17 Mar 2017, 12:38pm
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  • I need a jolly good stock market crash to go along with that 20k annual ISA

    It’s nice that we have a bigger annual tax-free investment allowance in April (20k up from 15,240), but most of the opportunities for saving and investment suck at the moment IMO.  Tax-sheltered savings are all very well, but there’s no point in doing that with cash these days, because at current 1-2% interest rates you can save 25k of cash as a higher rate taxpayer and twice that much as an ordinary grunt before you run out of savings interest allowance. And have you tried 1 to get 2% in a cash ISA lately?

    What to buy next year then?

    Over to the good old S&S ISA. So I have 20k burning a hole in my pocket next year, what should I go for? Although I do some background steady index investing in one ISA, with about half a year’s contribution I try and aim at what’s beaten up at the moment. I’ve tended to be too early into these – I was saved by Brexit from an early foray into Putin’s Russia, and saved by Brexit again when I was overenthusiastic about emerging markets. Other dogs have come good by their own work, and been Brexit boosted – I can’t remember when I first bought BRWM when it was in the doghouse and topped it up when it continued to be in the doghouse, but it has redeemed itself of its mutthood to be a good team player in my ISA now. I can be happy that I have nothing in the most popular fund lists for 2017, apart from VGLS100, which I have just sold. In indexing, I am a VWRL guy these days, because I have zero cost of carry 2. It’s good not having the same stuff as everyone else. I tried that the other way round in the dotcom boom and it didn’t end well at all 😉

    Valuations have been high of late, those nice guys at starcapital have a summary of where we stand with CAPE and various other metrics. Donald Trump’s America is the 600lb gorilla here at 43% of global weighting, but I was surprised to see Blighty in there with 5% global, and indeed to see that France is a bigger part of global markets than Germany though less than the UK. What the hell should I buy, if anything? Trumpland is way up there in valuation. And I’m already buying a load of that via a regular Dev World exUK purchase as well as VWRL, I really don’t want any more of it. I have every admiration for American exceptionalism, but you can have too much of a good thing.

    The trouble with looking at performance is that Brexit has muddied the waters greatly

    Our fellow countrymen voted for a pay cut of 20% so they could take their country back and stop hearing furreners jabbering away talking foreign on the High Street. An awful lot of my ISA is foreign assets, and even the UK based HYP tends to be FTSE100 big fish who earn a lot of money out of the UK. As a result the whole thing, denominated in pounds, is sky-high. It’s sort of like the effect on this picture

    If Brexit were an Instagram filter it would look like the top right

    It makes it the devil’s own job to tell what’s going on, whether something is up because of its inherent value, or if it is the effect of the devalued pound. Into that fog of war I need to try and invest £20k, or hold it as cash because I deem the stock market overvalued, or some combination of all that. And I’m puzzled. Okay, so when you take last year’s £15k ISA allowance and deflate it by the 20% Brexit Tax then that means 18k of the new allowance represents the same real value as £15k did last year if you’re buying foreign assets, however, the allowance has genuinely increased by about 10% in real terms.

    What on earth is a fellow to do?

    Perhaps His Trump-ness is really going to drag the US out of the twisted wreckage of the financial crisis, by building walls all over the place, and telling the rest of the world to fuck right off as he Makes America Great Again. At the moment it seems he does policy by diktat and his pronouncements bear more resemblance to religious belief, or at best a random wibble generator powered by haterade, but that is obviously my pusillanimous European 3 upbringing blinding me to his multifarious talents.

    Talking of making countries Great Again, over here we seem to have a similar sort of random policymaking on the hoof, it’s all about taking back control and a lot less about what the grand future is for Little England after the Scots have scarpered. At least the Donald has a destination, rather than just a method in his madness. All we seem to have is process. Brexit means Brexit because it’s the goddamned Will of the People™. Yes, but WTF does it actually mean?

    For most people, ignoring valuations and drinking the regular passive investment Kool-Aid is fine for this year. Tax year 2017/18 is just going to be another of the many years in your slow and steady journey to retirement nirvana. For just one year out of 30 or 40 it doesn’t matter than much to you if you buy over valued Stuff, you have years enough ahead and  some other year will be like 2009, so you’ll do okay on average. Even for me, 20k is not a large part of my ISA, because I have most of my saving years behind me, but it is likely to be the last when I can fill an ISA.

    Half of it will come from unwrapped holdings, because the writing is very clearly on the wall for holders of unwrapped holdings, basically you’re toast. For that portion, buying currently overpriced index funds isn’t so bad, after all what I will sell was also overpriced and Brexit-Boosted, it’s not like I actually earned all that money in the distant past when I was a wage slave. But it would be a dreadful shame to put my last 10k of real 20% devalued Great Brexitted Pounds into a sky-high market. Valuation matters IMO, and stinks at the moment. I guess about 30% of the number in the total box of my ISAs isn’t real and needs to go before it comes to reasonable value. The over a third nominal boost in my unit price last year is ‘king absolutely ridiculous, even if I knock off the lift due to the Brexit dumabass levy. Equity prices need to come down.

    If you need a sign of the impending Minsky moment – well, Diamond Bob is back in town it seems. The last lesson of the financial crisis has been unlearned. Time for a rumble on the markets, the last checks and balances on excess have failed to hold back the forces of darkness…

    It’s not like there’s a shortage of good reasons for a Minsky moment, but the tragedy is while I know it’s coming, but never know exactly when. I might take time out on that 10k half this year until this time next year, however. It’s an error I can afford to make, assuming the Minsky moment doesn’t happen and I get to write this article again this time next year. It’s my last significant burst for the ISA, and hell, I want the markets to be down in the dumps for that, or at least like January 2016.

    Notes:

    1. MSE has found you 1.75% fixed tops at the time of writing
    2. VWRL is an ETF, TD don’t charge to carry shares, whereas they charge me to carry VGLS100, and VGLS100 has too much home bias for me as I already have a hefty home bias in the HYP
    3. well, European for the next two years anyway

    I’m sticking with 100% VWRL but in accumulation phase so would welcome a prolonged crash.

    Also, we have a lot of P2P investments which have earned around 17k this year, which we can get tax free due to personal allowance + 5k starting rate + 1k person savings allowance.

    That’s not bad on cash savings. I know I really ought to do P2P more and it’s the obvious answer to wanting to hold off an overvalued stock market but defend myself from the ravages of inflation. But I just have a really bad feeling about it when/if interest rates go up, due to the hopelessly overleveraged state of the British homeowners. That’s probably a prejudice from having been one of those when interest rates went up to 15% in 1992.

    Thanks for reminding me about the starting rate on savings. I’d kind of assumed it disappears when you have pension/earned income of over the personal allowance, but that isn’t strictly true and may be useful in my case for a couple of years.

    17 Mar 2017, 2:01pm
    by EU ≠ Europe

    reply

    I enjoy your blog greatly, but the stereotyping of those who chose to exit the EU is rather unnecessary. You’re better than that. And you might like to stop falling into the trap of using the word “European” when you mean “member of the EU”. Europe and the EU are not the same thing. Good Europeans, and I consider myself among them, voted leave precisely because we are pro-Europe.

    Aw, c’mon, how come the winning side is so techy with the win? Heck, I even was prepared to concede the point that I might well live to appreciate Brexit on the 10 year out timescale.

    On a minor point, I’m not actually sure the Britain is culturally that (western) European. Both in its last few hundred years history and also because of its very different experience of the world wars.

    There is/was a competent case to be made for Brexit, although not one I was convinced by, but that wasn’t the case that was actually made.
    I have nothing but loathing for the people who led the Brexit campaign, from Arron Banks who bought it to Farage on pretty much everything.

    The case for Remain was pretty crap too, but it wasn’t as nasty as the Brexit one IMO and it doesn’t matter in a binary result. That’s all by the by, they need to get on with it and also maybe share with us the what is aimed for rather than just the how to do it.

    I am not so good at predictions – I have been waiting for the pound to bounce back following the Brexit slump but so far in vain. If sterling can claw its way back above $1.40 my Lifestrategy 60 fund will be worth topping up – more so if the markets also pull back.

    For the time being, I hold a growing percentage in cash but things can change all too swiftly…

    Holding more in cash seems a good move, unless, of course Article 50 bends the £ even more! At some point it has to turn – I took after Monevator’s idea and bought me some IGWD, which is sort of GBP hedged VWRL. On the priciple that perhaps my Remoaning is blinding me to the possibility of Britannia ruling the waves, and if it isn’t then hopefully the rest of the world will be working for me… May be a chance to get me some more of that if the £ takes some more pain over Article50.

    @ Ermine – I think most of us have the same predicament as you right now, for the same reason, you could tread water for a while to see if things become any clearer by using short-term P2P. I’m moving all my cash at least into solid currencies until after the clowns press the brexwit button to get the boost when I switch it back into £ when I need to use it – if/after it slides another 20%.

    I have far more than I’m comfortable with in P2P [small business loans] but am very nervous about that, given small businesses pop faster than punters when the economy hits the buffers…..

    Or, you could find a way to jump aboard the bandwagon of the university-industrial complex speculating in property to rip off their foreign students: [no conflict of interest there then, for the xenophobes, funny how palatable the colour of money is like that] https://www.theguardian.com/money/2017/mar/16/student-digs-britain-first-class-returns-institutions-halls-residence …..perhaps through a fund? In a similar vein, we have cash-starved [for ideological reasons] councils fire-sales of remaining public land to any passing developer for juicy profits in return for peanuts – ( good electoral promise that, ”Peanuts for all !” ) https://www.theguardian.com/commentisfree/2014/oct/14/yacht-cannes-selling-homes-local-government-officials-mipim & https://www.theguardian.com/housing-network/2017/mar/17/downplaying-brexit-overseas-investors-mipm-uk-housing-crisis – through a commercial property fund, maybe even via an ISA.

    If the economy is circling the plughole anyway, we may as well benefit from the pain of those who voted for it, innit?

    I think I’m just a great big wussypants. P2P scares the bejesus out of me. Mind you, the strident digs looks tempting, if it weren’t property. The REIT Merryn S-W talks about here is still going, but the premium to NAV is high. And the PE, oy vey, but I think REITs are always sky high

    I confess the concept of luxury student accommodation puzzles me, but hey, making money out of those furreners is, as you say, an outstanding example of potential Brexiteering panache so why ever the hell not?

    I’ve been having the same dilemma recently as I’m filling up this years remaining allowances and considering next years. VWRL and VHYL have been my destinations after a bit of thought.

    Look at it this way….if you had no new allowance to fill and were just reviewing your existing holdings would you be selling holdings and increasing your cash pile? If the answer is no then logically you should fill the allowance now. If no other reasonable options jump out a broad index is the only other logical place to dump the money.

    Psychologically it would be a lot easier if they made the ISA allowance a monthly limit to avoid this annual conundrum.

    I wouldn’t sell, but that’s because experience has shown me I am bad at calling sell points, too jumpy and historically too fearful. Having gotten that out of my headspace, I am better at buying in troubled times, 2009, 2011, 13, this time last year. When I can’t think of much to do I dripfeed the amount monthly across the year, nowadays VWRL, which is what I’ve done most of this year. It’s next year I am hoping for some mayhem and general excitement!

    When it comes to equity valuations my thinking is hazy at best.
    Take any developed world equity index, CAPE is not looking good, and PE is even worse. The obvious response would be to plow as much as I can into the pension where I get a 40-60% discount by way of tax, and the rest should go to overpay the mortgage. Stuff ISA.
    Then I remember what that chap Accumulator says about market timing and the passive loyalist in me begins to wag a bony finger; “If you could time the flippin’ market, mate, you’d have that boat you’ve always wanted – you’d be soaking your feet in the Caribbean right this very moment – you’d be outraged by the injustice of not being able to afford a decent mooring in Cannes come summer – the indignity of having to anchor and take the dinghy. You wouldn’t be working a 9-to-6 office job, whingeing about having to save 60% of your income. So don’t kid yourself.”
    And then every once in a while I remember this thing my old boss once said, about how it’s dangerous to think of the value of money (in general) as a constant. In 1922-23 Germans didn’t know that their currency was worthless, they thought that prices were kept artificially high by unscrupulous merchants, there was an expectation of things returning back to “normal” if only this or that were done. Of course, in retrospect it’s obvious that any normalisation was quite out of question. I’m not one of the Zero Hedge tinfoil hat folks, but doubt I’d be able to tell an extraordinary set of circumstances while they’re in progress. With a mountain of (presently) cheap debt, the global population growing at the rate it’s growing, climate change, populists building walls, markets not reacting to interest rate rises the way they should… who knows.

    p2p has done well for me this year, my earnings have given a good buffer against bad debt, but there isn’t a good innovative finance ISA yet, so I’ll be moving the europe tracker with the biggest CG from unshielded into my ISA and moving it again when a IFISA does appear. I’m aiming for 5% in p2p, so losses will be easily coverable

    For what it’s worth (… 😉 ) I don’t think the UK market is particularly expensive at the moment. I certainly wouldn’t put it in the same paragraph as the US market, which does seem pricey (as ever thus for the past decade) albeit with good reason to be pricier (amazing growth stocks, but perhaps not *that* amazing). I think Europe isn’t bad, too, or at least general European exposure. Remember the E is depressed in Europe, even if the P looks a bit high-ish. Of course Brexit could ding them, too, but not as badly as we’d get hit if it all goes off the rails.

    Re: Currency, as you may recall I started hedging my £/world bets more recently, with a deliberate growing home bias and hedged ETFs. The £ could go down to say $1.10 or even lower, what do I know, but there’s vastly more headroom above it and on stuff like purchasing power parity it looks pretty depressed already. Baby steps, I think, but if one hasn’t explored hedged ETFs offering foreign exposure, say, a nibble or two might be a good compromise. Plus the UK All-Share!

    But who knows, as we all know. 🙂

    Funnily enough I’m getting into IGWD which is indeed a GPB hedged VWRL-ish. Following your currency-hedged post. Got some of that already, could do with them getting on with Article 50 though. My last unwrapped holding is a load of European index stuff due for the Bed and ISA treatment. Tempted to bed and ISA it into a GBP hedged version of the same…

    I’ll give some thought to loading up on the UK. I’ve been fighting the early home bias for years, maybe I need to take a break on that for a bit.

    @Ermine/John B., between Funding circle & Rebuilding society, I’ve averaged ~10% net over the last 3 years on P2P, seriously …….but – I fully accept you never know when the tide will go out as Warren Buffet says, leaving you naked – not being able to get your money out by selling off all those loans in time on the secondary market to a greater fool.

    To get these %s though, you do have to go for the highest risk categories, as such, basically I assume they’re sub-prime loans, so only put in the ‘gambling’ part of my portfolio that I can cope with losing. I know it’s not what ‘should’ be done, which is why I keep it down to the minority report; I limit it to a few grand just for the adrenalin rush of going commando. 🙂

    Anecdotally, whilst I avoid P2P loaning to individuals, some of my personal acquaintances who’re disastrous with their finances have tried to consolidate their debts with the mainstream P2P companies, then been shot down for their credit ratings. [refused outright or offered the same sh*t rates as the high-street loansharks] The incredible irony of the broken system of UK Plc today being that they’re then forced to continue to work in decent jobs paying mainstream bank credit card rates of ~20% APR. [which they’ve done for years] A cynic might be forgiven for thinking that this proves they’re credit-worthy of switching to the better deal that could then get them off the debt treadmill …..& that that’s the point of the contemporary finance industry – to milk the weak to their graves. Bring on the fintech disruption.

    A cynic might be forgiven for thinking that this proves they’re credit-worthy of switching to the better deal

    Although it sounds harsh, let me postulate a counter-argument:

    The 20% APR represents a risk premium. Give there guys P2P at 5% and they will find they can borrow more on their credit cards (which have just been paid off a tad). So they will carry the P2P and ramp up their credit cards again.

    I’d say 20% represents a better measure of the risk. Not because these guys are deadbeats or they are poor, but because their financial discipline sucks. The P2P companies are making the right call IMO

    @Survivor I’ve been moving out of Funding Circle, where I had to go to unsecured business loans to get my 10% (and have had 1/5 my income wiped out by bad debt – to be fair, before recovery, so some might come back) to Saving Stream, which is 10-12% on 6 month or 1 year property development loans, which I’m happier with, tangible assets that while possibly inflated to get < 70% LTV will be worth something even in a crash. Companies and people can have no assets when the facade crumbles. You do have to keep an eye out to avoid lemons though.

    Agreed, I was making 2 points – firstly, I thought the P2P entities might be naive vs the verminous incumbent banks, but they use the same oligopoly of credit-rating agencies that are the real regulator of the finance industry. So that is interesting [reassuring?] to those who think P2P is a free-for-all.

    …..& second, there should be a smarter system than a crude binary yes/no for decent credit, theoretically, it should be a laddered % according to a point system based on several, relevant variables. People can see a huge change in their struggles from just a few % points difference, the guy I was thinking of would have been happy to get 15% down from 20. He is actually a good & hard-working person, just unfortunate in having many dependents to support – believe it or not, not even his fault …..just kind enough to help.

    p2p for property seem to use old-fashioned surveyors, rather than agencies, as its worth getting them in the car to visit the building site for a £1m development. For businesses I suspect the due diligence is worse, and for people, hopeless. You are heavily reliant on the platform, as you can’t do DD properly from the couch with the information they provide

    Looks to me like you still have lots of tax friendly options even if the picture isn’t that clear right now.
    As Canadian pensioners we cannot contribute to an RRSP (your SIPP) but must now melt it down and pay taxes on the proceeds we take out. As far as a TFSA (your ISA) goes we have a maximum contribution per year of $5500 each. That’s it as far as tax sheltering goes. Oh we do have some ability to split income on our tax returns which is handy.
    I am getting too old to go through all the self directed activity so I use a capable and trustworthy advisor who keeps me balanced, diversified, and informed. He provides first rate financial planning too – all for a reasonable fee.
    His management style consists of picking a portfolio of the best ETFs and keeping it up to date. I don’t have to worry that he’s putting his interests ahead of mine in anything he proposes. Took me a long time to find a guy like this but I’m glad I was able to. To be honest, my daughter found him and recommended him.

    Practically salivating at the mere idea of a good crash!
    (having been 100% in cash for over a year now)

    Ouch, 100% cash for over a year has cost you dearly. This is a classic beginner mistake and likely to wreck long term returns. What was your thinking behind this?

    Given you have shown a low risk tolerance, I would advise you chose a lowish equity allocation like 60:40 and start drip feeding, today, now.

    Tax policy and unfortunate circumstances, not risk tolerance. I moved overseas so had to liquidate everything since the IRS makes owning foreign shares, funds etc a nightmare. Brexit and changing jobs wiped out some 50% leaving just enough cash to call a 12-months-expenses emergency pile. Basically starting from scratch, investing-wise.

    Oy vey – that’s hardcore! Cash has taken it between the eyes from the Brexit tax 🙁

    It’s been rough 🙂 I could use a break, hence the comment. Thanks for the sympathy!

    @swim 2nd the ouch. That has been a disastrous position (im assuming pounds) over last 12 months. One thing I’ve been pleased to observe since Brexit is how a diversified portfolio can protect you from scenarios that you hadn’t even thought of. I’m prob just going to carry on as normal and smash in 40k into the ISAs with the same asset allocation. Boring unimaginative but i cant think of anything smarter? May do a bit of bed and breakfast en route though. I might increase P2P a bit as well but not that much. It’s only a few%

    Perhaps you should read this and invest in Africa 🙂 ????

    “Hans Rosling, population prophet: Five final thoughts”
    http://www.bbc.co.uk/news/world-39211144

    In there already with a bit of AFMC (was AFMF when I bought it a couple of years ago). But yes, there’s a case to do a little bit more next year, and in general take a breather from my VWRL and L&G Dev Ex UK next year.

    In the last two and a half months the US CAPE has risen a bit.

    http://www.multpl.com/shiller-pe/

    “So I have 20k burning a hole in my pocket next year, what should I go for?”

    Go for waiting until March ’18. If you park it in premium bonds now you’ll be in the May draw.

    If only NS&I would let me sign up for online – I had to do this through the post a couple of weeks ago, and while they returned my documentation, nary a dickie-bird from them since. Not a bad idea to take some time out..

    Well, you know what they say – be careful what you wish for!

    I really enjoy reading your blog. You share some really good ideas with a humour that many finance blogs lack

    Thanks – and I like the humour of a firm of accountants having the cojones to tell a business they are in the winter of their lifecycle too 😉

     

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