you do make sure you can keep doing it till they are 18 because if you suddenly can’t afford it and they are hoicked out of Eton to be sent to the local comp with all the rough sorts and chavs that make up the rest of the 93% of the population then Tarqin and Jemima are going to have a really, really hard time as the rough sorts take the piss. Not only will they get the detriment of a scummy State education like wot I had but their self esteem will take a bit of a hit.

    As a text-book example of why people send their children to public schools I offer Polly Toynbee, who is strongly for State education – but only for other people’s children. As the Independent says

    She is far from being the only prominent liberal journalist whose children are privately educated, but her head seems to be furthest above the parapet.

    Trouble is there is an opportunity cost, and if these kids are entering secondary school (at 11 in the UK I believe) let’s take a butcher’s hook at the costs. Apparently school fees are £14,000 a year, (update – from this comment it appears I screwed up here and the figure is double that – so double all the school figures from here) so that’s seven years at 14k, or 98,000, let’s call it £100k. There’s a lovely infographic on how much it costs to send your kid to public school on Nutmeg. Add onto that another 50k for university, which starts to look like a bargain. Trouble is, these kids are going to enter a world where humans need not apply. I know every parent thinks their little precious is a genius mathematician with great artistic talent and all round at the pinnacle of human existence, but after we’ve done the Lake Wobegon thing they are up against this

    There is an alternative – the money set into this, accumulated over time and assuming you put the same 14k a year into university (£9k fees, £5k maintenance NOTE TO NON-RICH PEOPLE – MASSIVE WEALTH WARNING for God’s sake don’t pay up front for university rather than a loan until you have read and digested this) then this would accumulate

    savings of school + university fees vs age of child

    savings of school + university fees vs age of child

    to £200,000 of capital. Enough to buy them a house outright in many parts of the UK and/or derive an income of about £5k p.a. Clearly they would have to go to school with the lowlifes that make up 93% of British schoolkids, and going to public school can buy you influence and all sorts of good stuff. But it’s certainly worth looking at the road not travelled, particularly if the child is likely to graduate into a world in 10 years time where humans will find it harder and harder to add value unless they are exceptional. MisterSquirrel has an interesting narrative of the last 30 years of the workplace and the direction isn’t good for the averagely talented. Getting on the side of Capital has much to be said for it…

    The IFS is behind the time with their focus on income

    FWIW the IFS informs me that I am abjectly poor, because it’s all about income. You have to search elsewhere to find out about capital – I got this chart from the government who got it from the IFS. Now unfortunately the IFS often talk about households whereas I always do this calculation as an individual, I believe ELSA is the English Longitudinal Study of Ageing so this assumption should apply to this. I was surprised to learn the the state pension is a capital wealth of 100k and have never factored this into my networth. Let’s just say that my position on this chart is not the same as the one on the where do you fit in site.

    wealth distribution in the UK

    wealth distribution in the UK

    Clearly as a retiree I need to be on the side of capital. But if the rich are feeling poor, then they need to stop spending so much on consumer shit and McMansions and start saving and get their asses on the side of Capital, and particularly if they are going to be realistic about their kids not being poor then it’s time to think outside the public school box. Instinctively they know this, because of the keening noise about inheritance tax and many articles about how to avoid it.

    I personally believe that people featherbedding their kids in the way they want to will lead to huge wealth discrepancies in Britain in a couple of generations particularly as the ability of earn and save capital from income falls for most people. By doing so you will advantage your children which is understandable but the societies they will grow up into will be violent, dog-eat-dog and the English revolution we never had may ensue. But I’m not going to fight that because I don’t have children so I am neither part of the problem nor the solution – I’d expect the revolution in about two generations of IHT being repealed, for which there is strong political pressure. Good luck all those future souls, and I hope the solution is peaceful and equitable.

    It’s worth noting from the school example that the rich poor can give a decent amount to their kids within the tax threshold – even one-year olds have a personal allowance so from a standing start you can give your child 7 £210,000 by the time they are 21, and probably more because of compounding and investment – 21 years is enough to see a good few business cycles. Of course, you also have to bring them up with enough nous not to blow it all as they come of age…

    Notes:

    1. for the record my Mum didn’t need to do this. But I think she did take me to see it as a nipper once when I said I didn’t believe it
    2. this is my guesstimate from observation of people who think they are rich. There is a seminal class sketch that satirises this. In the 1960s being rich didn’t automatically give you class in the UK, but I think it does now.
    3. I may be displaying my chavvy lack of savvy about public schools, because I’m not totally sure Jemima would be allowed into Eton. ‘Cos she’s a girl, bur fear not, we have public schools for girls, so it can be fixed. Whatever…
    4. you know, like how long you live, how warm you are, enough decent food. Humans are odd blighters, because being rich is not about having enough shit to live like a king of days gone by but all about being better than other people
    5. This only really works if you already have connections, so maybe a moot point for Mr 60k+ who doesn’t AFAIK
    6. I’ve never been able to work out if there is an intellectual ability entry standard, or if the smaller class sizes means that they can coach those that used to be called educationally subnormal in my schooldays
    7. It appears you need to take great care to avoid being taxed on the income if the capital comes from you. A junior ISA seems to be the way to go for up to £4k p.a. – I guess if you are saving the full £14k p.a. you can pay for advice in how to do it for greater sums. Laundering the money through grandparents and friends seems the obvious gonzo way to avoid the money coming from the parents but don’t blame me if that doesn’t work – DYOR :)
    16 Sep 2014, 11:18am
    living intentionally personal finance reflections:
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  • Financial Independence is about more than money

    In Blighty there’s a raging debate about the subject of independence going on – Scottish independence that is. I’m not going to add to the verbiage about Scottish independence because this is a matter for the Scottish people themselves on Thursday, but I am struck by the paucity of the thinking of the No/Better together campaign.

    Independence is about self-determination, not about money. When I chose to shoot for financial independence, the reason for doing it wasn’t financial. In purely financial terms it was a disaster – dropping my income to a prospected 20% of the high-water mark 1

    The No campaign seems to have taken Bill Clinton’s adage that it’s the economy, stupid to the extreme, and focus on the alleged economic Götterdämmerung that will come to pass as a result of independence. Now there are inconsistencies in Salmond’s campaign 2 exactly what the point of independence is if Scotland continues to use the pound and retain the queen as a figurehead is hard for me to understand, but the No campaign seems to have missed the point entirely.

    It’s about more than money. It’s about time, and about self-determination

    Independence is about freedom of action and of self-determination. I was prepared to eat a 80% fall in income to win my freedom – to choose how I use my days. We often get too hung up on the how of financial independence because it is a big, challenging ask. Don’t get me wrong – if you want to get there, you need to understand the how, and some of the UK bloggers are doing a great job in doing what ERE did for the US scene with his book. Mistersquirrel has written an excellent condensed summary of how to achieve financial independence with his ebook, Monevator will set you right on the hows and whys of investing.

    The reason financial independence(FI) is a hard sell is because of the No campaign thinking – the focus is all on what you can’t do.The focus is clear and sharp, because money is measurable. The hours and years of your life aren’t so quantifiable, because unlike the Cyclops you don’t have a clear measure of the end-date. But as Gretchen Rubin highlighted 3, the days are long but the years are short.

    The Escape Artist does a good job of summarising the issues

    The flipside of this is that once you have met your reasonable financial needs, you owe it to yourself and to others to raise your sights and stop just focussing on money. In my time in the City, I used to meet plenty of people that (I’m guessing) had a net worth of £2m+, who were good at their jobs but would have been happier being a writer, tree surgeon or a school teacher. Why behave as if this one life we get is just a dress rehearsal? If you are one of those people and you carry on working in your all consuming City or Corporate job, then you are wasting your life.

    Now I didn’t work in his field, my networth is far less than £2m+, but I do have other advantages – not living in London, being a bit older for instance. So relatively I am in a similar position. And I didn’t get that wasting your life bit  – I assumed I’d carry on working to 60 (the normal retirement age at The Firm) because  er, well somewhere along the way between starting my first job and getting to my late 40s the clutch must have slipped in the why am I doing all this department. Now to be honest my job wasn’t all consuming for a long time and gave some intellectual challenge, it served me well up until the early 2000s, But then it started to go wrong, and demand too much for too little, in particular micromanagement and Digital Taylorism started to creep in and the erstwhile research facility was driven down the value chain into a jobbing shop.

    And although it took me far too long to jump to it, in the end I came to the conclusion I didn’t want to live like this, and I wanted out. That is the time when the how of financial independence matters, and I took the resources available to me and focused them with extreme prejudice on getting out. The Escape Artist was exactly right

    [...and you carry on working..., then you are wasting your life.] This is more frequent than you might think. The most common motivation for this behaviour is fear – fear of change, (irrational) fear of poverty, fear of loss of status, fear of their spouse’s reaction etc. Its not enough just to make a life-changing amount of money, you still have to change your life. Don’t just load the gun, pull the trigger.

    It’s easy to get lost in the money side and paralysed by fear. It’s where the No campaign is going wrong, IMO. Independence is about more than money. Yes, having enough money is necessary, but sufficient. There are cultural differences in Scotland that have not been answered, and there is more of a feeling for the collective good. Because I personally am somewhere to the right of the Scots 4 I think they will be sorely disappointed in the promises of milk and honey offered by Salmond, but I have enough faith in their savvy that they probably suspect this too. The nation of Scotland has achieved far too much for far too long to be made up of people universally daft enough to believe him.

    It’s a perfectly reasonable call to accept some degree of economic poverty for greater freedom of action. In the big picture, it isn’t all the economy, stupid. Money is crystallised power, it is a claim on future human work or resources that displace the same. It is an enabling component of a life well lived, in the same way as your car needs four wheels to run, three won’t do. But five, six or three hundred aren’t needed. When success starts to look to you like a yacht then it may be worth asking yourself if you haven’t strayed onto the motorway to consumerism hell. In general, if success starts to look to you like Things and Wants then you may want to consider that Maslow’s hierarchy of needs has at its pinnacle

    “morality, creativity, spontaneity, problem-solving, lack of prejudice, acceptance of facts”

    Not so much Stuff in there, eh? I don’t know about morality and lack of prejudice, but I would go along with that getting better at being myself, expressing myself, and individuation are the primary wins of early retirement, and the main enabler is that I own my own time. It really doesn’t matter how rich your are or how many of your yachts are in the harbour if you are still owned by The Man and have to be somewhere and do something for a lot of your day to keep things that way. Obviously if you are truly of independent means then more is better, but there is a long sliding scale between the amount of your life that you give to The Man and the amount of wealth that you accumulate.

    I am poorer, but I have far more self-determination than when I was working

    Let me take an example. The Ermine household was out in Wales this last week – Mrs Ermine was attending a community-supported agriculture shindig, and I went along for the ride to go look at things like this

    prehistoric site in Wales

    easy to get to prehistoric site in Wales

    as well as searching for less easy to find sites, going round in circles because Cadw are poor at signage and rights of way are also poorly maintained in Wales I am a  crap hiker because I only do it to get to interesting stuff, rather than the the whole personal challenge/because it’s there thing. Cadw are erratic at signage and I did find one place where some toe-rag had extended his front lawn over the erstwhile footpath and removed all signage to the stone stile, but it’s still no excuse for wandering aimlessly on a rocky outcrop, and I could learn to get that right, and have learned that blaming others for stuff I could fix isn’t a way to long-term success. I am a unreconstructed map and handheld GPS 5 when it comes to hiking, but it struck me that what I want is a GPS that shows a moving OS map. It’s been a long time coming because of the technical challenges and ridiculous Gollum-esque licensing restrictions of the Ordnance Survey, but I can go out and buy such a thing now.

    Oy vey – £350. Now when I was working I would have dropped the £350 on this just like that. Because this was going to change my life and make it easier to find things in the open.

    Err, no. For starters, all but five weeks of my time was sold to The Man, and much interesting stuff like this is left lying around in places far away from people. It takes time and effort to get to. I now take some time in places, to look and to listen, be it some urban nexus or a prehistoric site or something else.

    A colleague at work did me a great favour in highlighting the contradictions and lack of intentional living of those expensive, fast and furious holidays while working. It was when he told me that his wife got on the internet as soon as they came back from their summer holiday to book the next year’s one. And I thought to myself  “I do not want to live in the future like that, flushing away 50 weeks of my time like that for two weeks of respite”

    I stopped going on holidays then, for three years, so that I could maximise my savings rate. Yes, I was living in the future for those three years. But my future is now. And I have far more freedom of action. If I wanted to I could spend more time looking at prehistoric stones, indeed I considered a period as a peripatetic photographer. You can never travel with anybody else if you want to make money take decent pictures outdoors, because you need to be out at the times of day when most people are eating or sleeping because the light is better then, rather than the harsh light of the middle of the day. It’s just too antisocial. I can consider that – because I own my own time, so it wouldn’t be robbed from our collective couple of weeks of freedom. Three or four weeks a year just wouldn’t cut it. But then I wouldn’t want to try and be creative or make the money because The Man would be paying to own the remaining time, and time away from The Man is more about recovery than about creativity, spontaneity, problem-solving 6.

    Consumerism attacks you at the third and fourth levels particularly

    In particular the need for respect… It’s all the buy this to make yourself look better, set you above the Jones, etc. The Joneses don’t give a shit about what you have, they are bothered about what they don’t have. They don’t respect the people that have what they don’t, indeed they hardly think about the people, it’s the stuff – it is the feeling of the missing eyes from their own peacock tail that exercises them. I know because I’ve been there – consumerism gets you to project part of your self image on stuff and lifestyles – can you even remember much about the beautiful people who were the clothes-horses for the lifestyle in the ads?

    If you want out of this rat race then refuse to run with rats. Focus on what you think about your stuff, not what other people do. If your stuff displeases you, then change it. If it serves you okay but isn’t the latest smartphone/gizmo/whatever then so what?

    Another thing that helps you with consumerism is that when you own your own time you can work out what you want of your stuff and how to use it right. F’rinstance, I discovered  that I could use the existing iPod I have with a CoPilot bluetooth GPS I got from ebay ages ago for a project, and then make it work with Viewranger which can download individual tiles of OS maps for a price. Smartphone aficionados will of course say they can do all this but one thing the last week did teach me is that mobile data coverage is non-existent in the parts of the UK where interesting stuff is often to be found – I had thought it would be a useful fallback data network for researching but it’s useless – run and gun WiFi is far more reliable because at least you know where to find it  at centre of habitation. With a bit of experimentation I can find out if a GPS showing OS maps is useful to me for about £20 using gear I already have. If it is I may consider the Garmin product – but I will do so knowing what questions to ask and how I use this in the field, rather than having to sport the £350 up-front just to find out if it works for me and take the risk of there being some subtle gotcha or yet another gadget that promises much but fails to deliver on the essentials – let’s hear it for the smart watch with less than 24 hours of battery life and which doesn’t tell the time at a glance as a case in point of getting the 20% gimmickry right and losing the 80% essentials.

    The Scottish referendum highlights that it isn’t all about the money, and it’s the same with financial independence.

    To paraphrase Bill Clinton, It’s the freedom, stupid. Financial independence isn’t a notch on the bedpost, it has no meaning in and of itself. Even in the midst of trying to find a way out, I understood this, because I was driven by wanting options, to win a way out from having other people be able to tell me what to do with my time. It’s important to first answer the question why, before addressing the how.

    Savings. Yes, there’s a lot to be said for them. Most people save in order to buy something. That’s good, particularly is the alternative is to use credit. Though the most common reason for saving, it isn’t the only one.

    I save to buy power and freedom – the freedom to walk tall [...] – modern ads for savings accounts emphasise saving up for something like a house, or the advantageous interest rate. I have never seen a modern ad advocating saving to buy yourself independence of thought and action. Wage slavery is too ingrained in our culture, and we have surrendered to Illich’s modernized poverty.

    What’s your reason for wanting to be financially independent? After all, many, many people in Britain live happy and fulfilling lives enjoying the fruits of consumerism and living paycheque to paycheque, and good for them. I have no quarrel either with the YOLO set who ram themselves up the eyeballs in debt, as long as they don’t then turn round and demand I pay to bail them out without getting a slice of the YOLO fun ;) There are choices to be made in life, in general you can do anything you want 7 if you want it hard enough, but not everything you want.

    So it is for Scotland on Thursday. It is freedom to live in the way they want, albeit in probably straitened circumstances 8. It’s not about the money. It’s about freedom and self-determination. These are things that it’s sometime worth making sacrifices for.

    Notes:

    1. There are many, many distorting factors that make this a lowball estimate and it being less of a hit than the headline fall, but 80% was the drop I was prepared to eat
    2. Alex Salmond worked as an economist in MAFF in the late 1970s – I presume he is fully aware of the consequences of being in a currency area with a bunch of guys who are carrying on in a way so opposed to the way your area wants to live that you want to get shot of them, but if he has forgotten that, the Euro area is a good object lesson in why you don’t want to be the 60lb gorilla next to the 600lb one in a currency union
    3. warning – extremely cheesy child-centric crap, but says a truth all the same. You may or may not need a sick bucket and/or end up in hyperglycaemia shock due to the saccharine schmaltziness
    4. more from the point of view that “if you aren’t a socialist when you are young you have no heart and if you are when you are older you have no head” rather than a deep Ayn-Randian philosophy or being a dedicated follower of Hayek’s Austrian school
    5. with a mechanical compass to back it up, but I don’t normally use this
    6. Not everyone working for The Man needs the recovery time – I know a few people who choose to work some jobs that pay modestly but aren’t particularly consuming precisely to have a better lifestyle. They do enjoy their time off much better, and it’s a perfectly reasonable alternative the the financial independence/retire early approach, albeit with the inherent risks of depending on the availability of that type of job, which seems to be falling over time, or at least paying less well
    7. bearing in mind you are in a rich first-world economy, assuming you are of above average aptitude in something that can enhance the lives of your fellow men and that you are capable of understanding that your actions have consequences
    8. I don’t believe the milk and honey promises, though I don’t believe the hell on earth the No campaign are selling. And I find it more admirable when someone chooses freedom over the chimera of economic comfort through slavery anyway, it’s what this blog is about :)
    28 Aug 2014, 8:43pm
    personal finance
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  • Cash ISAs are king, it appears

    We have not just one but two bearish articles on the stock market now that the hacks have returned from their hols and decided everything looks less fun than on the beach.

    Maybe the teeming masses of our British ISA ‘investors’ are wise after all, as only one in ten of us 1 open a S&S ISA. The Torygraph asserts

    ‘Super Isa’ savers play safe by putting their money overwhelmingly into cash rather than investments in the first month of the new, enhanced tax-free plans

    Blimey, if that’s what they call safety, I’d hate to see what these guys think of a racy high-risk strategy. At least the writer got one thing right – you don’t invest in cash, because it always offends. The one good thing you know about cash is that it’s dying on you. I’ve will have lost about £10k to the depredations of interest-free cash 2 in my AVC fund by the time I get hold of it; fortunately I saved considerably more by not feeding it into the rapacious hands of the taxman so sometimes you have to eat the cost of doing business. In retrospect I should have left some of it in the market, but because I didn’t know when I’d need to draw it I left it in cash. And I’ve seen this safety at work, and t’aint pretty at the moment.

    The advantage of havign termites eat yoru cash is you can see the buggers and you know what the problem is. When the government does it who are you gonna call?

    Termites can also eat your cash, but the government can ruin its value without getting at it. They simply make a lot more of it.

    Not only that but I have a lot of cash outside pensions. That’s the trouble with having a low income – you need to hold a lot of cash 3. If you’re earning a decent wedge then if something goes wrong you slap it on the credit card, roll back your partying for a few months while you pay it off and that’s great. Whereas if you haven’t, you need to hold a lot of cash to cover emergencies. Or do without – Wonga is not an option because it never gets better if you have no income, something that an unfortunately large number of my fellow Britons haven’t jumped to yet.

    I have a cash ISA, from way back, in two halves – 2008/9 and 2009/10, when I thought I had very very few options and was going to be iced from The Firm in months, not three years. I’ve hung on to it because cash does give you some optionality, but I’ve never been tempted to add to it as an ISA, though I did take those nice guys at NS&I up when they were offering inflation-proofed cash. If they did that again to be honest I’d probably draw that cash ISA and whack it into NS&I. But they aren’t.

    Anyway, I’ve held this for five years, over which it’s fallen in value in real terms. Of course the nominal value hasn’t fallen, and indeed inched up, but it’s grim, and it ain’t going to get better. I retain this cash ISA purely for the tax-sheltered value – when I get control of my cash it’s going into my S&S ISA.

    Cash is king but has no earning potential

    Whereas my S&S ISA, which I have been feeding exclusively and to the max has increased by about 20% over the same time, relative to the total cost of purchase as of 2014 – not all of the money has been working for four years. Now there’s a very good argument to say this isn’t because shares are inherently better than cash over four years – over that period all you needed to make money in the stock market was to have a pulse, actually be in it, and not screw up. It’s been getting harder and harder to find much worth buying, and what with the relative strength lack of weakness of the pound, I have looked towards building out – in emerging markets, Asian smaller companies, Russia, and Africa. I could use some of the mayhem in the stock markets trumpeted by the Torygraph to get valuations down from the silly levels, particularly in the US.

    After leaving work and coming to the conclusion that my HYP will soon be able to make up the pension income I lose from leaving early 4 I started to look towards the longer term defence, and while emerging/frontier markets seem on sale this year it is a bit nutty to ignore the largest capitalist economy on earth. Although I couldn’t bring myself to buy the S&P itself at current valuations I managed to hold my nose long enough to diversify a shedload of The Firm’s Sharesave into Vanguard FTSE Developed World ex-U.K. Equity Index Fund which is more than half US. I was going to Bed and ISA that sucker but it’s had the temerity to appreciate by 12%, which puts the kybosh on that idea for this year as I’m capgain maxed. So the Coming Reckoning Of Doom will have a grain of silver lining amongst all the mayhem – it would let me Bed and ISA a whole load of stuff. It’s an ill wind, etc, and of course all the buying opportunities, yay ;)

    Maybe our cash ISA-niks are keeping their powder dry

    Beats the hell out of me what all the punters are doing with their cash ISAs. It’s not even like you can turn that much interest on cash for the tax difference to be worth the candle. Maybe they are mindful of the Torygraph’s second article and waiting for the Case-Shiller to drop back to historical averages. The trouble with that line is that it’s easy to say and hard to do. However, if the massed ranks of cash ISA savers are under the fond impression their money is safe, they need to think again. Knowing that you aren’t safe is better than believing you are, but discovering the power of inflation does destroy your money. You know that compound interest everybody goes on about? Inflation is it’s Mr Hyde – compound interest run by Bad Guys. Tax takes more than one form, and printing cash to devalue the debt takes most financial assets with it, as more and more money chases a finite supply of things of value. Most of the rise in stock market valuations isn’t real either, more money chasing the same or less Stuff. The advantage of the stock market is that the risk is printed on a sign above the door – “here be dragons, volatility and 50% swoons in a couple of days”. Whereas on a cash ISA it’s all marble hallways and apparent solidity, but in the night the termites unleashed by the Bank of England are in there, busily nibbing away and the value of your cash. The tax is the disappearing value, not the small part you pay to HMRC ;)

    There are some ways to greater safety than cash

    If our cash ISAniks really wanted more safety, they could do worse than ponder Harry Browne’s  Permanent Portfolio. (Permanent Portfolio at ERE) It’s one example of diversification across asset classes, wider than the usual trio of equities, bonds, and property/land. And cash has its place there. But you have to accept a lower return, because there are two passive non-income generating components in the mix, cash and gold. They are the sleeping King who will rise up when the Kingdom is in mortal peril – but obviously half your capital base is asleep in times of prosperity, and so far the prosperous times have been a larger proportion of the time than the recessions.

    The advantage of having a few year’s ISA behind me is that the decisions to be made each year form a smaller part of the whole picture. At the beginning, I was desperate for a sustainable income, and I was lucky to start from a bear market and one where income investing was particularly bombed and people could consider swapping income shares for income ITs on a discount. As time goes on preserving what I have becomes more important – and that means building a diversifying shell around the income core. I accept my yield will fall, and yields are generally falling at the moment. But there will come a time when things are different, and there will be a time to buy income again. Hopefully those ITs at a discount – I had only got started with one and was going to buy more but ran out of ISA space in 2009, there is unfinished business there. In the meantime, there is a time for everything – the various sectors fall in and out of favour over time. Buying into the ones in favour (right now US equities, UK residential property) doesn’t work for me. Some people make momentum investing work, but I’m not one of them. Buying sectors that are out of favour works for me, but it’s hard seeing things go down before they come good – I can get a feel for lows but not for market bottoms. Which is why I hate it when markets hit new highs – Mr Market want you to pay so much to get on the dancefloor, I want to sit those ones out :)

    the search for safety leads to danger

    Donald Rumsfeld had a point. It’s the unknown unknowns that are hazardous, but believing you have found safety leads you to have apparent knowns that are really unknowns.

    But one thing I know, from personal experience. A Cash ISA is not safe – over several years, never mind decades. Yes, the cash ISAniks will say – but the stock market can halve its value from one moth to the next. They’re right, but there’s a faintly discernible upward trend over the years, whereas cash has a downward trend that dares not speak its name 5. When I was at university in London many years ago, you could get a pint of beer for under a pound. Slowly and stealthily the value of that pound fell away.

    It doesn’t matter than 9 in 10 cats prefer the cash ISA door. Somebody should make a ‘here be dogs‘ sign for that door.

    Notes:

    1. I know they said ten to one which isn’t exactly the same thing
    2. great when you’re borrowing, sucks when you’re holding
    3. If you are going to retire early, before 55, then for God’s sake don’t pay off your mortgage if interest rates are low. They weren’t as low as now when I did that, so the folly wasn’t as clear.
    4. Once again I’m not claiming to be a fantastic investor with hot hands there – the ask is made a lot easier by the fact that my spend rate was so dramatically lower than projected I have been able to defer for a year, and indeed with Mr Osborne’s shenaigans will be able to defer for another year after that. In general, for civilian Sheep of Wall Street spending less trumps greater investing chops
    5. it’s called inflation, and NS&I were the last people to offer a believable hedge against inflation
    22 Aug 2014, 11:49am
    rant savvy shopping:
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  • Self-seeking vacuum cleaner manufacturers lambast energy efficiency moves

    Consumerism, don’tcha love it. Take the humble vacuum cleaner – invented around the turn of the last century. They served previous generations well, given our Northern European habit of carpeting homes. In much of the rest of the world people use hard surfaces for floors like wood or tiles, but that’s a bit chilly in winter. Hence the need to clean carpets using technology more advanced than a broom or a mop.

    In a curious marketing arms race started by that James Dyson fellow, what was once a pedestrian and functional piece of kit throughout the 1970s and 1980s after being perfected over the previous 50 years became an aspirational product with innovation for the sake of it – one obvious problem was solved and a few more subtle ones introduced. Consumerism loves that sort of thing – make big positive changes and introduce faults that take time to develop – you only find out about the irritations as you own the product. It also became a damn sight more noisy that it used to be, with a particularly horrible high-frequency whine, in the case of the Dyson DC03 I used to have. Yeah, I was that middle class consumer suckered by the hype. The Dyson was a lot harder to troubleshoot. There were only four things that could go wrong with a bag-ful vacuum cleaner. The bag filled up, something got stuck in the intake hose or something jammed the brush roller, and all of these were something that were easily visible to the untrained householder. The fourth thing was the motor burning out, and you could smell that :)

    Compared with that the airflow of my old DC03 had loads of rubber seals, plastic channels that would crack under use and the whole thing gradually degraded so it was replaced after changing lots of expensive parts because it lacked suction compared to the basic Henry vac in a church hall we hired. I pulled it apart to see if there was anything worth salvaging, expecting to see all sorts of high-tech wondrousness. And was greeted with a bog-standard universal motor – so much for all the high-tech wizardry, eh, James? I don’t doubt the cleverness of the cyclone engineering, but it was the marketing of a new, and ultimately not very useful, technology that enabled you to jack up prices in the 1990s. Yes, bags make the suction fade, but the consumer can fix that. Whereas whatever made the DC03 fade over a few years wasn’t replaceable by a reasonably technical consumer – for all I know the usual little lumps that get sucked into the airways and trashed the plastic channels I replaced may have knackered the cyclone bit. I always hated that DC03 for the earache, anyway, glad to see the back of it :)

    Vacuum cleaners are now marketed by the power of the motor, which seems to be pure specmanship and lazy engineering. Previous generations worked in dirty manual industries, their kids played out in the street and garden rather than sitting in front of the computer. These generations were served by vacuum cleaners that were specified in hundreds of watts – I recall being surprised in the late 1980s to see a Miele vacuum cleaner that was rated at 1100W on the high range. So the question has to be asked, if one and a bit horsepower 1was enough to clean the homes of our grandparents with their grubby street urchins, why do we now all of a sudden need the power of three horses running flat-out to clean a carpet?

    Apparently, according to Which,and Dyson  an affront is being perpetrated on the human rights of European consumers by those pesky bureaucrats in Brussels limiting vacuum cleaner motor powers to 1600W, one and a half times the power of the machine that surprised me 20 years ago. It’s still more than two horsepower – people used to deliver coal and collect scrap metal with less power than that.

    Right. So you're telling me that after 100 years of impovement, you need more power to clean your carpet than this guy needed to haul tons of coal? Ain't progress marvellous, and don't spare the horses...

    Right. So you’re telling me that after 100 years of vacuum cleaner refinement, you need more power to clean your carpet than was needed to haul tons of coal? Ain’t progress marvellous, and don’t spare the horses…

    Now some pieces of technology have been reasonably perfected for the requirements most consumers have of them. The bicycle, screwdriver, the pen and paper, the digital SLR and many others. It’s not that innovation isn’t possible in any of these, but 90% of users’ needs are met adequately. The vacuum cleaner reached this stage by the beginning of the 1980s – my experience of Mr Dyson’s much vaunted advances were mixed – great at the start but hellaciously noisy, and, to be honest, overpriced to boot as well as fading over the years and being fiddly to maintain.

    I’m with the Eurocrats here – you don’t need three horsepower to clean a domestic carpet, and motor power doesn’t seem to be turned that well into sucking power. This is specmanship and marketing spin, and more power means more weight and more noise. It’s easy to sell something on a number, but after more than a century of making vacuum cleaners this isn’t a high-tech market in its infancy.

    Also if you have to make more vacuum cleaning stuff to sell to people to make them buy things they don’t need ,why not go the Roomba route – at least it’s genuine innovation in one aspect, rather than just making the motor bigger, noisier and heavier so the marketing droids can push the bigger number? Then at least you can use the time you save to go to work to pay for it. The very fact that people will put up with a Roomba, which clearly doesn’t have a three-horsepower motor 2 shows you don’t need stupendous amounts of power. One horse power, maybe. Knock yourself out with the power of two horses – the eurocrats are easy with that too.

    1408_Mailcoach

    It’s when you running the same sort of power  that used to pull a coach and horses up the Great North Road that you have to ask yourself whether you aren’t just being suckered by specmanship.

    More power, more noise and more weight  is not the answer. Let’s hear it from Mrs Kingsland – whose machine failed in service after 70 years of cleaning her B&Bs. Apparently the new one is quieter – but too big and heavy ;) They don’t make ‘em like they used to, eh?

    Notes:

    1. one horse is good for about 750Watts – your can call on the rippling muscles of nearly three from one UK socket – ain’t modern technology marvellous
    2. very few things powered by batteries have a 3hp motor. And yes, total energy consumed is a function of power and time – even there it seems the Roomba scores relative to one of those eighties-powered units of 2/3 the new EU limit, never mind a 2010 behemoth, and there are many extra inefficiencies to a Roomba)
    15 Aug 2014, 6:30pm
    debt economy
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  • What will the power shift from labour to capital make things look like?

    As we wander around the many lovely historical relics that Britain has, usually in the care of the National Trust these days, we think we are looking at the past. Wander around the many rooms, and marvel at the effort it would have taken to keep these clean in a world without fossil fuels or vacuum cleaners.

    Stately pile in Leicestershire

    Stately pile in Leicestershire

    Now everybody in the personal finance world is trying to build capital, to make income. It’s the Holy Grail of pension planning, the vanishing point at the distant horizon, the Ermine sitting in his back garden drinking iced coffee while other people toil to fix the sewers and bring water and power and ideas to him. We don’t do this in the up-close and personal way that the Downton Abbey set do 1. We use machines and energy to do it, and if you see people power substituting for capital you know that someone’s thrown the big red switch and the projection reels are rolling – in reverse, and that the aristocracy will be in the ascendant again.

    Financial Independence is the non plus ultra  – the destination for which we PF types forego all the gratuitous consumerism of our fellow men, living like celibate monks in a brothel. It’s quite a new concept in human societies. Those grand buildings in the care of the NT were serviced by an army of grunts, basically working for The Man. Over a working lifetime, they didn’t get to save enough money to retire, because they didn’t earn enough money over and above their living requirements. Although we often associate this retirement with the welfare state, trades unions and friendly societies were in this space in the early years of the 20th century.

    One of the mantras of the PF world is you can earn a 4-5% real return on capital in a suitably diversified portfolio of assets. This isn’t bad – be grateful you’re living now rather than earlier in the 20th century ;) In even earlier times, however, the return on capital was better, presumably because the servants never earned enough spare over their needs to retire! On the downside if you were the Man you had to be the first-born son of The Previous Man – capital was inherited, passed down the line by the doctrine of primogeniture. It was a drag if you were the second son, and you were SOL if you were female.

    shamelessly pinched from Krugman who pinched it from piketty

    shamelessly pinched from Krugman who pinched it from Piketty

    I got this from Krugman’s Why We’re in a New Gilded Age but I think he got it from Thomas Piketty. There are a few interesting things here. One is that this is the return on capital after taxes – it can of course be varied using taxes. You’ll note there was a low in the period that had the two World Wars – I guess taxation was high and the destruction of capital too. Another thing that is interesting is that the high-water mark of world GDP growth encompasses my working lifetime – I finished work at the end of it. I guess there’s some kind of limits To Growth forecasting in there, or maybe Piketty’s been reading Life After Growth. Either way we’re seriously into unknown unknowns there.

    It is, therefore, possible, that my story is a blip on the thread of financial planning – the thought that an average grunt who left school owning a kettle and the shirt on his back could command enough resources to retire 34 years later. For that piece of luck I am duly grateful.

    What do we learn from this? One is that the rate of return on capital assumed by a lot of PF thinking isn’t that unusual, from a historical perspective. It is, however, a bit unusual compared to recent historical perspective. We really could do without any more bloody wars in Europe, and the associated high taxation. OTOH there did seem a big stimulus to growth, although on such a coarse scale it’s hard to say that this wasn’t due to progress in agricultural yields or due to electrification. One of the valid questions would be does growth inherently reduce the return on capital, or is this correlation with something else?

    An ermine looking back 30 years, about to enter university. Or not.

    One thing does seem clear, however. We are headed towards a world where capital is getting a larger slice of the pie. We see that in wage stagnation, and also in a fall in growth. One fo the hypotheses for the fall in growth is the increasing cost of energy. So what does the future look like?

    Much more stratified and class-bound, I would hazard. If I were collecting my A levels today, and if there were and older Ermine-head on the shoulders 2, I would question some of the shibboleths and assumptions of the consumer lifestyle and image.

    I would note that the modern world offers three doors for the A level student. One is the route of university and £30,000 worth of debt. Now in the world I have worked through, £30,000 of debt would probably have been worth the candle, but in the world I see before me, I don’t feel that way at all – I have much sympathy for this viewpoint that university is an unaffordable luxury. There are two reasons why this is different today from 30 years ago:

    • 30 years ago, the exams were much harder 3 I think it was 7% when I entered and 11% when I left in 1982 of school leavers went to university at all. The exams screened strongly for academic ability, in ways you aren’t even allowed to think about today because it hurts the feelings of those that don’t make it. As a result of this, there were far fewer graduates in the workforce, the graduate premium was stronger.
    • Poorer students got grants and I believe everyone had their course fees paid for by the LEA, whereas now we have the loans situation, which means a student is indebted by £30,000 as well as the opportunity cost of losing the money they might have earned in the first 8-10% of their working life. Although it’s not exactly the same as going to Mastercard and taking out a loan for £30,000 as Martin Lewis is at pains to explain, the trouble is that with a 50% entry target, university is by definition targets at those of average academic ability and up. As a result the graduate premium is much lower, for the simple reason that the product is a lot more common. It’s true that in there are the same 11% of old, but the problem now is employers have to find them, assuming academic ability correlates with better ability at what they want. One of the biggest problems has been that heft in student numbers – it meant that the taxpayer couldn’t afford to support five times 4 as many so the cost of the opportunity has gone up for the students at the same time as the value of the product has been dropped because the market has been flooded.

    All round this seems to be a policy failure. We haven’t asked the fundamental questions, which are

    what is university for?

    • if it is to provide better work cannon-fodder, is this what companies and the available work want?
    • is it better if companies train their staff themselves – vocational training used to be a lot better – the Ermine was trained in how to use a lathe and other gear by companies, not schools, even though it was a peripheral part of what I would be doing, I have never used a lathe directly in my line of work but needed to know what could be done with one.
    • Is is right to normalise debt to our young adults so early in life – a student debt is more money than I have ever borrowed in my life other than as a mortgage

    At the same time I note that there are other routes

    • England is an expensive place to go to university, particularly if you are English – European universities where under EU rules you have equivalent access to courses and support may be a cheaper option (and often taught in English!)
    • The modern world offers the entrepreneurial and talented more opportunities to get to market and a much more efficient business operation than was possible in the past. You don’t need a university degree if you don’t have to convince an employer to employ you – code an app needs knowledge, not a degree and you can learn an awful lot of things online nowadays. Against that the odds against the successful entrepreneur are bad. Many are called but few are chosen to succeed.

    The good thing is you have far more options. The bad thing is that the value of the default option has been mullered – price up and value down. I personally wouldn’t go to university in England if I were 18 now, though I would consider Europe 5.

    Minimize debt in a slow-growth world

    One of the macro reasons is that in a low-growth world, debt is a very-dangerous thing indeed, because it’s hard to outrun with wage inflation. Debt also means mortgages. Part of the romance Britain has with house price inflation is because one generation did well out of that (it was my Dad’s generation, not mine – I got slaughtered by housing in the UK). The oil shocks of the 1970s caused high inflation and labour had the whip hand – enough power to drive up wages. They didn’t get any richer, because productivity didn’t go up, but inflation did and their wages kept pace with inflation, reducing the value of the debt in real terms.

    Labour will be much, much weaker in the coming thirty years 6. Globalisation and increasing automation will see to that. We may get inflation, but wages need to keep up with it for house price inflation to be A Good Thing. Otherwise we get what we have now – the real value of houses rising and fewer people being able to afford them, and that is not a Good Thing – for anybody 7

    In a low-growth world, even those student loans are going to be more onerous. So beware the debt, or at least investigate getting it down, first by asking whether university is necessary and a good match to your skills and aspirations 8, and if so considering the foreign option while it’s still open to you. Hopefully Cameron’s plans for an EU referendum won’t bugger that up.

    Logan's Run

    Logan’s Run, I suppose there are some compensations for the YOLO set

    Student debt is an obvious one to minimise, but lifestyle costs are one way that the young do get through money 9. You do need some conspicuous consumption to wine and dine and play the mating game, but a little bit of excess goes a long way, as long as it’s the right sort of excess. There’s a limit to how long it’s wise to take the YOLO mantra, unless you plan on taking a Logan’s Run approach to extreme early retirement. I avoided debt in my twenties by being exceedingly tight with housing 10- I shared houses and targeted the lower, more tatty end of the market. I regularly pass one rental in town aimed at students that has a rate of £56pw – that’s probably the end I was running at. And debt due to consumerism is bad, again particularly so where labour is weak. The normalisation of consumer debt and student debt are the most toxic features arising since 1980 for personal finances. If you can’t pay for your consumer goods in  cash, you’re not worth it. End of.

    If we zoom out even further, that power shift from labour to capital is harming productivity in the UK – it means it’s cheaper to hire people to do some jobs that capital. Take the humble car wash. In Britain garages used to get great big furry roller things that you’d drive into and put a coin in and it would wash your car for you while you were inside, not a human in sight.

    The Ermine knows the meaning of the plastic bottle on the Downton promo shot

    The Ermine knows the meaning of the plastic bottle on the Downton promo shot

    Nowadays you see a lot of these car washes broken, but you see loads of signs for hand car wash in supermarket parking lots and btis of waste ground – people with a few buckets, chamois leathers and a pressure washer are cheap, It’s cheaper to pay people to do this now than invest in the machines. That is not a good sign – not a good sign at all. The Ermine knows the symbolic meaning of the plastic water bottle on the Downton Abbey promotion picture. The plot of Downton’s Abbey is running backwards, and the power of inherited wealth and aristocracy is rising again ;)

    Look at the retired colonels of The Telegraph fulminating about death taxes. These parents know in their hearts that the best way for their children to get ahead is for them to inherit wealth, because they will probably not be able to earn it. It’s the most natural thing in the world for parents to want to featherbed their kids, over and above others. And parents realise in other ways that they try and buy privilege for their offspring – the whole independent school fees is also to try and build in advantage. Pass on capital – be it financial or social web capital, because the chance to earn your way ahead is thinning out. The aristocracy will be back. Not necessarily land, this time, financial capital will do, perhaps. Some of George Osborne’s DC pension changes play into this too – now the 55% tax rate on pensions going into an estate is removed.

    So take care about the things you assume about the world ahead. What worked in the past won’t necessarily work that well in future – and loadsadebt and easy money are a particular hazard to getting ahead. Labour is going to be poorer than capital relative to the last 50 years. On the upside, the talented, the crafty and the well-connected will make bank like gangbusters, it’s the average to the modestly bright that will take the shaft – many of those that will be considering that £30,000 debt.

    Wealth warning – this is the scribblings of a jaded fiftysomething that grew tired of the the way the modern world of work is. If you are a twentysomething you have the energy of youth, you have fire in your belly and I wish you all the best of British luck. I don’t think I have said anything that’s explicitly wrong, but the glass is half empty, and one of the specific advantages of youth is that your glass should always be viewed as half full.

    From a personal finance point of view I do believe you should think about taking on a £30k claim on your future earnings very carefully and know why you’re doing it rather than just drift into it because it’s the done thing, and have a clear vision of how doing this will help you earn more than 30k in real terms across your lifetime  and compensate you for three years of not earning. Or if you are rich enough, whether a damn good time and one of the few rites of passage we have in the West is worth it as a consumer experience regardless…

    Zooming even further out, what will that society look like? Staid and sclerotic – who you are will matter much more than what you know or even what you can do. Maybe Downton Abbey with more mod cons and better contraception. Don’t think we’ll be going to the moon. Or Mars. It’s where we are going if Life After Growth is true. But it isn’t predestined, maybe the other side of Wilkins Micawber will show, the one that isn’t normally cited in PF circles

    Something will turn up

    Notes:

    1. I’m inferring this from press reports about the programme, I’ve never watched it personally
    2. because in reality I was much more susceptible to peer-pressure and going along with established norms in my 20s
    3. the exams were norm-referenced (ie a fixed percentage of entrants got As) 
    4. one of the things that pisses me off is the mantra oh my generation pulled up the drawbridge. We didn’t do it deliberately, but did it by being so weak-willed that we couldn’t face telling the less able of our blessed children they weren’t smart enough to benefit from university. This was lily-livered incompetence, not malice as far as I can tell. It is bad, but without knowing how we got ourselves into the shit we can’t formulate a way out of it. Paying fees and maintenance to five times as many people wouldn’t help. We either need to make more jobs that are matched to the lower levels of ability, or eliminate enough undergraduate places to get the proportion to match the jobs we do have. It was right 30 years ago, maybe the proportions want to be higher now because we have a different employment scene and people might be a bit smarter but an increase of FIVE times in 30 years? You don’t need a degree to work a call centre. And society should be honest enough about your ability not to encourage you to spend £30k chasing an empty dream. Which would you rather have – not getting your grades or a place in clearing or picking up a £30,000 debt and lose three years of potential working life to end up in the same position but with a fancy piece of paper? I do accept that the adult world is not serving its offspring at all well here but the answer isn’t pay five times as many people through university as we did three decades ago. Two times, maybe, and there I am all for student grants and fees being paid from general taxation – HMRC will get it back in higher tax receipts later
    5. studying abroad also makes you look more enterprising and go-getting, which everybody likes, and at ease with other cultures which some employers seem to like. But I’m no expert, so DYOR
    6. I mean labour in aggregate. At the moment a lot of capital is being appropriated by the 1% and particularly the 0.1% as income, and technically this is also labour
    7. I guess it is a good thing for buy to letters but that’s it. It isn’t a good thing for owners unless they downsize, as they still need somewhere to live, and it tempts twits like Shona Sibary to live above their means.
    8. this in itself is a beastly tough thing to ask when you’ve just started out – how the bloody hell are you supposed to know?
    9. I am staggered at what the kids of my ex-colleagues buy, though I am pleased to see one old trick is still active – if you want Dad to help you buy a car say to Mum you’re thinking of getting a moped or a motorbike :)
    10. only to throw the win away when I did buy a house – you can survive some big mistakes, just not too many
    11 Aug 2014, 2:52pm
    reflections Suffolk:
    by

    5 comments

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  • Archives

  • Supermoon reflections

    It’s not often that someone goes and moves a celestial body closer to us so we can see it clearer. The Grauniad has a far better series of supermoon pictures along with why it’s a supermoon, ‘cos decent photography is about the context and telling a story.

    However, although the tail of storm Bertha had been giving the region some stick it all cleared for the moon. I don’t know how your astronomer types get to see anything through a telescope, because when I stuck my birdwatching telescope at it it was far too bright to see much. However, it was easy to take a photo 1and I was surprised to see all the gnarly bits on the bottom. Taken a hell of a hammering, that has

    1408_moon_a_IMG_1410

    And I’d never noticed that in many decades of looking up at the moon. Obviously if you want a decent picture of the Moon you head over to NASA, cos they have better gear, my photo shows I’m not totally over the chimping of a tourist with their crappy smartphone photo – but hell, it’s my picture, I pressed the button. Kudos to NASA for a superior take, nevertheless :)

    NASA have better gear and get to spin it round a bit

    NASA have better gear and get to spin it round a bit

    While over at NASA I took a gander at their Apollo mission pages, I have fond memories of watching the July 1969 landing at school (we didn’t have a TV at home) at about lunchtime – they had dragged the great big set into the assembly hall. Either it’s me or we just don’t have big stuff like that with the widespread buzz of some Really Interesting Stuff Going Down now. Then I looked at the timeline, and thought of Jacob ERE

    How far are we?
    That depends on your perspective. If you take the view from 400000km, humans are no longer going to the moon and have not been doing so for 40 years. From an energy perspective, the available energy/capita ratio peaked 30 years ago. Real wages have been declining for a good 30 years as well (a connection?)

    and of course Tim Morgan on the same string in a different key. Basically the 1973 oil crisis pole-axed the world I’d read about in far too much crappy science-fiction where everything was going to get better and more exciting because people were going to boldly go into an ever-expanding space exploration.

    Carter and his solar panels

    Carter and his solar panels

    Then the price of oil went up, Jimmy Carter stuck solar panels on the roof of the White House, told people to ease off the gas 2 and the American people went bugger this for a game of tin soldiers. They considered that defeatist cheese-eating surrender-monkey cobblers and elected a B movie actor who told a much more cheerful story, which sort of stuck for the next 30 years, but I notice that humanity is still too skint to go to the moon. We last put boots on the ground in December 1972.

    Strange to think back at those fast and furious years of innovation and exciting stuff in my primary school years. It’s not like we haven’t made things a lot better and progress has arrested – if things had stayed like 1972 most of Britain wouldn’t have central heating, never mind a notable section being able to live like kings. Somewhere, however, I wonder whether that last footprint in 1972 wasn’t the day some of the vision died in the West, the first time we came up against insurmountable limits to growth… You can coast a long way from the peak with the engines out, and as ERE said, it took many years for Rome to fall. Maybe we are partying in the endgame…

    Notes:

    1. There was a surprisinglylarge amount of  light – ISO200, f/8, 1/250s
    2. the story of what happened to those panels is interesting, you can read it courtesy of the Scientific American