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
    10 Mar 2017, 6:14am
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  • The taxman is coming for your dividends – ISAs are the main defence

    Young ‘uns know this already, but there are a lot of older folk who swear by share certificates and shouldn’t. My Dad was one – wouldn’t touch this newfangled nominee account rubbish when it was introduced 1. The trouble with certificates 2 is you eschew any kind of tax wrapper, which seem to be nominee only. There’s a bit more pressure on these refuseniks now because the taxman is coming for your dividends in a big way. Once upon a time, if you had dividend income that wasn’t greater that the higher-rate tax threshold 3 you could get it all tax-free. Well, last year they pulled that down to £5k a year. And from roughly this time next year it’s coming down to £2000, all due to the Budget.They are clearly after unwrapped dividend income, largely to stamp out the practice of self-employed directors paying themselves a token wage and then a massive amount in dividends. It’s worth noting that the tax on dividend income is still much lower than the tax on actually selling your time for money to an employer, 7.5% (update – I misrepresented the total here – PJ’s comment sets the record right on the need to account for corporation tax too in the case of the self-employed, though not the dividend-income shareholders) as opposed to 20%, but it’s a book-keeping nightmare for people who hold individual share certificates or people who hold unwrapped equity holdings on many platforms 4.

    Most dividend yields aren’t usually much more than 5%, so this means that you are sort of okay with up to ~£40,000 worth of shares, but why take the risk? Get your shares into an ISA 5 – and you have until 5th April to take action this year to bed-and-ISA some of these suckers. But be warned of capital gains tax, so don’t crystallise gains of more than £11k a year. If you need more than that you can do other stuff, like use your SIPP and you can also give shares to your spouse, but whatever you do do it, and do it now and early next year.

    I had a CGT gain that it’s taken me the last few years to run out into an ISA. Next tax year is my last crack at that sort of game, after which all my equity holdings will be in ISAs or SIPPs. I will still retain the empty unwrapped account if it doesn’t cost me anything. After all, you never know, we may be due for another market crash, and if I start thinking along these lines, and can raise the cash, and have the cojones, I may be grateful for more than £20k equity purchasing capacity that year. Then I will take the time to chunter that into the ISA over the following years.

    From a capital gains point of view, even if you want to maximise your ISA savings, you may be better off crystallising the existing gain in unwrapped holdings of Company X and investing 20k of the same shares in Company X in your ISA, even if it means you buy 20k worth of some different shares of Company Y unwrapped 6, because that resets the CGT clock on the unwrapped holdings. Some platforms give you a better deal on costs if you bed and ISA – TD, who I used, is one of them. But if you have share certificates then don’t putz about with that for this tax year – you usually have to get your share certificates into a nominee unwrapped account and then do the Bed and ISA from that. It’s very likely you just haven’t got enough time for the Crest forms to go through in time for this tax year end.

    You have three tax year end periods before you get hit with this – 2016/17, 2017/18 (after which the cut to 2k will happen, due in 2019) and 2018/19, so get with it.

    Listen to what’s written between the lines

    The chancellor is quite right, in that the self-employed white van folk have been playing merry hell 7 with the tax and NI system compared to PAYE employees. Last year I paid a whopping £150 to buy a year’s worth of State Pension accrual – that’s something that used to cost me thousands of pounds a year as a PAYE grunt. It’s easy to attack that sort of loophole, which is why the next tax year is the last year I will get such a good deal. I am chuffed that it is my 35th year out of 35 needed and I shall pay my £150 Class 2 NI contributions with alacrity for one last time for tax year 2016/17.

    distribution of the rise in class 4 NICs across the income spectrum (Resolution Foundation)

    But the self-employed also take the piss in another way, and that is the ‘company director’ who pays himself a pittance wage with the majority in dividends. These were the guys who were targeted by last year’s dividend tax allowance of £5000, but the tax paid is only 7.5% relative to he PAYE grunt’s 32%. As a higher rate tax payer you’re up to 32.5%, which is still a better deal when I was paying 41% (nowadays 42%) tax on PAYE when I was younger and hadn’t discovered what pension savings are there for.

    But there’s another bunch of NI mickey-takers out there, and yes, there’s a mustelid of white pelt in there too. These are the people living on a pension. There is no NI to pay on a pension, and somehow what with all the talk of fairness and the fact that Britain’s true tax rate is about 32% for basic rate taxpayers rather than the headline 20% I can see that changing in not very many years hence. First they came for the self-employed…

    There’s probably a lot more tax win to be had among the self-employed. Not the ‘self-employed’ Deliveroo drivers on zero hours contracts, it’s the “company directors” paying themselves and their wives in dividends. You gotta follow the money, and that 7.5% dividend tax level starts to sound far too low for future years, too. The Deliveroo guys don’t pay themselves in dividends, it’s the well-heeled self-employed that are in the Chancellor’s gunsights here.

    Saving equities in the uncrystallised part of my SIPP is a small way to fight back?

    One of the ideas I thought if I wanted to hold non ISA shareholdings is – what if I hold them in the uncrystallised part of my SIPP? Say I hold £1000 of Megacorp paying 10%. So I put 1000 into my SIPP and the taxman makes this up to £1250. Megacorp pays me 10%, ie £125. I drift this £125 off to my crystallised pot. Because I will always be a BRT taxpayer soon because of other income, I get to pay 20% tax, ie  £25, ending up with £100. Bugger. But on the other hand, without going through this I’d have only got 10% of £1000, which is, drum roll… £100.

    Now if I’d held that in my unwrapped trading account, and accumulated enough to pay tax on it then I get to lose 7.5%, ie end up with £92 from Megacorp p.a. I don’t have a huge need for my SIPP once my main pension starts paying out. I will save my £2880 p.a. to get my 25% boost from the taxman up to £3600. On 75% which I get to pay 20% tax, boo, hiss, but it’s still worth it, because £720-£540=£180, which is a 6.25% guaranteed ROI for two months of a year, and where the hell else are you going to get that on cash these days?

    But if for some reason I had money coming out of my ears and a 20k ISA limit was not enough, I could get a £2880 increase on that by misusing my SIPP. People who are working can do better than that, provided they become basic rate taxpayers in drawdown. Beats holding it all unwrapped and no need to sweat capital gains. If Megacorp goes up 100% I get to pay tax on the price if I sell, but hell, I bought 25% more of it at the lower price because of the taxman’s bung. The uncrystallised portion of my SIPP looks like an interesting place to hold equities after my ISA compared to an unwrapped trading account. On the downside, the potential 32% tax and NI merger could gut the value of doing that.

     

    Notes:

    1. he was a canny old boy in many ways – when he retired in the mid 1980s and the company retirement FA suggested he used unit trusts for diversification the FA got sent off with a flea in his ear because the fees on the suggested unit trusts in those days were absolutely huge. But he didn’t get PEPs or ISAs later on
    2. There are some advantages – your cost of carry is zero, and you are less likely to turn over your portfolio because of the aggravation
    3. if you had no other income
    4. if you hold loads of shares on one or two platforms each platform gives you a consolidated tax certificate for the dividends across your entire portfolio which makes the job of reporting the dividend total a lot easier
    5. If ISAs aren’t enough to contain your vast wealth then I guess you are probably rich enough to use offshore tax havens and find suitable advice 😉
    6. Or you leave it a month before you rebuy Company X
    7. they get less too, they don’t accrue entitlement to contributions based Jobseeker’s Allowance
    7 Mar 2017, 10:32pm
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  • Spring at the Minsmere Bird Reserve

    In this post I thought I’d share how I spent some of that time I bought back from The Man today. It’s also a little bit about Suffolk, and I get to play with audio on here – most of these recordings are binaural giving the bst effect on headphones. The sun was out and I felt like a bit of Spring at the Minsmere bird reserve, on the Suffolk coast. It was free but if you aren’t a member of the RSPB then it will set you back £9.

    I’d say even at that price it’s worth it – they have put in a lot of effort over the last few years to make the areas around the visitor centre and in particular the information and some of the events child-friendly, but the place is big enough to get away from all that too, since it is clustered around the visitor centre, cafe and shop.

    View over the Scrape part of the reserve

    In general spending time in Nature doesn’t cost you anything other than the cost of getting there, but they have worked hard to make this accessible and certainly if you’re coming from a distance it’s worth the price of entry because they have concentrated a lot here. I wasn’t after anything in particular, just a whiff of Spring and a load of birds, what’s not to like?

    Spring seems to come earlier at Minsmere. At home there are still a few winter visitors like Redwings in the trees and very few birds singing, other than our indefatigable Robin. At Minsmere I was greeted almost immediately with a Chaffinch in full song, which is the first I’ve heard this year

    The main feature of the reserve is the Scrape, which is a very shallow lake filled with brackish water. At the beginning of World War 2 the farmland around Minsmere was abandoned to the sea to make it more challenging for a German invasion of the East coast. These defences is still there in the form of anti-tank defences

    Minsmere concrete cubes – anti-tank defences on the sand dunes facing the sea from 1940

    The flooding helped more welcome invaders though, the iconic Avocet started breeding again in the flooded region in 1947, and they are still there

    The Avocet, with its upswept bill-tip

    It’s about a three-mile walk around the Scrape, and there’s a right racket from all the birds on the islands in the Scrape. Many of the gulls and waders breed there, though it’s the gulls that make most of the noise

    Birds on an island in the Scrape

    and this is a quiet time for them, they get a lot louder later on in the year! It wasn’t particularly windy today, but the sea sounded good with long rolling waves

    the North Sea at Minsmere

    If you arrive in the morning at Minsmere and the sun is shining, then it is worth going clockwise round the Scrape (ie first head off from the visitor centre via the reedbed of North Wall by following the signs to East Hide. That way you have the light behind you rather than in your face, and it sort of follows you round if you take your time. The furthest point in the sluice – in Summer it is a good place to see swallows. I had indeed enjoyed seeing them close up in previous years

    but I hadn’t realised they nested inside the sluice! A lot of water goes through this, it’s a terribly noisy place to make a home, but they don’t seem to mind the row.

    and on the way back I got to hear one of these guys – this loud sound is made by something the size of a sparrow, the Cetti’s Warbler

    Minsmere is a welcoming place, they go out of their way to highlight interesting stuff and there were some volunteer guides posted near a couple of adders lurking in the undergrowth. It was a bit cold for them, but they were out of hibernation and coiled up, although in the drab winter skins, so the devil’s own job to spot. I didn’t feel totally good about being a couple of yards away from a venomous snake, but it was worth a gander at some coiled trouble with the trademark flickering forked tongue. It was a good end to a morning reminding myself of better ways to spend a day than going to work 😉

    Minsmere is just off the A12, about 80 miles from London.  Visitors from London might like to stay at Southwold for a pleasant weekend break, which is only a little bit further up the A12.

    Minsmere at the RSPB website and on Twitter. That’s about the first worthwhile use of Twitter that I’ve discovered, kind of fitting in the case of a bird reserve 😉

    3 Mar 2017, 8:02pm
    debt personal finance
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  • Papers please – the early retiree as identity cleanskin

    Mortgage – check. PAYE – check. Credit card loans – check. In my wage slave days I threw off enough data crumbs to feed the data harvesting operation that has grown into the identity check industry. There’s a creeping centralisation and authoritarian streak to finance these days, due to the odious Know Your Customer (KYC) regulatory burden. In a curious reversal of the burden of proof, banks can freeze/shut down your accounts, and the ancients rights of the Magna Carta do not apply and you do not get due process – the bank will refuse to confirm of deny anything about the account. This is why you should never have all your liquid cash in one bank account, I have three although I use one mostly, but the others have savings and current accounts ready to roll should I lose access to that. I have never had an account frozen, but the authoritarianism goes deeply against the principles of habeas corpus I was taught at school, that in theory an Englishman has the right to hear in court the trumped up charges held against him. It just doesn’t apply.

    However, for some reason I increasingly have pain with the KYC regulations. I got into a massive fight with Betfair betting exchange in my abortive foray into matched betting when they took my money but decided they didn’t want to release the deposit, never mind the winnings because they couldn’t confirm I existed. Clearly I was not their typical gambling customer. I believe this general grief is the penalty of not being a wage slave, not using a mobile phone on a regular basis, and it being several years since I owed anyone any money. I can’t be found in mortgage records, and while I have three credit cards I haven’t changed these for nearly ten years, and my bank accounts are all old. I am a fail on MSE’s Credit club which makes me think that a thin file with Experian is my problem –

    There are a few reasons which may stop Experian from being able to verify your identity; for example, you may have a ‘thin file’. This just means there may be too little information held about you to be able to verify your identity.

    […]

    Older accounts can also cause verification issues…

    – Was your account opened before 1998? If so, your bank may not be sharing the account details with Experian as it was opened before the Data Protection Act came into force. To remedy this, you can contact your bank and ask that it applies a marker to ensure your account details are shared with the credit reference agencies.

    I encountered this most recently when I tried to register online for NS&I, not particularly because I wanted to check on my roughly 15k worth of ILSCs but because I was going to register a lasting power of attorney to add to my mother’s motley collection of Premium Bonds 1. The online system barfed and I have to use the post. Same with registering for online self assessment a couple of years ago. I had grief with Barclays when I wanted to register the LPA though I have to say that they actually brought human beings and a decent helping of common sense to the operation and sorted it out.

    I still have an old paper driving licence with no photocard so some organisations get shirty about taking that, and I am down to one last utility bill as a paper bill, kept that way purely to have something to support proof of address.

    Papers please? On yer bike, officer…

    Think the UK doesn’t have ID cards? You’re wrong. Like the Jesuits, we like to get to them when they are young

    One of the joys of being a Brit is that for cultural reasons we don’t like the idea of the authorities being able to demand your papers please as you are walking down the street – you don’t have to carry ID about your normal business. That is A Good Thing in my view. Obviously if you start breaking into a shop with a crowbar you will get arrested, but it’s kinda nice to actually have to be committing a crime before you get your collar felt 😉 But I suspect this will disappear in the coming years, in the same way as the simplicity of how  I opened two of those bank accounts disappeared over the years since the millennium. I simply went into the branch and producing my works staff card and a payslip, rather than the tedious string of paperwork that seems to be needed now.

    There are many forces demanding more traceability and accountability where we used to muddle along fine without it. Terrorism keep getting rolled out as a great reason for ID cards, though I am sure cars kill more people in the UK than terrorism, so a rational approach to reducing early deaths would be to get self-driving cars ASAP. And for God’s sake do stop falling off high places… Don’t get me wrong, I am all for nutting mean-spirited psychos from killing random people because their twisted mentality says so, but canning more common  sources of random death first seems a better win, and surrendering centuries’ old freedoms to reduce the very low chance of getting killed that way seems a bum deal. I have reigned myself to the fact I am likely to see some version of John Walker’s Unicard in the next few decades…

    The end of the tax year is coming up. Don’t leave it to the last minute

    It’s time to use one’s capital gains tax limit and to fill up this year’s ISA, and because of all these pettifogging rules and regulations it pays to do that a good few weeks before the April 5th deadline. Just in case some obstructive oik says you need to provide this or that documentation. I have to say that opening investment accounts has been relatively pain-free for me compared to anything to do with banks or the GOV.UK website, but it still takes time. It was a hell of a job to squeak in opening a SIPP in time to take advantage of an extra year of saving after Osborne’s kind offer of pensions freedom a couple of years ago, and certainly if you need to open an ISA this year then it’s worth having a few weeks in hand to do it. Particularly if you are going to try and Bed and ISA (or -SIPP) unwrapped shares to use your capital gains limit this year. What that means is do it now

    It seems peculiarly tough that you have to be part of the almost universal trend towards spending and living on more than you earn to be considered a participant in the 21st century economy. There are shadows of the societies of the sci-fi I used to read as a teenager where the oddballs became unpersons – Ray Bradbury’s The Pedestrian springs to mind. The System can’t identify people who don’t work and don’t owe any money or claim benefits. They just don’t exist in the models of Britons that are used by the powers that be, with their shadowy and unaccountable data jacks on the citizenry’s digital lifestreams. The signals dribbling through their data taps are too weak compared to the streams of new credit applications and the richness of normal people’s economic lives. I don’t know if it’s a down on the FIRE community in general or I am a particular outlier. But it’s a pain, I don’t now assume any sort of account opening on change is going to happen in less than a month.

    Notes:

    1. personally I don’t touch Premium Bonds, but since any income is tax-free and NS&I doesn’t need FSCS protection it’s a good match for the risk tolerance of an elderly widow
    17 Feb 2017, 2:53pm
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  • a look back in anger at the endowment, a popular investment of yesteryear

    Twenty-eight years ago I perpetrated the worst financial mistake of my entire life so far. I bought a house, in the hugely overvalued market of 1989. It seemed a good time to look back at how this happened, because today the Pru, one of the partners in crime regarding endowment mortgages, tells us that one in four retirees have never recovered from that kind of 1980s style cockup, and are carrying mortgage debt into retirement.Not only that, but three more waves of the the financial instrument of wealth destruction otherwise known as the interest-only residential mortgage will be crashing on the battered shores of British residential mortgagees in the next 15 years. I was only the advance guard.

    Very few people are rich enough to have saved enough money to be able to service big existential debts like a mortgage in retirement, so the financial whizz-kids seem to be selling these guys equity release plans to fix the failure of their younger selves to live within their means by eschewing one or more of holidays, kids, pets or general consumerism. I recently came across the documentation for that piece of feckless financial foolishness, so I thought I’d deconstruct it here. Obviously Brits have learned in the intervening three decades, so our housing market is not at sky-high earnings multiples with people signing away a quarter of their gross earnings nowadays. Or maybe not…

    You don’t have much control over when you come of an age when you need to find somewhere to set up house, most of the choices in that respect were taken by your parents and determined by the human life-cycle set by Nature. There’s a window somewhere between 25 and 35 when you need to tackle this issue. Your experience of housing will depend on what phase of the market cycle housing is in, plus some wider long-term societal changes, many of which are adverse. Cycles in the housing market a long – 10 years is not enough to see a whole cycle. I was a single man competing with an increasing number of dual income households because women were entering the workforce in larger numbers. I had already been driven out of the city of my birth by rising house prices and I really really wanted to buy a house, so much that I ignored alarm bells, massive factory sirens, red lights set at danger and just about every other indication that I was paying way too much. All I could afford was a two up two down where most of my colleagues from previous years were able to buy a semi on a typical graduate salary at The Firm. This even shows now – as an old git I am thinking of moving upmarket rather than down, because my hatred of the property asset class ran so deep that I never moved from the semi I bought a decade later.

    feckless financial foolishness deconstructed:

    Buying a house at that time was bad enough, but I compounded my mistake by choosing an endowment mortgage, because I was a foolish and greedy 28-year old. My parents had said the only way to buy a house was with a repayment mortgage, and made a decent case of as to why. So I listened to the sales patter of how a endowment could make even more than the capital, all tax-free, and the pound signs lit up in my eyes and in about half an hour I doubled down on the error of overpaying, signing up to this promise

    So putting my 28 year older and wiser head on my 28 year old body, let’s take a look at what is wrong with this. If the promise had held good I would have paid 25 × 644.52 = £16113 to get £41500 in 25 year’s time. Which is a fantastic deal, what’s not to like? Ker-ching. Oh and my mortgage gets paid off if I die early. To be honest that’s not my problem, I suppose I should have made a will, because that was never going to benefit me – strike one. What I heard in the sales patter was a very good chance of doubling the money. What the dimwitted 28-year old failed to take into account is that I damn well should expect to double my money in 25 years time – at the time half the value of money died through inflation every 10 years, so in 25 years that profit would be worth diddly squat. I was clearly not reading the documentation right, because it only offered an extra 15k using the most racy projections, sustaining an investment return of over 10% p.a. for twenty-five years straight. Easy peasy.It’s the selective focus bias – you see what you want to see.

    To get this putative win, I had to take an investment product described in the vaguest terms I have ever seen – never mind active or passive management, there was no idea of fees or anything else, it boils down to a statement of –  we will give it a go, but nothing is guaranteed, sunshine.

    There is no transparency whatsoever, but hey, the salesforce can say anything to big this up. If this offer came across my desk nowadays, the second word would be “off”. At least I can say I made some use of the intervening three decades to get a little bit wiser.

    So what happened? Let’s take a look at the state of play after fifteen years had rolled by, that’s half a working life in my case

    Well, the good news is that I get about £5000 more than I’d have paid in at the minimum guaranteed sum. The bad news is that even with a total return after fees of 8% p.a. sustained for ten years I’d have been £11k short. Now in 2004 £11k looked like a lot of money to me, and I was pretty damn sure that I didn’t want to eat this loss. 1

    It seems that unlike 25% of my fellow endowment suckers I took action during the term of my mortgage to pay the bugger down, and eventually I kicked up enough fuss that Friends Provident paid me off with a bung in 2005, which I also used to make a capital repayment. Then as my career began to flame out and crash and burn in 2009 I started paying down more and more of the capital, adopting a financial brace position against no longer having an income. That’s actually a really dumb thing to do for people who are trying to retire earlier than 55, but fearful people make bad decisions sometimes, and that was mine. It meant I was poorer in the last few years, but I will be richer from about now – the mortgage could have smoothed my cashflow between retiring from work and getting to 55.

    Look at those mad assumptions

    Even in 2005 they were talking about investment returns of 8% a year. That just ain’t gonna happen on a sustained basis, and the lowest assumption of 7% way back in 1989 turned out to be total codswallop. That was the risk-averse cautious assumption – it’s bloody nuts. This was massive sample bias due to inflation – after all, just ten years before I signed up inflation in the UK was running at over 15%. You know what the man from the FCA says

    Past performance is no guide to the future

    Well yeah, but WTF else are you going to go on – Tarot cards or reading tea leaves? Mystic Meg? Inherent in the very fact of stock market investing is the nasty little assumption that you can qualify what you will get in the long run informed by what happened in the past 2. Nevertheless, the 28-year old me could have avoided all those mad assumptions by doing the sensible thing and getting a repayment mortgage. Epic fail in market timing and choice of repayment method.

    Winter is coming…

    What’s really bananas is that people didn’t learn from the endowment mortgage debacle. Look at this chart from this FCA confidential 3 report published on the open web

    Oh boy, there is serious incoming hurt from these maturing IO residential mortgages over the next 15 years

    Wages are stagnating, though I guess the high Brexit-induced inflation has reduced all these guys capital debts by 20%. Let’s hope their wages keep up with inflation, eh, because otherwise Winter is coming, and it will be served up with a good amount of Discontent. Their pain will be worse too, because at least I had a deficient repayment method that would have paid about half of the capital. Since then interest only mortgages were written without any requirement to have a method of repaying the capital at the end, so these big cohorts are coming to the end of their 25 year extended home rental term aka interest only mortgage, and the requirement to actually buy the house will come as a bit of a surprise by the looks of it. Okay, so they have taken a call option on the price 25 years ago, but they’ll still need to whistle up the price or move out.

    Notes:

    1. I am being slightly disingenuous here, because Friends Provident demutualised in 2001 and I got about £7k in shares which I sold immediately, and used to make a capital repayment, which I guess brought the outstanding amount to  about £34k.
    2. this dirty little secret is inherent in the SWR and things like firecalc are doing nothing other than informing you from past performance
    3. I downloaded it on 17/2/2017 from https://www.fca.org.uk/publication/research/fca-interest-only-mortgage-review.pdf
    15 Feb 2017, 2:00pm
    reflections
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  • Of spending time and financial folly

    Three months away from retiring I had been doing a lot of philosophising about a massive purchase I was about to make, for a few hundreds of thousands of pounds in opportunity cost. There was no need to add this purchase to my home insurance, and it wasn’t going to be delivered in a pantechnicon or even by Yodel.

    It was eight years of the Ermine’s time, for delivery with effect of June 2012. It was one of the best things I’ve ever spent a shitload of money on, though it’s oddly intangible and ephemeral. In three years’ time it will be rendered to aught, I will be a few hundred grand poorer than I otherwise would have been. Je ne regrette rien 😉

    Freedomsoul, a wise fellow who has clearly used his 25 years on earth well, reminded me of this in his post

    Nothing…is ours, except time. We were entrusted by nature with the ownership of this single thing, so fleeting and slippery that anyone who wishes can oust us from possession…It is too late to spare when you reach the dregs of the cask. Of that which remains at the bottom, the amount is slight and the quality is vile.

    Seneca the Younger

    I don’t have the benefit of a classical education, so I have to hoover such wisdom up off the intertubes, but I have to hand it to the old boy Seneca, he’s a lot more poetic than the oft-quoted modern form of this principle from Paul Tsongas

    Nobody on their deathbed has ever said “I wish I had spent more time at the office”

    Time to turn this into action.

    Kill off matched betting and get it right out of my life

    I’d already come to the conclusion that matched betting bored me and wasted my time. I am most definitely not saying that you can’t make a very handsome sum, probably in the tens of thousands of pounds a year at the upper end. But I am definitely saying I can’t be arsed. If I was rich enough to be able to buy eight years of my own time back for a few hundred grand 1 then WTF am I doing selling my time to the lowlife scum/bookies of this country at a lower rate? At least at work I was occasionally creating something.

    I lost about £200 to the bunch of thieving scum otherwise known as the betting exchange Betfair (Queensbury rules, about a week and a half after writing the first draft this and providing about ten different items they enabled the withdraw button. I am not sure I have enough ID to pass as a sentient mouth-breather in the modern surveillance state.)

    I am old enough to have opened that bank account in the innocent days of the late 1990s, when I could rock up to the branch, show my photo passcard from The Firm and get an account. It apparently doesn’t match the verification on the electoral roll, and despite supplying a copy of my passport and birth certificate to Betfair, they have still frozen my account and won’t let me withdraw it. One of the things that I found distasteful about matched betting was swimming in the same currents as sharks, it’s not a restful experience.

    Remember Seneca’s dregs that are slight and the quality is vile. No point in pouring some of the good stuff down the drain 😉 You get to the bottom soon enough.

    Gnothi Sauton – know thyself

    Know Thyself in Greek in a stained glass window

    ‘Know Thyself’ in Greek in a stained glass window

    ‘I’m a big picture guy, I am poor at fine detail’, was what I first thought about why matched betting was a mismatch for my temperament and financial situation. It’s something that involves a lot of fine detail, you as basically trying to match one big risk against a counter-big risk. It’s easy to screw up 2.

    There are other aspects of life where this shows too. I don’t bother yomping cash through a bazillion accounts to try and get an extra two percent on the deal 3. Part of this is if I am going to allocate headspace to finance I find getting better at equity investing is a much easier win, even if the result of getting better turns out to be do less and sit on your backside more. Life is too bloody short to chase a few percent here or there on cash, particularly when your fellow countrymen can have a brain fart that destroys ten years of that sort of streetfighting at a whim.

    I’m a slack blighter in other areas. I clocked up a £45 credit card interest fail because I bought something for £3k and failed to actually clear the balance over Christmas. I have the minimum paid by direct debit but pay the main part on manual. And just didn’t give this enough attention in December. Of course when I got the bill in January I paid the lot off plus £100 to stop them adding more interest. Shit happens sometimes. I had the money in December because I don’t buy things before I have the money, but cocked up.

    But it’s the big picture that matters. Diversifying risk and reducing fees in many, though not all cases has enabled me to get up on the Brexit dividend this last year, and that puts crapping out on £245 into perspective. Look after the pounds and the pennies sort themselves out or don’t matter 😉

    Pointless pastimes like learning Morse Code still teach me things I didn’t know about myself

    At the moment I am toying with pointless ideas like dragging some radio gear to high places and making contacts. For the umpteenth time I figured I’d have a go at learning Morse code. Its advantages are few, but mainly that the display and keyboard are compact, the display is visible in the sun because it’s auditory, it doesn’t involve a computer and I can contact people, which is totally ridiculous in the modern world when you could call them up on your iPhone. But what the hell, hobbies are like that. It made slightly more sense when I tried the first time as a teenager when the phone was most definitely fixed to the wall. In those days I didn’t have the money and had other concerns, as teenagers do. Now I have more time, I get to see a decent view and more of the attractive parts of this sceptred isle. Fits in okay with an interest in prehistoric stones, too, they tend to be in out of the way places to, so I get to use the same petrol if I can solve the travelling salesman problem. One needs variation in one’s decadence as well as challenge.

    The usual way of learning Morse is to go on LCWO and use your computer. Two things mitigate against this for me, one is I want to play with radio and get away from the damn computer, and the other is an oddball discovery I never suspected. One of the joys of not selling great wads of time to The Man is getting to learn bizarre and useless facts about life because I can be curious about the world and have the time to dig deeper. Turns out that the way I parse text is way more odd that I had suspected.

    I learned to type as a teenager on an old typewriter 4, using some Pitman book.

    I’m sure that keyboard is way too high by modern standards

    Funny how all the pictures in that book of how you were meant to hold your hands and sit the right way were women in miniskirts and manicured nails rather than spotty proto-geeks trying to grok code, but that was the Seventies for you. I never learned to touch type where you don’t look at the keyboard, but once in the right position I know where all the keys are and use all fingers. The school end was a teleprinter which saved the programs using punched paper tape, and there was only one, connected periodically to the North East London Polytechnic via an acoustic modem.

    I did that because I was able to get about three lines of BASIC code written in a half hour period on the timeshare computer system at school, which wasn’t any use at all, hence the need to type faster. Presumably they teach kids to type at school nowadays, since it’s probably more useful in the modern world than cursive handwriting.

    I never needed to type any faster than I could think, since I was usually originated ideas, or code, or whatever. Looking at the rate that I am writing bits of this, using a watch and the WordPress words counter, it appears I can type at about 50wpm tops. I can’t really think that fast in a sustained way, but it was the peak over about 10 seconds.

    No problem, I should be happy copying Morse on a keyboard at 20wpm. Trouble is, if things come in one character at a time, I am turned into a hunt-and-peck-er, and I am down to 6wpm. I never realised this, so I have the good fellow Chuck Adams to thank for warming me up to the fact with the manual for his freebie Morse CD image. So I read his manual, which tells me to go get a particular type of gel pen and an A5 spiral bound notebook, and I will find that at lower speeds I can write any character as soon as I hear it, rather than the ‘oh, that was a C, now where the hell is that on the keyboard, damn, the next character has started’.

    In the depths of one’s brain just behind the ears there is a guy with a tape recorder recording incoming sound on a loop of tape about a sentence long and ready to roll tape again routed to the speech decoding systems of the brain in case the first pass didn’t work out, which is why sometimes when you go you what? and by the end of what you have got it the second time round without the need for the speaker to actually repeat. When the tape is playing the ears aren’t connected, so with Morse I get the first two characters and then I’m out for the count trying to use a keyboard. The average data rate of conversational speech is about 120wpm, but I would probably be able to catch the first sentence in copying speech, because I am capturing the words as units, not a string of characters. We used to have people called stenographers who used a special script shorthand to capture speech at 120wpm, I guess these days we use a digital recorder and set a bunch of people in India on the job.

    Chuck is right. I can write much faster than I can type if the signal comes in character by character. I discover trying another system that even if the characters are read out to me in English, so no decoding needed, I am stuffed as far as comprehending things coming in a character at a time at 20wpm. Now in the early 1990s I found out that I could easily read at 300 baud 5 at ~360wpm. Clearly there is more to this reading and understanding speech malarkey. I had no idea all this went on. All the other times I had tried to learn Morse I had no idea that I had no hope of typing at 20wpm or even grasping text read out a character at a time at that rate, so I was never going to get anywhere until I crack that. I can forget using Morse code until I fix these issues. So I am a long way ahead of my teenage self even if I the contents of my cranium is three decades older. Oh and a day where I learn something new is a day well spent, who’d have thought all this language processing is that highly tuned to specific forms.

    I discover it’s now become OK to borrow money to buy cars. WTF?

    Schroders tell me that loads of Brits are buying new cars on the never never. WTF is up with that? Pretty much first rule of personal finance is never buy depreciating assets with borrowed money. Seems to be what people are doing

    This ain’t gonna end well

    This is a bum steer. Modern cars are a lot more reliable than they used to be, and every time I pass a used car lot near me I am staggered at what you can get for not much. I used to take the line that about 5k was a reasonable price for a used car which would give me a good few years’ service, but you can now get pretty good value for £3000. If you can’t afford that much then you sure as hell can’t afford to borrow money for a new car, and wasting assets should be bought with cash or interest-free credit backed by cash. I have never bought a new car, not because I can’t afford to, but I can’t stand the dreadful clattering sound of half its value falling off as soon as you drive it from the sales lot. A bit like Merryn over at the FT, though probably more tight; there’s a breathtaking kind of metropolitan decadence in hiring an agent for £600 to buy you a used car IMO. Even if you do get dashboard ambient lighting 6.

    Dashboard ambient lighting on a Mercedes S-class. It’s the blue glow in a line

    Mind you, given an ambient lighting kit is £117 I guess the used car buying agent may well be worth his salt. Personally I’d go with electroluminescent wire or LED strips from China, but I’m not the target market it would seem. Maybe that’s why Brits and buying new cars on the never never, because they’re getting too decrepit to find their cars in the night. VW tell us

    When you’re driving at night, the glare-free light also helps you to find your bearings and locate things more easily.

    Hmm. What, exactly, is wrong with the old-fashioned courtesy light, particularly now they delay the switch-off long enough that you wonder if you locked the doors when you look back 50 yards away from your car? Anyway, back to the never-never.

    Schroders dig deeper into the PCP farrago and have an entertaining report from the front line:

    [lessons from the financial crisis] Most people, you would imagine, might say an important point to take away from that time was that lending money to those who cannot afford to pay you back is not a particularly sound business plan.

    Some people have apparently reached a different conclusion, however – that while lending money to those who cannot afford to pay it back may not be a good idea in the context of the biggest asset in people’s lives – in other words, their house – everything  will work out just fine if it is only their second-biggest asset – their car.

    Hell, yeah. The story’s pretty simple. If you need to borrow money to run a car then you can’t afford it. Move downmarket or do without. As Schroders say, however, it takes two parties to make a right hash of this –

    Or, if they have learned a lesson, it is a very specific one: that sub-prime is not helpful – but only when lending to people who cannot afford to buy a house. Cars though? Game on.

    One of the things that disturbs me is that ‘other’  in green. Some of it is securitized auto loans. When was the last time were heard securitized? Ah, in the financial crisis. It usually takes a generation to forget the lessons of the past, but I guess everything happens quicker now, it’s all a bit The Eternal Sunshine of the Spotless Mind without the good bits. There’s the wider point that if your second biggest asset really is your car then you are seriously doing something wrong, generally along the lines of having too much car, particularly if you need to borrow for it. By the time you are 40 your pension should be a bigger asset than your car. In fact FFS if you are buying new cars your general savings should be worth more than your car IMO, certainly after you drive off the forecourt.

    The timing on that ‘other’ looks very much like P2P to me, and I’ve just upped my P2P by a few grand. I am beginning to wonder if I am not that stupid sub-prime lender in some ways. After all, last time I looked at what people were using Zopa for it looked like this

    which is a litany of conspicuous consumption and financial folly. Zopa still needs an Ermine behind a desk with a green banker’s lamp to introduce these good people to the following infographic

    How to decide if borrowing money to buy it is a good idea

    In general, Zopa punters, the answer is save up or go without more often that it’s not. I guess Zopa would go bust if they took that line. But heck, I can eat the loss of my Zopa stake if it all goes titsup, I will take a far bigger hit on my ISA, because I am not the only dumbass counterparty out there. No doubt the banks are in there too, and while I have no banks in my individual share portfolio, the index stuff is riddled with them. I need to think about this. The Zopa risk premium isn’t particularly big, I will stay with the instant access 7 and start to wind out of the non-instant access.

    It’s too late when this happens

    It always pays to be one of the earlier panickers in financial crises, so when interest rates start to rise I want to be able to suck my cash out of Zopa before all these indebted car buyers start losing their jobs or feel that their mortgage is a more important debt than their Zopa car loans.

    It’s kinda odd that it took us 80 years to get into deep shit again by dismantling the financial firewalls built in the 1930s, and only 10 years comes to pass before this all looks like a great idea again. This is not progress.

    Notes:

    1. opportunity cost – I didn’t have to save this up first
    2. my biggest fail was expecting Betfair to have a modicum of integrity in returning my money – the takeaway is only deposit the minimum with any betting shop to test if they will verify your account. I didn’t actually screw up any of the matched bets and I am up overall despite the shafting. I was only in this biz for a month and a half. The ROI on matched betting is crap when you factor time into the investment, the money is fine.
    3. I’m not hard and fast on that, I save £500 a month of my SIPP pension with the Nationwide because they’ll give me 5% on it and it can be set up once. It’s the stuff you have to do every month and watch what goes where and when I CBA with
    4. for anybody born after 1980 a typewriter is a machine where the keyboard is connected straight to the printer without the computer we didn’t have in those days jammed in the middle
    5. 300 bits per sec in ~10 bit character chunks at 8,n,1 is 30chars per sec. A word is about five character average so 6 words per sec, or 6*60=360 wpm
    6. let’s hear it from Volkwagen for what ambient lighting is and why Merryn S-W or you might need want it
    7. as Northern Rock showed, instant access can fail you when you need it
    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.

    27 Jan 2017, 11:21am
    personal finance
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  • the siren song of the tax-free bung

    Rule 1, on page 1 of the book of war, is: “Do not march on Moscow. Various people have tried it, Napoleon and Hitler, and it is no good”.

    Monty

    So it is with pensions. Rule 1, on page 1 of the book of personal finance is: “Never give up any defined benefit pension”. Various people want to try it, so many that they had to set up a law that you need to take independent financial advice when transferring even a DC pension which has been run by the same administrators as a DB pension, never mind actually trying to transfer a DB pension into a SIPP.  Nevertheless I am thinking of giving up some of mine, for a 25% tax-free bung (PCLS). Not right now, but at a later stage. Not only that, I am not planning to invest it, merely use it for a consumption good, although not a wasting one 1.

    I’ve already take a bite of a PCLS when I sprang my additional voluntary contributions into a SIPP. I’d saved roughly a third of the notional capital behind my main defined benefit (DB) pension into defined contribution AVCs in my last three years at work, ramming my pay down to nearly minimum wage at times and winning both tax and NI savings using salary sacrifice, saving in three years what it had taken me nearly 8 years normal accrual of employer and employee savings.It’s not a recipe for a huge amount of consumer spending fun, but you get to buy a lot of your time back from The Man.

    Those were the days when there was little point in me taking out a SIPP, because I’d have had to convert 3/4 of the SIPP to an annuity for life, where I really wanted an annuity for five years until my DB pension kicked in. By taking out AVCs I wanted enough tax-free lump sum to be able to invest to compensate for the actuarial reduction in drawing the DB pension in my early 50s 2. There are many good points about a DB pension, but flexibility in retirement age is not one of them. In general you want to take a DB pension close to whatever the normal retirement age (NRA) is for the scheme, which in my case is 60 for most of my contributions. And I wanted to retire at 52. The inflexibility of pensions was also why I chose to build up ISA savings at the same time, because I made this choice according to the old rules.

    Then George Osborne wandered along and shook up the system so you could front run a DB pension with a SIPP, running it flat between your early retirement age and the DB pension NRA. So I grabbed this opportunity, started to run down my AVCs in a SIPP and left the ISA alone. As it happened the uplift of the Brexit brain-fart has increased my nominal SIPP capital so it will take me to a year later than 60 if I want to sneak it all out below the tax threshold, which hasn’t been lifted to compensate for the 20% devaluation in the worth of the pound. On the upside the 25% PCLS got a Brexit boost in my ISA, so I probably won all round. The idea of paying tax hurts, though, when I didn’t need to on the original plan.

    Still, we’ll have well and truly Brexitted by the time I am 60 and that nice fellow Michael Gove tells me that it will all go swimmingly so maybe the supine pound will have increased back to its former Imperial glory, making each pound count like it used to in the days of the Raj. I’d settle for its power in the 1960s when you used to get twelve Deutschemarks for a pound 3. One can live in hope that it’ll be all right on the night and a pint of beer won’t cost £10 4 a few years hence…

    A pint of Brexit Doom? That’ll be £10, sir.

    So I now ask the DB admin guys what I would get if I draw at 58, 60, and 62. The reason for that is I have 23 years DB pension accrued, for 20 years the promise was to pay from 60, then they switched that to 65 for the last three years. They demand I take both accruals at the same time and don’t pay any uplift on the NRA 60 contributions. A moment’s thought indicates that delaying two years after 60 should give me much less uplift than the difference between 58 and 60, but it’s always nice to have one’s gut feel confirmed in writing.

    It was. I lose 5% of the pension at 60 if I draw it two years early, and I gain 1% if I draw it at 62. So it’s daft to delay after 60. I then go and factor in the  effect of tax, because although the headline actuarial reduction is 5% for two years 5 it so happens that all the difference is well over the basic rate tax threshold. So I get to lose 20% of it, making the actuarial reduction 4% net. I have already done all my duty paying tax for one lifetime, so it really doesn’t make my heart bleed that HMRC will lose out each year. Stuff ’em.

    What about taking another 25% PCLS?

    It appears that I can still take a pension commencement lump sum, which reduces the annual pension by ~ 25%, natch. Whether this is a good idea or not is all about two things. One is the commutation rate, ie if you take the PCLS and divide by the annual loss of pension what is the ratio. The other thing is how you feel about the stability of the pension scheme, changes in tax rates and investment returns, and if there is anything else you want to do with the money like pay off a mortgage. Taking the PCLS insulates me against changes in tax rates and the stability of the pension scheme, but of course if I were to invest it I get exposed to investment risk. I can easily pay my essential bills from the reduced pension since it is more than my current income. The natural yield of my ISA would make up more than the net difference to where it was without the lump sum,  and I’ve never needed to draw income from the ISA yet.

    It so happens that I have a use for a lump sum in a couple of years, I may want to move a little bit upmarket housing-wise. I am hoping that Brexit slows down or hopefully hammers the housing market. Unlike every other Briton I don’t personally believe that property is a good investment at all, but sod it, I have come to the stage where I just want a little bit more house and I’m not really looking forward to the experience of  when my current  semi-detached neighbours go to a retirement home in a few years and I end up living next door to a baby 6, or a teenager into Throbbing Gristle, or the little toe-rag that used to live next door to my mother who used to do his baseball practice. Against the upstairs bedroom party wall FFS, just as well she was getting hard of hearing but still needed earplugs to deal with that little tyke…

    So the 25% lump sum is attractive. The commutation factor is 20 (ie I get 20 times the loss of annual gross income as a tax-free lump sum). However, since that is gross income, I would get to pay tax on the income. Probably tax and NI in the coming years, since the differing tax rates on earned and pension income is an obvious target for governments to hit without raising tax rates. So when I look at the difference in net income, the commutation rate is 25 times, possibly more if the dreaded integration of tax and NI comes to pass. A PCLS is tax-free.

    Everybody says don’t ever sell any of your valuable DB annuity promise. I have some good reasons here, and I have enough to be able to do fine surrendering the income. I take the point that you shouldn’t just blow it on a Lamborghini, although pouring it into the bottomless toilet that is British residential property isn’t much better IMO, but at least it is a fixed asset. Another factor is that I am ten years older than Mrs Ermine, and a DB pension pays a widow’s pension of a half . So if/when I kick it before her, assuming property hasn’t fallen by a half in real terms, she has more preserved value from the DB pension 7, though she will need to move to realise it. There are other ways to hedge that risk though – term life insurance to insure my death to the value of the PCLS until Mrs Ermine reaches her three-score years and ten is about £500 pa

    Housing? WTF?

    The general theme on housing seems people want to downsize post work, but although I don’t want a huge upgrade I want to get away from some hazards. I am probably housing-lite relative to many readers of a similar age; my ISA was probably worth a little more than my current house before the Brexit boost. Most people my age at The Firm seemed to have the majority of their networth in housing. They probably share SHMD Jim’s perspective and want to change down, not up. But hell, I had a different experience of housing. And while you can go into a retirement complex in your 50s, I don’t yet feel that I have one foot in the grave, so I am happy to swim against the tide here.

    I have a couple of years to mull this over before actually needing to do it. A lot can happen over two years, and there’s no need to rush it, but it was worth getting those quotes from the pension administrators so I can sketch out an action plan, even if it does go against rule 1.

     

    Notes:

    1. Cars and iPhones are wasting assets, because they are degrade, and are worth less in ten years than they are now. Other assets, like gold, housing and worthwhile education, preserve value across the years because they don’t degrade, although the value can still be volatile
    2. I had protected rights so I could have drawn it from 50, not 55
    3. In that case the large Brexit increase in unitised price of my ISA will become a large decrease. But then I’ll be living in a country with cheap beer, energy and all that good stuff! I am also toying with some of Monevator’s hedged ETFs
    4. Londoners will probably tell me it’s already £15 in City watering holes, but such usury has yet to creep out into the sticks, because the rest of Britain is a lot poorer than you guys
    5. I find this surprisingly low but that’s what the estimate says when I compute the difference. Are they really expecting me to live for 40 years after 60, such that two extra years of payment is 5% of the total expected period of payment?
    6. I lived next door to people that had a baby in a terraced house in my early thirties. I had to move my bedroom to get any sleep.
    7. this is a complicated calculation, because it depends on how long I live as to whether the total amount coming into the household ends up more or less. If I really get to 100 taking the PCLS will have been a bad move
    10 Jan 2017, 11:10am
    personal finance
    by

    55 comments

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  • A great last year on the markets and a survival plan for 2017

    This post lacks a little bit of the bonhomie and cheer normally expected at this time of year. Sorry about that and Happy New Year!

    A rheumy Ermine rises from his den and sticks a head out, to hear wild celebrations of stock market success from otherwise sober fellows like Monevator’s TA. What is all this jubilation I hear? January is normally the time to unitise one’s portfolio at Ermine Towers, but what with a hit of the flu, and the thudding recollection that last year was the Year of the Man-Child of Trump and Boris, meant I couldn’t really hack that until now. I recall last year as a desperate battle to simply try and survive on the markets when all around was going tits-up as Britain decided to do untold damage to the one thing we seemed to be good at, making money out of money. True, none of it seemed to ever leak outside the M25, other than in making house prices go up, but nevertheless, I don’t see Britain as a full-employment haven of manufacturing industry any more, the universal income seems a better way to try and reproduce the 1950s than cursing our nearest neighbours and the horse they rode in on.

    So what happened then? I mean yeah, people are talking highs for the FTSE100, but let’s not forget that these highs are measured against a ruler that is 10 inches long rather than a foot. The whole Brexit brigade are celebrating because the sky hasn’t fallen and these highs are symbolic of the market’s view of the protean powerhouse that is Brexit Britain. Clearly the standards of what passes for intelligent discourse at the Telegraph have dropped into the gutter when they allow headlines to escape like

    FTSE 100 set to match longest record-setting streak in 33-year history as pound slides on Brexit fears

    At least in earlier days you’d try and push the second clause out of the headline and preferably out of the lede too, you don’t want the old buffers reading the yellow press to choke on their tea and marmalade sandwiches with the realisation the FTSE100 is high because the pound is sliding. It’s like celebrating that the operation was successful and cured the pain – because the patient died on the operating table. Fortunately there are cooler heads to set you right on the FTSE100’s stellar run. Looks like bonhomie and good cheer is in short supply elsewhere in the PF scene, bloody Remoaners the lot of y’all, talkin’ bodacious Brexit Britain down.

    Haven’t you heard? Magical unicorns are in – all those tedious facts are sooo last year, dahlink, dreaming is in these days

    Have you no vision sirs, and for heck’s sake STFU on those facts, we don’t do facts these days, we do dreams of magical unicorns?

    Nevertheless, the stock market rise shows one way to perhaps try and stave off the personal implications of last June’s brain-fart. Although the Ermine instinctively dived into the stock market in those troubled times it seems others are now turning this into real numbers. Basically cash in GBP is doomed, for Gawd’s sake get the hell out of there. Preferably into foreign assets, although the FTSE100 ain’t all bad – it’s roughly 70% foreign assets anyway. That glug-glug sound you hear is the sound of the pound in your pocket draining away down the plughole.We can’t blame the Gnomes of Zurich for this one like in Harold Wilson’s day 1, this one is entirely our own work.

    It is permanently destroying the value of my deferred final salary pension, possibly ameliorated by the inflation linking up to a point, it is destroying cash savings, to the extent that while I was holding all my AVC money in a SIPP as cash on the grounds I was going to call on it in the next five years, after that vote I rammed about half into a mixture of gold and index-trackers, on the grounds that I’d rather be shafted by my own fuckwittery than that of other people, or at least I’d like to share their view of the world if I am going to take the shaft for theirs. The movers and shakers among the bodacious Brexit brigade have enough non-cash assets and don’t rely on wage income, so they can survive the fall in the pound. The odious Nigel “I want my life back” Farage was a broker, though not a particularly successful one according to the FT. He still earned more than I have ever done, even as a scummy MEP. There are shitloads of people that are going to want their lives back, Nige, hopefully a load of them will be people who voted for your project though I’m sure they’ll blame some other poor bugger. I look forward to the first disaffected Brexit prole upending a pint of beer all over your noggin when he discovers he’s paying 20% more for it, there still aren’t any jobs and there are still people talking furrin’ on the streets because we need vegetable pickers who know one end of a carrot from another even if they call it a marchewka.

    A lying sack of shit in front of one of his lies. How do you know Boris is talking cock? “His lips are moving”. As the Atlantic said of the Donald “The press takes him literally, but not seriously; his supporters take him seriously, but not literally.”

    I want to be closer to the place where the movers and shakers are. They needed votes, so they told everyone that they wouldn’t hear Polish on the streets any more and the NHS would get £350million more every week. Well, I guess it’ll need it to make up for the loss of staff numbers, eh? Wonder what the Red Cross will be saying about the humanitarian crisis in NHS in a couple of years when all those EU immigrants working in our elderly care homes f*ck right off back to Eastern Europe where they belong.

    Brexiteers sold the idea to people who probably can’t afford to take the hit in their wages, and who will see the price of food and fuel rise, will see interest rates rise to more normal levels 2 and generally come to enjoy the fruits of their cleverness. Well done you.

    Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

    Let’s hear it from Michael “Experts, schmexperts, WTF do they know

    We are still far too unequal a society, with wealth and power concentrated in too few hands. Our economy is still too dependent on financial services and we don’t invest enough in science and technology. Working class voices are crowded out of our economic debate. We have relied too much on cheap imported labour, which has meant wages for working people have been kept too low and we haven’t taken the right steps to improve productivity.

    The Bank of England’s monetary policy has made wealthy owners of property even richer at the same time as our chronic shortage of affordable homes has got worse. University vice-chancellors pay themselves hundreds of thousands of pounds a year but technical education doesn’t get the investment it needs and there aren’t enough good school places. Government squanders billions on vanity projects every year while our tried and trusted NHS needs more funding.

    The one thing I was unable to detect in Michael Gove’s blatherings was any hint of exactly how it was the EU who were responsible for much this litany of woe, with the possible exception of being the source of some of that cheap imported labour. Gove is in the UK party of government. You guys are in charge of this mess, not the EU, which at least did a bit to invest in science and technology according to the Royal Society. Of the 13 issues listed in that diatribe the EU is a problem in the labour and an asset in the science and tech; all the other problems are homegrown. So how exactly is most of this going to improve with Brexit, Mikey? Particularly the science and tech, we really aren’t back in the days of Robert Watson-Watt and splendid isolation, science is more collaborative these days. I worked on some of these European research projects in the 1990s, they really were a little bit bigger than one company could resource even 20 years ago. Experts, schmexperts, eh?

    Some coherent thinking coming out of the Brexit camp at last

    The thousand typewriting monkeys that are the architects of Brexit seem to be coalescing on  some sort of narrative after all, although the parrot trotting out Brexit means Brexit still hasn’t been knocked off its perch yet. Back to Michael Gove, in his triumphal summing up on Brexit Central.

    Once Article 50 is triggered, we should be very clear about our simple, straightforward, generous approach to leaving. We don’t want or need to be in the single market – outside we can control our own borders, laws and taxes. Inside we’re trapped. We don’t want to be bound by being members of the customs union. Outside we can negotiate new trade deals with emerging economies. Inside we’re trapped. And we don’t need to waste months talking about new tariffs. We don’t have any at the moment with Europe, we don’t want to impose any and attempts to over-complicate the issue are a trap.

    If we guarantee the rights of all EU citizens currently here to stay, pledge to continue our role as the principal European defender of NATO’s eastern border, offer to continue co-operation on science funding and agree to respect EU regulations when selling to their market then we could – quickly – reach an amicable agreement.

    It’s amazingly simple, really. Tell the Remoaners to STFU, waltz out of the EU cleanly whistling a dancing tune, keep hold of all that cheap imported labour you were bitching about earlier, ‘cos knocking that was feelgood dog-whistling like the NHS bus and you actually quite like them cheap Polish plumbers for your Islington pied a terre, and then tap gently on the EU door and go “psst, how’s about we play a deal again?”. I actually share some of Gove’s sentiment, you do need to go big or go home and walk out of the bloody door first. However some of the potential problems are summed up in the actions of spurned Linda –

    Linda didn’t appreciate Graham running out on her. The EU may feel similarly – as European Commission president Jean-Claude Juncker said, Brexit was “not an amicable divorce”, adding “it was not exactly a tight love affair anyway”

    Usually when you tell people to piss right off it tends to offend. We humans are not perfectly rational decision makers. Brexit and Trump Q.E.D. We may just end up with a load of broken heart stickers around the place and the keys to the car industry and half the finance industry  in the Channel. Nevertheless, if there is to be any coherence to Brexit, then it isn’t going to come from trying to ghost from the dinner party but still drink some party Martinis in the cloakroom. It means going right out the door, closing it properly behind us, taking the hit on Britain’s largest industry, which is probably still resilient enough to do business with some part of the world. And then starting over. Hoping the gravity theory of trade is a load of bollocks and distance and shared culture is entirely irrelevant to trade, because people in this country have had enough of experts.If I may trouble you, Mr Gove, with some tiresome facts

    Casual inspection of the purple bit on the left indicates most of Brexit Britain’s exports go to the EU, which is geographically and culturally closer to us than the US and China, offering support for the gravitation theory of trade flows. Just sayin’

    We need magical thinking, apparently, in the Govian world. I’m up for that.

    Magickal thinking Mikey boy? That’s not magical thinking. I’ll show you real magical thinking…

    Don’t get me wrong, I’m all for the right sort of magic; the chaos magician RuneSoup’s deconstruction of the West’s current economic predicament is highly cogent narrative of how we got to such a sorry pass from a refreshingly different angle. I note he isn’t a fan of a universal income for some fairly decent reasons which may cause me to change my mind about that, cos unlike you, Mr Gove, I am not so smart as to be right all the time. Sometimes I talk arrant bollocks, and I’ve found it pays to consider the possibility of that happening once in a while. I commend the practice to you, Govey-boy. You just can’t knock RuneSoup’s summing up

    What I would dearly like is for everyone to temporarily set aside their declared home on a spectrum of political representation set up in response to the realities of a Victorian industrial economy, take a calming breath, and read some ideas they find dangerous. Make your heads hurt a bit. But above all go decentral rather than central.

    Because no one has a model for where we are in 2017. You will be better served by thinking quantitatively -ie with actual data- rather that tribally. It is a fascinating moment in the history of money.  There are huge opportunities to be found in solving the problems we going to have to solve. The risk/reward potential has never been higher.

    That’s the Brexiteers’ fundamental problem – tribal thinking. It’s the Remainers’ problem too, but they lost the fight so what they think doesn’t really matter. There is no runner-up in a binary choice.

    I need to get on the toff Brexiteers’ side rather than the proletarian side, and that means side with Capital, not Labour, and foreign capital at that.

    I need assets out of GBP cash and in something else. There is absolutely no point in trying to resist Brexit. It’s big, it’s bad and it’s coming to ruin my wealth. One thing that is deeply in my advantage is that I have earned pretty much all the income I am ever going to earn 3, so income now is money made on money, and different rules seem to apply to that. For starters, if I were earning £100k a year beginning of 2016, I’d now be earning £80k equivalent (it’s worse than that because tax thresholds haven’t been lifted 20%). But if I had a share portfolio of £2mill and were getting 5% on that in 2016, then this year I would have 2.6 million and would be earning £130k at 5% on that 4, with the able assistance of the proletariat that I’d suckered onto my side. Obviously I would still be eating the 20% fall in real value making about £104,000, but that’s a lot better than Rosie the Riveter on £20k which would now be earning a real pay of £16k. If you’re gonna be a Brexiteer, be a toff Brexiteer with capital behind you, because you are better able to survive, and perhaps profit from the fall in the pound. Unfortunately I don’t have £1 million, so I am on the wrong side of this fight, though probably a lot less on the wrong side of it than many who voted Brexit.

    Plus of course if you employ riveters to make your widgets for you then the value of what you pay them falls and you win. The riveters will see their real incomes fall and their children will be stunted, but hopefully they voted for Brexit and think the hardship’s a price well worth paying to get their country back and stop hearing foreign languages in the street which seems to really piss them off. Obviously if they didn’t vote for Brexit then they have my commiserations. Life gives you lemons, though here I think the result will be more Grapes of Wrath than lemonade.

    Unitised returns look good and the non-Brexit lift make up for a couple of crap years

    Some things have got to get worse before they get better, so I need to examine the role of Capital in my life, because my deferred FS pension is going to take a Brexit hit. A FS pension is deferred pay, so I am still with the wage slaves in the impact of that, although I can press a better case for with inflation rises, up to a point. Now fortunately, as an investor I don’t do bonds and I don’t really do cash nowadays unless is ILSCs. I computed my unitised ISA performance over the last year, which was a 34% increase in unit value. In the past I overthought this massively, but now I seek simplicity. You unitise a portfolio by declaring year dot (2009/10 in my case) at £10/unit, and then you have as many units as your portfolio value divided by 10. The next year you put in an ISA’s worth of cash and buy units at £10, adding (ISA allowance)/(unit price=10) to the number of units you started out with. In January print out the value of your portfolio plus cash. You know how many units you have from last year, so dividing the value of your portfolio by the number of units tells you the new unit price. Hopefully it’s up, and up more than the value of inflation for that year 😉 Monevator tells you how to deal with putting money in and out of a unitized protfolio. I have only put money in, so life is simpler for me. I should also remember that 20% of that 34% increase isn’t real, it’s simply I am measuring with a 10-inch ruler not a 12-inch ruler due to the fall in the £. But I shouldn’t be such a miserable git, my unit price went up by over 1/4 last year regardless. Obviously there is a humdinger of a crash coming at some point, the bull run out of the 2009 crash is long in the tooth now. Which will take this all back down to size, although at least there’s no tremendous need for a reversion to the mean from the illusory Brexit boost. Some things you don’t get to un-cock-up in a hurry.

    The trouble with this approach…

    is called Donald Trump, because I am investing in only two funds in my ISA in this tax year, VWRL and a Legal and General DevWorld ex UK, although I have plenty of accumulated shares in my HYP and a lot of more racy EM stock from a couple of years ago when I miscalled the bottom 😉 Even my stake in that bad boy Putin‘s operation  is up 16%. I don’t think this is particularly because Putin is doing something right, more to do with the brain-fart otherwise known as Brexit lifting the apparent price, along with a fair amount of my other mis-called EM stock. It’s an ill wind…

    Both of the funds have over 50% of the US, the US has been overpriced since 2009 and it’s still overpriced. At the risk of tempting fate with the dreaded ‘this time it’s different’ I came to accept American exceptionalism because too many of the massive global and tech companies are US only – there is simply no Amazon, Facebook, Apple anywhere else, and I came to the conclusion that I had to suck it up and drink the Kool-Aid, albeit in index-fund form. I have no ambition to stockpick the USA. But I was wrong to shun the US on valuation and have no doubt given up a lot of money because of that.

    Very tough call, our Donald. Here is a dude who disseminates policy by Twitter. The (liberal, losing-case) Atlantic summed up the problem well

    The press takes him literally, but not seriously; his supporters take him seriously, but not literally.

    Trump might actually be good for America in the short/medium term, but it’s hard to tell. If he is, then he will run up the debt, as Republican administrations tend to do for all their hard talking, but we can hope he can also increase spending. Structural problems will still abound – the robots will still be coming for Americans’ jobs, and just like the Brexiteers, Trump won’t be able to bring the 1950s back. At least he doesn’t have to bring the days of Empire back. At the moment we have no real way of knowing, no way of detecting the signal in the noise spouted forth by this man-child. It is possible that he is brighter than he appears, and he’s clearly more cunning. Like the Brexiteers, Americans voted for change, and change is what they will get. Whether it is the change they want remains to be seen.

    I’m not sure I am comfortable increasing my US exposure beyond the end of this tax year. The PE ratio is shockingly high for someone used to UK values

    S&P500 PE

    where I usually want a good reason to pay more than 15-18 times earnings. And yet the US market looks like it is historically on higher earnings multiples. This year I was lucky, I bought from both a old Cash ISA moved into shares as well as this year’s allowance, before the Brexit vote. So it is likely that my fellow countrymen, in a heroic act of economic self-immolation, bought the Ermine portfolio out of overpaying for American exceptionalism. I guess there has to be some compensation for needing to get a visa to get on Eurostar, not having enough care workers when I get old and all that, and this is it. So thank you, Brexiteers. And even more thanks Lady Luck for the fact that I bought into this hopelessly overpriced region before Brexit. That ill wind again.

    It is possible as a Remainer I may one day have to offer thanks to the Brexiteers

    One word. Euro. It’s big, it’s bad, it was misbegotten from the off, and fudged by Germany when it was the Greece of the day. I went to Germany in 2004 and was surprised to see how down at heel it looked, Gerhard Schroder’s Germany went through the mill with the Euro then. Was a bit of a reversal of the time long ago when my German grandmother came to London in the mid 1960s and wondered at all the bomb-sites still left and all old bangers on the road, whereas Nürnberg was well into reconstruction with the results of the Marshall Plan and Konrad Adenauer’s Wirtschaftswunder. She obviously knew to STFU on the tactless observation “but I thought this was the place that won the war” but it did cross her mind as downright odd. So the other way when I went to Germany in the mid 2000s and saw the results of reunification and the place reaping the ‘benefit’ of the Harz reforms. Anyway, back  to the demon-child of European federalism, the Euro.

    One day this sucker could go down. Perhaps eventually Britain may join EEC-Nord 5 in a common market, where in the same way as Germans still don’t really like using credit cards because of the old collective memories of the Weimar inflation EEC-Nord will stick to economics and customs rather than trying to create a United States of Europe. That will only last a couple of generations, in the same way as Clinton repealed Glass-Steagall nearly 70 years after it was enacted in the Great Depression, but it will see me out.

    The euphoria of the 1990s following the reunification of Germany, and the triumphalism of the fall of the Soviet Union went to people’s heads, and as the European Economic Community metamorphosed in the EU we 6 told ourselves a story that there was more common cause among Europeans than there really is. The response to the Euro crisis, and the response to the refugee crisis show that this assumption of common cause does not hold across Europe – under pressure it dissolves into its nation-states in a way that states of the US just don’t do.

    Perhaps Mrs Thatcher was the agent of destruction here as well – the pre-1995 EEC had about a dozen members of broadly similar economic capacity and she promoted the expansion to the poorer states of the East specifically because she wanted to put a brake on greater integration. She didn’t like the idea of France and Germany ganging up on poor li’l ole Britain.

    “We must never forget that east of the Iron Curtain peoples who once enjoyed a full share of European culture and identity have been cut off from their roots,” she declared in 1988. “We shall always look on Warsaw, Prague and Budapest as great European cities.”

    I guess she forgot to add watch out for blowback because there was some risk of these good people being somewhat dynamic than the lumpenproletariat who weren’t prepared to get on their bikes meaning there would be hell to pay in 20 years’ time. Or more likely she had a great crystal ball and a copy of Sun Tzu’s The Art of War next to her copy of The Iliad open on the bit with the wooden horse and was biding her time. In 1975 it appears she was vaguely pro-EU but 40 years is a long time in politics.

    Either way, that assumption of common European cause is plainly not true. Even once the pesky Brits have been ejected, it still won’t be true. It’s not like the love really shows ‘twixt Merkel’s Germany and Greece, when it comes to kein Finanzunion. The EU can perfectly well survive Brexit without missing a beat. But I don’t think it can survive the economic and philosophical tensions at the heart of the misbegotten Euro project. Until Germany is prepared to shovel money into Greece without question in the same way as the State of New York 7 shovels money into Detroit, Michigan via the Federal government then the Euro will always be a source of danger. There just isn’t the same sort of carping about the defacto financial union of the US as there is about the Euro. And that’s why it’s a convincing United States of America, and that is why the EU is such an unconvincing United States of Europe. A common language would also help, as indeed would a common (and effective) military and defence policy. Even without Britain carping from the touchline this just ain’t going to happen, and while a common language isn’t necessary, as many EU nations show, the defence of the realm is one of the basic requirements of a nation state. Schengen is a lovely idea in theory, but the rubber of the ideal meets the road when you send your young men out to die to hold the borders…

    I’m still of the opinion that Brexit is a clusterfuck of the first order that will do untold damage to most UK citizens’ medium and short-term wealth. However, if there is any silver lining, then it is gaining distance between the human and fiscal misery and blood and guts raining down if and when the Euro blows. That will be something that I may well live to thank the Brexiteers for. They will have got the right answer for the wrong reasons. I am also pleased to find some coherence in the outpourings of the thousand monkeys in that we have to properly go out into the cold and then see where we can go from there, rather than the trite have-cake-and-eat-it witterings of the man-child BoJo “what happened there”. Theresa May needs to shut up with Brexit means Brexit and say we will leave the EU and do whatever needs to be done to control immigration. It is what the proles voted for, although the toffs and BoJos of this world didn’t really give a toss about immigration because cheap labour ain’t such a bad thing if you have Capital. But they have the tiger by the tail and need to keep quiet about that. There’ll be reason enough for the masses rioting on the streets in the coming decade without giving them the extra excuse of we was robbed as far as hearing people not speaking English.

    If we want our country back then we have to accept the economic devastation that goes with that; most trade is done with one’s neighbours. And this is a fight that will be lost less by Capital rather than Labour. The next ten years won’t be a good time if you’re earning minimum wage, and don’t even think about having children if so, it’s not going to be a good time if you are poor and elderly, it’s going to be rough if you owe too much money, though you may be saved from buying too much house by the inflation. But we’ll have our country back, what’s left of the former glory to scavenge in the twisted wreckage. And in ten years’ time we may hear that massive explosion go up next door, and be grateful for “Fog of Brexit in Channel, Continent cut off“. Once upon a time a more gallant Britain put a lot of blood and guts into alleviating a European tragedy, but we are all individuals and there has been no such thing as society since ’87, so we’ll probably shrug and say “nothing to do with us”.

    Decline is like that. The Empire isn’t coming back and neither are the 1950s. There aren’t any good options here. The proletariat of the West is losing the economic fight because they are becoming less and less relevant to production/ productivity, and the enfeebled body politic seems to search and find no answer because it has caretakers, not leaders 8 at the switch. In the words of Oswald Spengler

    There wakes at last a deep yearning for all old and worthy tradition that still lingers alive. Men are tired to disgust of money-economy. They hope for salvation from somewhere or other, for some true ideal of honour and chivalry, of inward nobility, of unselfishness and duty. And now dawns the time when the form-filled powers of the blood, which the rationalism of the Megalopolis has suppressed, reawaken in the depths.

    We want our country back rises the rallying cry. You got it, buster. Enjoy the ride.

    No doubt Brexiteers will moan that I am talking Great Britain down. Sod y’all. It’s my blog and my vision of the future. I’m not saying it’s right, it’s what I think is most likely. I went to Oxford for a conference a week or so ago, and I saw levels of rough sleeping that remind me of Thatcher’s London in 1981.

    Oxford High Street – lots of happy well-to-do people buying shiny baubles and nary a Money Shop, charity shop or other sign of deprivation in sight. But at night the character of the city changes, the empty shop doorways are populated by the homeless with tinnies in their hands. Even in the day there’s a high level of street begging. Brexit ain’t even started yet!

    At least in London you have the urban heat island effect on your side as a rough sleeper – Oxford was bloody cold even in a camper van with electric hookup and a heater. The rough sleeping is a lot worse than when I went there two years ago, and that’s despite the Brexiteers’ triumphalism that the economy is going so swimmingly. We haven’t started to leave the EU, never mind finished it yet, there is time enough for some though not all of Project Fear to show up in the next five to ten years. If we’re gonna run on magical thinking, then let’s at least have the right sort of magical practitioners, and Govey-boy and your Brexit Central ain’t the right sort at all.

    2017 – welcome to the decade of the candy diet 9 and the wrong sort of magical thinking.

     

    Notes:

    1. There’s a decent argument that the Gnomes were only responding to UK own goals then, the forex market doesn’t seem to be particularly partisan, but it does recognise economic folly and try and route round it
    2. I am personally of the opinion this is A Good Thing, interest rates of 4-6% which is the historical long term average for the UK please
    3. that is earn as in sell my time for money, rather than earn as in interest and dividends, ie making money from Capital
    4. This would be a barmy way of running my portfolio/income, use a five year integration period. I had a crap last year of -7% and -1% year before that, though previous years were well into double figures. The 5 year integration is much more even. Nevertheless, the Brexit fall in the pound is a localised and as a filthy capitalist I am of the view that the capital is worth the same but measures different, while the proles income measures the same but is worth less.
    5. I am not actually sure that Britain is capable of Northern European economic rigour, so perhaps not
    6. In fairness that ‘we’ shouldn’t really include Brits, who were always Das Inselreich
    7. among all the other net contributors – more here
    8. Exhibit A is the tosser David Cameron. Not only did he not have the balls to refuse the referendum and say this was for Parliament to decide in the first place, but then when he didn’t get the answer he wanted he scarpered at the earliest opportunity. Imagine the shit we’d have been in if Churchill had bottled it in the Blitz.
    9. H/T Monevator even if it did make me despair
    2 Dec 2016, 12:49pm
    personal finance:
    by

    42 comments

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  • An accidental tourist in the world of Matched Betting

    A big meme in the UK personal finance scene is matched betting. I was cynical about this for many reasons, but particularly because I assumed that this was arbitraging odds. Capitalism tolerates arbitrage, but you normally have to be very well-heeled to to do it. Your stockmarket platform uses arbitrage, hedge funds to, banks do it all the time, middlemen of all sorts. End consumers, not so much, and punters are are end consumers at the bottom of the food chain. Turns out I was wrong about the arbitrage – although that is one way people make money out of matched betting, the primary way seems to be making money out of freebie signups. Arbing odds seems to be an easy way to run into trouble. Gambling is very lucrative for the bookies, they throw zillions of promotional freebies out there, and you can pick up a few pennies from the firehose of offers to part prospective punters from their money.

    1612_coral

    what an online bookie looks like – Coral in this case

    By betting on both the result and the anti-result you can eliminate the risk of the result and extract some of this free cash. There are many catches – it’s time consuming, you have to prostitute your personal details to many bookies, presumably your bank looks at the string of gambling transactions and won’t even think of advancing you a mortgage. On the plus side it’s a bit of a game, and particularly interesting for me is that it is tax-free. One of the things that holds me back from taking some jobs is the problem of accounting for piddling bits of money. I don’t ever want to work for a salaried job again, but on the other hand although I quite like the idea of hit and run jobs many are small, and paperwork bores me. The taxman doesn’t tax betting income because it’s usually anti-income and people would offset it against tax from real income.

    The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade.

    HMRC

    As far as how it works, I’m not going to try and describe that. Too many others who know more about it have done that – take a look at oddsmonkey for how and why.

    Why matched betting isn’t gambling

    The key thing that makes matched betting not the same as gambling is that you back one side and lay the other, so the risk is cancelled out. Screw that up and it’s betting. Ask TFS about the Winner offer 😉 It’s actually TFS who started my foray into this underworld, because he had the cojones to narrate how he had screwed up. Everybody else is saying it’s money for old rope, so my bullshit detector was always going off. Mind you, TFS has a little of the gambler in him anyway, as I’m sure I saw gambling costs as a line item in one of his monthly summaries. And TFS is a fellow who dreamed of becoming a professional gambler. I was about to pollute his comment stream with a cynical comment as to ‘professional gambler, WTF is that?’. But them I thought I ought to really hit up Google in case I was about to display my ignorance, and it turns out that professional gambler is a thing. These are people who do effectively arbitrage odds, theoretically through a superior analysis of the event being betted on. I suspect very Few are chosen from the Many 😉 Matched betting isn’t professional gambling either.

    The weird world of gambling and casinos.

    “The music businessgambling world is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.”

    Hunter S Thompson could have been talking about online gambling

    I’ve never been in a betting shop and I hate sports, deeply, on all levels. I just don’t give a damn. The whole betting scene is garish as hell, it’s like a wall-to-wall caricature of Donald Trump in the way it appeals to the inner monkey in us.It’s like going to Las Vegas, you kinda feel a little bit dirty on the inside and outside after you’ve tangled with this sort of trash

    But using Oddsmonkey it’s easy enough to sidestep a lot of that, going straight through to the particular page wanted. I found it was worth paying them the £16 a month simply to shorten the whole process, obviously you need to be making a lot more than that for there to be any point. In the beginning, with signup offers it’s easy to do that, although I suspect making a profit will get a lot harder later on, and at some point it will fall below the can’t be arsed threshold for me, which appears to be higher than for most other people at this. The Ermine is a lazy devil when it comes to pointless makework, which is what this boils down to. There’s also the wider issue that the annual dividends on my ISA are more than I’ll probably extract from matched betting signup offers in a year, and I get that for sitting on my backside and the dividends will keep coming year after year.

    Why it won’t last

    Fundamentally, matched betting is extractive, it creates no value. I presume the bookies are busy working on Bayesian systems to spot customer matched betting patterns, and restricting their accounts. Because of the dreadfully onerous know your customer rules in the UK you can’t just spin up new accounts to dodge that. I’d give matched betting five years tops before it’s stamped out. It’s possible that they make so much money on normal punters they don’t really bother, but the fact that bookies limit some matched better’s accounts indicates they perceive a problem.

    What it could do for you

    If you’re prepared to sit behind your computer most of the evenings and particularly weekends, then you seem to be able to extract about £15,000 p.a. Go look at Early Retirement Guy‘s alter ego, MatchedBettingGuy for a fellow who has hit this hard.

    What it may do for me

    I’ve extracted a couple of hundred. But then I’m lazy, and I don’t really need the money. I confess to a buzz at extracting money from bookies, and it reminds me a little bit of playing computer games – but the last time I did that was in the late 1980s on an Atari 800. I stopped that for the same reason I struggle with MB – it was fun but a pointless waste of time – and I made that call on computer games when I was in my 20s ;). Some part of me despises the valueless waste of my time with matched betting, I’m not improving myself or adding any value to the world doing this. I’ve probably trashed my credit rating for a while, but then one of the delights of being FI is I don’t need to borrow money from anyone. I have no idea of how people continue once they’ve burned through the new customer offers, because getting a decent return from existing customer offers seems really hard work. So maybe an Ermine hit and run on the bookies of Britain will be good for about a thousand pounds in all. Which is worth having I suppose, but I’m very clearly missing something compared to ERG.

    Keep your nose clean and keep this stuff off your main computer

    Remember Hunter s Thompson. This is an ugly industry feeding off human weakness; you don’t want it anywhere near normal life.

    I use a separate gmail account, and a computer booted off a Linux liveCD so it’s new-born every restart. Although I don’t see most ads due to adblock plus I don’t really want the Big G to spam me senseless. And whatever your main bank account is, where your salary and mortgage get paid, well, it would be wise not to use that IMO 😉

     

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