31 Jan 2017, 12:03pm
personal finance
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  • The Brexit Boost conundrum – this bell tolls for me

    Unlike young folk saving for a pension, I don’t have a long multi-decade accumulating  investment horizon. In about five years time at the most, the rocket engines fueled by my stored earned income will splutter and die. I have already earned pretty much all the human capital-derived income I will ever earn, and it is only the process of extracting it from SIPPs and some portion of a future DB pension commencement lump sum that will contribute to my holding. The portfolio will then reach steady state, and I can use the natural yield as a tax-free income.

    I’m also an active investor – well, I try to choose my time of buying at lows, though that’s getting really tough to do, though early last year was a good chance, even if what I did buy was classed as passive. So to track how I am doing I unitise annually, in January. Brexit lifted my unit price 34%. last year. That’s not quite as much as Vanguard Lifestrategy100 which lifted 37%, which is telling me something I guess. I can at least be chipper about being a lot more up than the Slow and Steady Passive Portfolio. In fairness I should note these guys are 20% in bonds which puzzles me as they are at least 10 years younger than I am, they are at least 20 years off retirement age. I don’t do bonds because my defined benefit pension is as bond-like as you can get.

    A 34% lift is not something that’s going to happen again. It’s not like the portfolio is worth 34% more, a goodly part of the boost is the 20% Brexit Tax we’ll all be paying on food and fuel etc. As the Ermine curls up to go to sleep, in the distance there is the sound of a bell tolling.

    Let’s imagine though that you’re a 65-year old UK retired investor, the long run is 50+ years, and the jolly boost to our portfolios from the weak pound we’ve seen over the past 12 months instead works against you over the next 5-10, cutting your net worth and income by 20%, at a time when you’re reliant on that portfolio for your living and you have no new savings from work etc, perhaps for years to come.

    Hmm. I guess that bell tolls for me. I’m still a fair way off 65 and even so the long run ain’t 50 years, but heck, I want it to boost my disposable income.

    I don’t see it as a reason to sell anything I have for the hedged variant. And my personal view is that the toll on the UK economy due to Brexit hasn’t even got its boots on yet, because we haven’t left the EU. So there’s room for more of a suckout to the pound. Rampant Brexiteers tell us that the pound has been overvalued pretty much since forever, and the fall doesn’t really matter, indeed it’s good for the common man because it will shift our economy away from finagling finance into doing something real for a change. For all I know that may be how it pans out, though I suspect the common man will still be shat on because the robots will take the jobs in those manufacturing companies, but he’ll be paying the Brexit Tax on imported essential stuff like food and fuel. But what the hell, he has got his country back so I’m sure that will be a price worth paying.

    Unlike Monevator, I fully expect the Euro to go titsup in my lifetime, which I guess makes me a sort of long term Brexiteer, though not for the usual reason that I hate hearing the sound of Polish on the High Street. That may well send the pound up, and the value of my portfolio plunging. It so happens I have a few years of ISA contributions to make, I have a last capital-gains-tax embargoed unwrapped holding to sell and some of my SIPP PCLS as cash. It makes some sense to me, now the pound is down in the toilet to buy some hedged to GBP Dev world exUK or global ex UK. Sure, we may well have further to fall but I’d hope most of Brexit is priced in. And I have enjoyed a lot of lift from the Brexit tax. Be a bit of a shame to give that up if Brexit turned out to be less stupid, so  carrying three or four years of ISA contributions as GBP hedged foreign index stuff for a decade could soften that sort of volatility a bit. Echoing Scott Fitzgerald, I don’t think any portfolio is complete unless it has some exposure to something the owner totally doesn’t believe in. I believe Brexit will be be a local economic disaster that will make the masses that voted for it rue the day they were Pied-Pipered over the edge by rich people who can afford the suckout. I might be wrong. It always pays to bet a bit against yourself. It’s worked for me before 😉

    In the big picture a putative reversal of the Brexit tax because the EU really was a sheet anchor to the inherent dynamism of Blighty’s economy will be great for me, even if it hammers my ISA. That’s because my main pension will be worth more in real terms, ie the same as it was before last June’s brain fart, and that will do me more good than the reversal of that jolly boost to my portfolio.

    Goya’s The Sleep of Reason produces Monsters drawing from 1799

    A place where the Brexit Boost conundrum has turned into a major ‘Abandon ship now!’ signal is in my SIPP, where until yesterday morning most of it was invested in VWRL and gold. I’ve left the gold rump but that VWRL is 20% up in Great British Pounds on what I paid for it, and since my SIPP will be drawn down to nearly 0 in two years not four I have absolutely no business being in the stock market there. FFS, there’s a man-child in the White House running amok doing The Will Of The People™, while the checks and balances set by the Founding Fathers seem to have failed as Reason sleeps. And I was exposed to this because 50% of VWRL is in the US, on the back of an eight year bull run. Time to take my Brexit Boost off the table in that SIPP. I’ve taken enough damage from the domestic version of The Will Of The People™ this year, and it’s not even like I will get any upside if Trump Makes America Great Again, because he’s looking to do that by Making Everywhere Else A Bit Shit to pay for it. So I’m outta there. Although if DJT Makes America Great Again by building all those roads and bridges using American construction workers and it boosts the US economy I guess the VWRL in my ISA will tip its hat to him.

     
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