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
    31 Jan 2017, 12:03pm
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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
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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
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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:
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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 😉

     

    2 Nov 2016, 4:37pm
    living intentionally personal finance
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  • Sick of the daily grind but can’t wait for FI? Try a new angle from Andy at Liberate Life

    Many of us in the financial independence/retire early space want to get financial independence because we want freedom from the Man taking over all our time. However, attaining financial independence takes a long time and it’s a tough slog. Retirement Investing Today has reached the finish line in his early forties after nine years of this. RIT even asks himself is he an outlier, I would say he is. I am less of one, but I went three years with no holidays and working hard and spending as little as possible to get out in my early fifties. What you have to go through to get to being able to retire early isn’t fun before, though it is afterwards 😉

    It also concerned me that a lot of the narrative on here isn’t very widely applicable to people starting their working lives now – after all I started work thirty-five years ago. I think Andy has a lot to offer this cohort, because while work has changed, it isn’t all adverse change, and some of his ideas may help play that hand better in the modern world. Andy challenged me in the narrowness of my vision regarding work – his persistence in the face of a curmudgeonly and stuck in it’s-ways Ermine can be seen in this comment thread

    Getting to financial independence is about earning and saving, and it pays to get that right, both in terms of earning as much as you can and saving as much of that as you can, but I’d say that more than half the battle is getting control of your headspace, knowing what you are doing and why. The younger Ermine was called out as a spendthrift wastrel and compared to many in the PF scene he was, although he avoided the general category error that is consumer debt which dooms many to a life of wage-slavery.

    Andy is offering a different take on this. More choices open up when you separate the requirement for independence from financial independence and retirement

    Andy has looked at the financial independence/retire early (FI/RE) scene with fresh eyes, and he observes a lot of independence can be had before financial independence. He is an inspiring example of someone in the FI community who isn’t working in finance 1 in London, but is getting freedom of self-determination and control of how he spends his days. Andy is in his early thirties and lives with his charming wife and two delightful young children in the beautiful surroundings of Devon near Dartmoor.

    Andy from liberate.life with the rolling Devon countryside in the background

    Andy from liberate.life with the rolling Devon countryside in the background

    In particular, he is of the view that many of us miss the point in focusing on the distant goal of financial independence. You can get a lot of independence and a lot of resilience from The Man by looking at working and earning a living in a wider way.

    So I decided to find out more, and visited him down in Devon, on the way to looking at some prehistoric stones on Dartmoor. The rest of this post is an interview with Andy about some of his ideas on life and work.

    An Ermine interview with Andy from Liberate.life on how he separates independence from financial independence.

    The title of Andy’s site says it all – his aim is to liberate life from the limitations of working for The Man on one side, while at the same time not deferring all gratification until he is as grizzled as an Ermine, because his kids will have become adults by then and he’d have missed them growing up.

    Changing your thinking patterns is never easy, and a lot of how we think about money and work was set quite early on. In the interview I ask Andy about his vision of what a good life is, and he talks about how mastery of his destiny is important to him and what he has changed to get closer to that, and his different take on financial independence.

    More ideas from Andy on how to liberate your life

    Andy’s website liberate.life is both about the how and why, but he offers more targeted way to help you make the changes:

    a free email six-part course on how to quit the rat-race in 18 months*

    one on one coaching* on how to become more entrepreneurial, and how to test new business ideas so they show whether they are likely to succeed sooner rather than later.

    Andy can help you liberate your life with his one-on-one course, if you are open to new ways of thinking, and have the talent and drive to make changes. He is open about the scale of the challenge and the rewards. Andy’s approach is to steadfastly challenge limiting beliefs about work and earning, so you can use your ability to add value to other people to the full. Hell, he has even got the grizzled Ermine to think about doing some kind of paid work, just for the fun of it 2

    He’s even more persistent in delivering the message in person. Resistance is futile – the world of work has changed, and agility and lateral thinking in the face of change are what helps get ahead now IMO.

    What did I learn from Andy?

    I should acknowledge I haven’t done his course, but we did talk for a long time. I’m not his target audience because it is too late for me. I had to solve the financial independence conundrum on my own. And yet it’s clear that both my limited history and the nature of leaving the workforce left large regions of limiting beliefs:

    Limiting belief 1: A view that selling is a sleazy occupation and I have never done it and have no place in it

    This is as a result of my limited experience- I have only ever worked for four companies, and three out of the four were very big firms. I was far removed from the front line. Selling is an essential part of making any enterprise work, and my concept of sales and marketing was a combination of Arthur Daley, Spanish boiler-room telephone sales scams and used car vendors.

    Now if I look back at my career I have sold ideas and strategies to people, but if we ignore that as lost along with the career, I then looked at designs and services I have sold to people outside my main job. And discovered that because I had always conceptualised sales as the spoken word, I had ignored sales I had made through the written word – a few thousand pounds on articles (ignored because I have been reading journalists decrying the death of print for years), and also a few pieces of equipment sold because people had chased me down to buy equipment after I have published technical articles on new opportunities and techniques.

    In particular, because outside work I generally influenced through the written and not the spoken word I missed that I had already been selling through widening influence in the way of writing technical articles, even if I did make my customers chase me down and articulate their requirements as a request.  I am clearly of the Ralph Waldo Emerson mousetrap school of thought here 😉 If I wanted to take this further I would carry on in that line, using influence by contributing original articles to special-interest organisations and getting sales from that. I had missed seeing all of this because selling is done verbally in my beliefs. It is theoretically possible that using social media I could expand this, although I don’t have to. I use Google to publicise my articles 3, and by choosing to specialise in niche areas it works for me. I don’t SEO or all that malarkey – write decent stuff about technology I am interested in and choose small pools. Decent writing matters. I’m never going to win the Booker prize, I am wordy and not always focused. But in these small pools I am competing with engineers, not with Shakespeare, JK Rowling or even Dan Brown. ’nuff said.

    Limiting belief 2: Quite serious blind spots regarding working and earning

    These came around because of the way I reached FI, running away from something rather than towards it. You shouldn’t do that generally in life, and I was saved from the boredom that afflicts many who retire to get away by the return of an inquiring mind. That exit left marks from the experience that work hurt a lot at a particular time of weakness, and this was generalised. In fact it was the absence of control that hurt, if I had been in a position to turn round to the boss who tried to shaft me and say

    “Quite frankly, if that’s how you feel then you can f**k right off and stick your performance management where the sun doesn’t shine, if you want to do things in such a stupid way then be my guest and find some other sucker to cover for your failure to look ahead”

    I probably would have felt fine and dandy about the whole thing. Obviously I would then still be working, arguably wasting precious time of my life to earn money I didn’t need so it’s perhaps best that it happened that way.

    So I ended up with the feeling that the whole principle of selling some of my human capital for money ends up as pain, as opposed to the specific example at that specific time did. I inferred the general from the particular, and you shouldn’t really do that from one data point, it’s bad epistemology.

    I am sure there are other limiting beliefs, but I’ll vouch for Andy’s tenacity in hauling those out.

    So there you go, particularly for younger cohorts for whom the journey to FI looks very long and hard. As the man says – Sick of the daily grind but can’t wait for FI? Take a look.

    *Disclosure – Andy contributes to the Ermine’s beer fund for signups through here, but this won’t cost you any extra. I never promote something I don’t see real value in, I scrapped Google Ads from Simple Living In Suffolk years ago when they flashed offers of Wonga et al to unsuspecting readers. Having met him, Andy seems to play a pretty straight bat, judge for yourself.

    Notes:

    1. I have nothing against people working in finance in London. But you’re a breed apart because of the pay levels, and the rest of us need hope and inspiration too 😉
    2. Note: I am interested in the research field and it benefits people I care about. I am not The Returned 😉
    3. this blog is an exception, I don’t really know how people find this, though I am glad you do, and I tip my hat to fellow bloggers who I believe are the main route
    19 Oct 2016, 12:40pm
    personal finance:
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    58 comments

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  • Investing in…the State Pension?

    One for early retirees older than 40, really, the known unknowns are too great when you’re younger, but otherwise it could be an offer of an annuity at an unbeatable rate of more than 100%. Try getting that on the open market!

    I’ve never really taken UK State pension into account in my financial planning, for two reasons. One is that it never seemed to be near enough, and I always assumed it was going to be means-tested, and the second is that I have sufficient private pension. I’ve also been contracted out for 2/3 of my working life, which means I would get less anyway.

    Over the 30-40 years of an adult working life, you will go through many fads and phases of the State pension, you will see at least 8 government administrations, well, assuming that the logical conclusion of Brexit isn’t a one-party state at some point. Each of them will fiddle. As a result I filed the SP in the ‘too hard to think about and not very relevant to me’ department.

    Now someone pitching for financial independence and retiring early is likely to have a shortened working life, I had 30 years of proper working, ie rolling up at a place of work and getting paid for my trouble. When I started work you had to have 40 years of working life to earn a full State Pension, elementary arithmetic showed me that leaving university at 21 and retiring on a typical white collar pension scheme retirement age of 60 was going to leave me a little short, and I compounded the issue my taking a year out to do an MSc in the late 1980s 1. As it was there were no other periods of unemployment until my career ended at 52. Fortunately for me they changed the rules in 2006 I think so I only needed 30 years. I was chuffed, because 52-21-1 makes 30 years so I was home and dry.

    Then they changed it again in 2016 so I needed to get 35 years, and now I am SOL because not only am I 5 years short, a sixth of the total, but I was also contracted out and there were dark mutterings that this will cost me a lot. Looks like my original suspicion this will be means-tested on money-grabbed out was right.

    I’d already gone through the pain of getting a national insurance record statement from HMRC, which involved filling in forms and sending them off up North somewhere and waiting an interminable period before a computer printout landed on my doorstep through the post. I read this Torygraph article bitching about how it was all too hard and thought I would actually go read the PDF written by the ex pensions czar Steve Webb, because he always struck me as a sensible sort of fellow except for a brain fart when he invited pensioners to go get a Lamborghini.

    That'll be a nice Lamborghini, and to hell with the money

    That’ll be a nice Lamborghini, and to hell with the money

    He now works for Royal London insurance because ,well, nobody voted Lib Dem in the last election and he was one of them. Turns out he has written a pretty coherent guide, and it appears that the Telegraph was shit-for-brains when they wrote their article, or collectively feeling the after effects of a particularly excessive office party. In particular, their “Topping up your state pension guide” is the dog’s bollocks, written by none other than Steve Webb. I can only presume the Torygraph journos are arts/PPE grads who are scared by  flowcharts ;).

    It’s so good I’ve saved a local copy of it here because when I go through my older posts featuring external links, it is clear that Jakob Nielsen was on the wrong side of history in his 1998 “Fighting Linkrot” article. That’s battle was comprehensively lost, we all know what happened, the good guys lost and were trampled into the ground.

    You can now get your NI and State Pension forecast online

    Something that I learned from Steve was that you can go here

    http://www.tax.service.gov.uk/check-your-state-pension

    and go get your own SP forecast. It helps if you already have a HMRC ID like from self assessment, and you want a copy of your passport nearby, but it went okay for me, and you get much more detail on your NI payment history than the old system. It turns out an Ermine’s NI record, if I had stopped contributing in April last year, is good for a State Pension of  £141 p.w, which is about £7300 a year.

    Now at a SWR of 4% that is effectively a bond portfolio of £182500. It has different risks to a bond portfolio – it has political risk rather than market risk. That’s not so bad if it is part of your portfolio, as opposed to nearly all of your retirement savings, however, because diversification of risk is a good thing. Its nature, however, is well suited to underpinning market risk, and bond investing in boring. I personally hold no bond assets whatsoever, but this is because I have a deferred defined benefit pension due in four years, and this covers the same sort of risk. I also have far, far more equity savings in my ISA than my SIPP, because I don’t want to pay tax on my savings, so I am running that SIPP into the ground ahead of my pension.

    The State Pension offers an early retiree a great annuity rate

    For two possible reasons – if they are an early retiree they probably don’t have 35 years of NI contributions, that’s the whole point of early retirement, and moreover they may have been contracted out. It is the second reason that makes it worth me contributing another three years of NI contributions, because that will wipe out my contracted out deficit, and I will reach the upper ceiling of £155.65 a week, ~£8191 a year. The obvious question here is ‘is it worth it’. That nice fellow Steve has done the dirty work for you here. You can choose to sit on your early retired chuff and pay voluntary Class 3 NI contributions, at ~£730 a year (it depends which years you are buying, I am assuming in my case these are years going forwards, though I could pay a little less to buy out years 2013 and 2014). which buys me ~£207 a year according to Steve.

    A far better way, however, is for an Ermine to be self-employed for three years and to pay his Class 2 ~£150 a year NICS. An ermine obviously doesn’t want to pay tax, so I work at a very low level, nominal minimum wage for 1 day a week. However, I don’t spend a day a week doing that – I hired the magic of PERL to extract the records from a bank account to inject into Quicken for that job, where the previous lot used to type in all the transactions. Because I don’t need to pay PERL any wages, my earning rate goes up from NMW, but I go a lot more part-time to compensate 😉 The pay rate is still pretty piss poor compared to The Firm, but it beats NMW by a long chalk, and I don’t pay tax on it 2  😉

    Now paying £150 to get £207 a year for say 10-20 years 12 years in the future sounds like a bloody good deal to me. I paid my £150 with alacrity and good heart this April for the year 2015/16. Technically Steve Webb is right and I should refuse to pay for 8 years and then pay up all at the end, because for all I know I could cark it tomorrow or sometime in the next 12 years go and do a Jim and go back to work because I miss the metrics and performance management shite so terribly that I need it back in my life. But sod it, I am going to pay my £150 early for peace of mind. And next year and the year after that.

    There aren’t many places you can go buy a deferred to 67 inflation-linked annuity returning 138%. Normally you are looking at 3% and have to have one foot in the grave to get a better rate. Even if you can’t find a way to look self-employed and go the Class 3 NICs route you’re looking at an annuity paying 28%. A top rate, risk and asset-class diversification and backed by Her Majesty’s Government. You owe it to yourself to at least ask the question of whether you can do this 😉

    force majeure

    There’s always going to be the tin-foil hat brigade that say that these promises aren’t worth the steam off their piss and will be repudiated. I am/was one of them, but in the end it’s down to Stephen Covey’s Circle of influence versus circle of concern. Personally I prefer the other statement of the same conundrum –

    For sure, the government may repudiate the State Pension, tax the crap out of it, the buccaneering Brexiteers may destroy the value of the pound so much that a pound buys you half a peanut in 20 years or there may be a war of all against all. Any or all these things may come to pass. I’ve got a lot more chilled than when  I was working, shit happens but not usually all the shit happens. There’s somebody offering me a taxable inflation-linked income of £890*0.8 3 for a one-off cost of £600 spread over four years, and over there there are people offering me the same £891 as an annuity for about £23,000. I’ll take the government up on their kind offer and to hell with the downside. I can afford to lose £600 for those odds.

    Notes:

    1. Looking at my NI record I see that either my younger self bought the extra NI when I went back to work, or for some reason doing an MSc on a Manpower Services Commission grant meant I got NI credits for that year. I didn’t get NI credits while doing my undergraduate degree
    2. because I am careful to only have income below the personal allowance, rather than I am keeping it all in the British Virgin Islands with Mossack Fonseca
    3. 20% tax
    11 Oct 2016, 11:56am
    personal finance rant reflections
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  • to live different you must do different

    The Ermine has been using some of that extra time you get in retirement to go travelling, after a jaunt round Salisbury Plain with the archaeologists working for  military 1 and then on to Dartmoor, when I met up with Andy from liberate.life to talk about the modern workplace. Andy is a driven and hardworking chap so he’s already written the post by the time I get round to writing this, so I will stick with this picture of Haytor on Dartmoor, which is near his neck of the woods.

    a fine rock and worthy fo a moderate scramble to get up to

    a fine rock and worthy of a moderate scramble to get up to

    where we had lunch. Lots of stuff discussed, because he has a different take on the world of work.Very different to mine, particularly how to approach it.

    Occasionally a younger fellow has managed to use their initiative to find out how to contact the Ermine by email, along the general lines of all that work philosophy’s all very well, but how does it apply to me? And it’s saddened me that I’ve never had much of an answer to that. My story is a tale that started in a different era, and while many of the tools of the trade are the same, many things are tougher now, while conversely some specific opportunities are much greater now. After that discussion, perhaps there is a way to mitigate some of the adverse changes, of which more in a future post.

    We humans are storytellers, but we often narrate the story of our lives in other people’s words

    Let’s face it, we call that culture – Romeo and Juliet stand proxy for infatuated lovers even after 400 years. Less inspiringly the Kardashians stand for sucess, and  Donald Trump for alpha maleness, froth and scum float to the top as well as the cream.

    All the world's a stage, and this is one of the 'alpha male' castings. I don't get it either.

    We aren’t fussy about where we get our stories – all the world’s a stage, and this is one of the ‘alpha male’ cast of characters. I don’t get it either, but he does it for a lot of people.

    We borrow from stories and weave the threads into the image of our ideal lives. The story of how work and life fit together comes from many places – it comes from how we saw people do that growing up 2. A lot of it comes from advertising, where clever people tell us stories to try and get us to spend money on things and services. Take a look at Ad Age 3‘s top 15 campaigns of the 21st century, and the way they talk:

    Some of these ad campaigns are here because they changed the way consumers thought about the world around them

    Their words turned into your stories… The lead quote was a corker

    “Historians and archaeologists will one day discover that the ads of our time are the richest and most faithful daily reflections any society ever made of its whole range of activities.”

    Marshall McLuhan

    Your life has been designed, and not particularly by you. Most readers of PF blogs 4 are earning more than the median wage (~£27,000, FTE) – I hazard that this is the point where the fight switches from earning more to spending less, and the spending has a lot of the narrative written by people paid to make you spend more. Sometimes it’s good to see the extreme point to understand yourself – take a look at the phenomena of superyachts, which as PhD researcher Emma Spence has discovered, is basically all about consumerist willy waving writ large. You, dear reader, have to make do with with more house than you need and an iPhone. Nobody needed an iPhone 20 years ago, now everyone is walking around with £500 worth of easily pinched/broken hardware on their person…

    That is one tasteless ugly piece of kit, non? And this is the attractive side. Apparently something to do with Philippe Starck, he of the elegant lemon squeezer. Where’s a Viking longboat or Jonny Ive when you need ’em eh?

    What you consume is often the most egregious version of others writing the script, other parts of life have elements of this. I got to nearly 50 without realising that I actually had agency over how old I was when I retired. I hadn’t realised this was under my control, FFS – I took the age of 60, the normal retirement age at The Firm, and accepted that without bothering any brain cells with asking why this was so.

    Some of the things we can do are constrained by what other people do. The price of housing, for instance, given an endless supply of credit, will tend to find a level where the cost of servicing a loan can be managed by two people working full-time, because that’s what most people in that market are doing. Low interest rates and low inflation won’t help to pay off the loan over a working life, because it makes all the numbers bigger. For some odd reason we think low interest rates make houses more affordable. It just makes them dearer.

    Most people don’t get to financial independence under their own steam. To be different you have to do different.

    Many people’s idea of financial independence is getting the State pension, roughly when they are 67-70. They effectively outsource the job, although whether that gives a decent standard of living very much depends on whether they are paying rent and/or have other sources of non-work income on retirement. That’s the default setting, both in terms of time and in terms of money.

    There are two major areas you can do different to your peers. You can earn more, and you can spend less. The greatest win to be had is, of course, targeting both. Retirement Investing Today is an example of what you can do here. Unfortunately you immediately have a major problem when you want to swim against the tide, and that is that humans are social animals. If you are going to do different then spending less is going to make you look poor to your peer group. And most people just hate that feeling.

    Earning more is the obvious other way to go, then. You need to have the talent and the luck, but even if you have those, you tend to take a hit along the spending axis. This is because your work peer group becomes more spendy as they earn more. In practice the axes of spend less and earn more aren’t orthogonal and mutually independent. There’s probably no real way round it, in the accumulation phase you are likely to look on the poor side to your colleagues. I guess this is what seems to makes it easier for introverts to chase FI  – one of the few cases where this trait is an advantage.

    Not so easy after all. How about spend less? Fight consumerism by targeting the base of the fire.

    1610_advertising

    You’re changing the story there – in this case the story pumped out by the advertisers of what a good life looks like. After all, good ads changed the way consumers thought about the world around them. I presume this was in the direction of spending more and consuming more, because otherwise, what’s the point? I’m quite taken with the poetic description from Brandalism in this piece of agitprop 😉

    Advertising shits in your head – but, first, its torrential, golden flow stains your magazines, your phone, your computer, your newspapers and your streets. Advertising shits all over and dominates our culture. It is a visceral, powerful form of pollution that not only affects our common public and cultural spaces, but also our deeply private intimate spaces. Advertisers want your ‘brain time’ – to shit in your head without your knowledge.

    It’s why I run Adblock Plus and Ghostery, both set to 11 – kill ’em all. Destroying advertising as much as possible makes life simpler and more pleasant. It is a shame that at the inception of the Internet, we failed to craft a decent payment model, so advertising and the surveillance model became the original sin of the Internet, but there we go.

    I don’t have a beef with real people recommending real things they have trialled, it is the automated stuff like Google Ads that is the problem – anonymised mind-spam sold to the highest bidder. A while ago I went to a meeting in Leeds where I discovered how people think about blogvertising. A very few of you 5 will see I have an Amazon box on here – all of those are books I’ve read or things I’ve mentioned on here. I was running Google ads, but never saw them, because that’s what AdBlock Plus does for me 😉 When I realised I was running ads for Wonga and consolidating loans, because that’s what personal finance is about to most people I pulled it. Not because I thought any of my readers were going to be swayed to the dark side and toddle off to their local Money Shop to buy some overpriced money at extortionate rates, but because I didn’t want to be part of the problem.

    There are three non-spending areas that cause a lot of hurt for British consumers below 45

    Consumer spending causes a lot of trouble, because it’s a never-ending tactical battle fought one little piece at a time. But three strategic changes have caused a lot of damage to the personal finances of people starting out now. Let’s take a look at these

    University, and the apparent dearth on non-university alternatives

    When I started university in the late 1970s, fewer than 10% of school leavers entered university. It was much easier to fail exams in those days, because they were norm-referenced. It isn’t entirely clear to me what you have to do to fail exams now, because we have lost the cojones to tell some young people, and more specifically their parents, that they simply aren’t up to the mark academically.

    In itself that’s not so bad, but because so many more people go to university, the old system where the taxpayer fronted the cost in the hope of getting more tax revenue in the future from the higher earnings became unaffordable. Even if everything else were the same, it would cost five times higher proportionally 6 to take 50% of school leavers through university than 10% was in the 1970s.

    When you flood a market with five times the product, you also devalue it. When I started work, having a degree was a serviceable proxy to indicate I was in the upper 10% of academic ability, and for jobs that suit that sort of thing (engineering, science, research, for me) that was relevant. When nearly 50% of people go to university a degree tells you roughly they are of average brightness or above. Knowing someone is average or more is useful, but probably not something you’d pay £60k for over a working life.

    There appears to be no control of numbers going to university in the UK, it’s all about the money, which is a shocking abdication of political will IMO. Contrast this with the situation in Germany where numbers are controlled in some cases. Yes, it goes against the free-market-money-is-all mantra, but it’s also a damn sight cheaper to go to university in Germany. In fact it seems a damn sight cheaper to go to university just about anywhere in the EU other than England and Wales. Shame this option is probably only good for the next couple of years for British wannabe graduates, who are SOL afterwards 7 🙁

    The fundamental problem with university in the UK is the product is getting astronomically expensive at the same time as it is being devalued. University has become an unaffordable luxury. Unlike Germany Britain is also not particularly improving the non-university options, much noise is made of apprenticeships but it is often simply a mask for cheap unskilled labour. The trends in the world of work are running away from unskilled labour. An apprenticeship where the apprentice learns something about a craft is good, but is only good if the craft is likely to remain one done by people in the future at decent rates of pay.

    Housing

    In Britain we used to build social housing but we sold that off to the then council tenants to buy votes. I seem to recall Thatcher expressly forbade allowing councils to use right-to-buy revenues to build more housing. As a result less than a fifth of social housing flogged off cheaply is replaced, I am surprised it’s that high. We used to have credit controls up until 1980-ish but removed those, because the free market always delivers the correct solution, even when it is banks incentivised to lend money to people who have no capital but need to buy an essential good. So we have high house prices and richer banks. It’s not just the banks, anybody with capital, from banks to people who buy up houses and then rent them out to people without any capital at exorbitant rates and no real duty of care to make the joint habitable. So we now have high house prices, richer banks and richer BTL investors. Well, at least somebody is winning I suppose…

    As an example of just how out of touch the government is on this, Gavin Barwell, the Housing Minister, no less, delivers himself of the Marie Antoinette-esque recommendation that people should leave their housing equity to their grandchildren, FFS. That is so deeply fucked up it’s not even wrong. We’ve seen this movie before. When you go and see National Trust stately homes

    concentrating inherited wealth led us to stately homes and a tiny part of the population owning nearly everything

    concentrating inherited wealth led us to stately homes and a tiny part of the population owning nearly everything

    you are looking at what happens in a world where inherited wealth accumulates across the generations, combined with a world where the return on labour was very poor. It took a couple of world wars and a lot of technological progress to break that up. Even then, the aristocracy, sharp blighters that they are, simply requested an inheritance tax exemption on agricultural land, got it, and this is why most of Britain by area  is still in the hands of a few hundred family estates who were gifted the land by William the Conk more than a thousand years ago. Obviously they don’t drive the tractors themselves – they get contract and tenant farmers to do the dirty work, kill our birds, pollute the drinking water, flood our towns and cities and then claim subsidies for the activity for shits and giggles  because they can.

    What should happen IMO is a total escheat of all property on death 8. Those damn grandchildren didn’t work for it, and if they aren’t to get their throats cut by the massed and desperate hordes of people who weren’t born with a silver spoon in their mouths in the accommodation dystopia being created, then the current trajectory of ever-increasing housing costs needs to be shifted. I was able to save enough money through my working life to buy a house from a standing start. That’s getting harder and harder to do as more and more funny money chases property, but no, Gavin and George Osborne, more inherited housing wealth is part of the problem, not the answer. Unless you are actually going to go out and kill all the poor people who are dirtying up your nice world.

    The world of work is changing

    The accelerating trends in automation and globalisation, are part of a general shift of power from labour to capital that has been going on for the last 20 years. In a double whammy for poorer First World residents, globalisation is amplifying the shift of low-skilled jobs that can be moved to cheaper labour forces. While this is undoubtedly good for business and capital, if you were part of that unskilled labour force in the UK you get so see your jobs go. The last 20 years have seen a tremendous fall in poverty and inequality, but that’s worldwide. Let’s hear it from Tim Worstall – right-wing nutjob and apologist for unfettered free-marketology sans compassion for poor saps less clever than he is, riffing off this paper written by Ayn Rand Chari and Penlan. Take it away, Tim:

    According to a World Bank Study, in the three decades between 1981 and 2010, the rate of extreme poverty in the developing world (subsisting on less than $1.25 per day) has gone down from more than one out of every two citizens to roughly one out of every five, all while the population of the developing world increased by 59 percent.8 This reduction in extreme poverty represents the single greatest decrease in material human deprivation in history.

    That’s a pretty good outcome from an economic policy and it’s why I support the process of globalization quite as much as I do. Absolute poverty, that peasant destitution, is something I regard as an abhorrence. Killing it off through economic growth I thus regard as not just desirable but a moral duty.

    OK, but there’s a problem with this, as the paper points out. For some policies will be good for one set of poor people, those absolutely poor out in the Great Big World, yet bad for another set of the poor, those who are the poor in the already rich societies. And this globalization and free trade mixture is exactly one of those policies that has this effect. Rising inequality in the rich nations is a logical result of adding those couple of billion low wage workers to the global economy. We could predict it would happen, theory tells us it should happen and it has happened: no one should be surprised about that.

    I’ve made clear around here a number of times that I both understand this point and also think that it’s a perfectly fair price to be paying. Yes, of course, that’s easy enough for me to say as I’ve not got to pay it. […] But that the relatively lowly paid in the rich countries stand still for a bit while the absolutely poor of the world climb the economic ladder to the joys of three squares a day, yes, I think that a price well worth us all paying.

    Delightfully technocratic, Tim, and for all I know you’re right, it is indeed tough to fault the logic from a strictly rational/intellectual POV, the reason I can be sanguine about it is that while not as rich as Tim I am still on the right side of that inequality divide. You’re a clever cookie, Tim, the the sleight of hand is that price well worth us all paying. Seems a bit rough that it is just the poor who get to pay the price, Tim, might have been a bit more helpful if you’d like to chip in and  help out. As it is you only have to weep crocodile tears and wring your hands, because that’s conveniently precluded by the Ayn Randian logic. The UK poor aren’t standing still, they are going backwards – unskilled jobs are shit and getting shittier, for the simple reason that the value of unskilled work is falling. The second part of Tim’s article is a load of rationalising about why you can’t do ‘owt about that because if you redistribute towards your locally poor you shaft the globally poor- to wit

    It’s entirely possible that we could have some policy or other that makes our own, rich world , poor better off. But which at the same time makes the absolutely poor of the world worse off. And if we did have such a policy, and we were also concerned about the poor, then we shouldn’t have that policy. Even though it benefits our poor they’re not in fact all of the poor. And given where our poor are in the global income distribution then they’re almost certainly not the poor that we should be worrying about.

    He uses the specific examples of agricultural subsidies 9 in the US to show how this works, and the EU has its own version of this. 10 I can’t fault his logic, but I would pay money to watch him try and develop that line of thinking with some of the people in the UK who have been at the losing end on globalisation. A government isn’t voted in by the people of the world, but by the people of a specific area. The Brexit vote was an example of regional pushback. Trump is another. Poor people find it deeply offensive when rich people tell them their standard of living has to fall to help some bunch of poorer people elsewhere while the rich swan off and don’t take any hit themselves.

    This process of requiring more skills is drifting up towards what used to be known as middle class jobs, because it’s now automation that is coming for some of those jobs. When I considered learning something about accounting to become more competent and doing the books for a business, I came to the conclusion, supported widely in the comments, that it wouldn’t make sense to invest in training for something that is likely to disappear or be outsourceable. This is a microcosm of the wider ‘should I invest in university problem’, which is part of the topic of Poppy Noor’s little rant here, though I do think she needs a dose of  ‘if you want to live free, your utopia is irrelevant‘ to get her to be effective about changing her lot in life rather than be right about how it isn’t right.

    Being right about how things aren’t right makes for a deep and satisfying rant, but the chat with Andy on Haytor left me wondering how a 25 year younger Ermine would tackle the changed world. It would need to be different from the way that served me okay.

     

    Notes:

    1. It’s seriously unwise to go for a looky-loo on that bit of Salisbury Plain without the military’s help 😉
    2. which of course puts it about 30 years behind the times we actually try to live it in
    3. I am tickled that they don’t like people using ad-blockers. Reconnaissance behind enemy lines is always a tough game
    4. This is a total guess, but you’re not going to be worrying about financial independence and retiring early much lower down the scale. You’ll be worrying about making next month’s rent
    5. those that aren’t running adblockers, and if not, why not?
    6. I am making the handwaving assumption that the increase in population is roughly tracked by the increase in taxpayers
    7. It wasn’t me wot did it despite being an old git, I was a Remainer
    8. I’d generalise that further but the great thing about land is you can’t hide it in overseas tax havens
    9. Agricultural subsides subsidise the rich landowners in the UK, I don’t know enough about the US situation to know if it’s different, though I’d say CAFOs, and subsidised high-fructose corn syrup are indicative of a different sort of pathology than consumers sponsoring the aristocracy
    10. One of the tragedies of Brexit is that a big potential win from it, canning agricultural subsides, was nixed early on
    27 Sep 2016, 12:27pm
    living intentionally personal finance:
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  • Earning and working are different things in a post FI world

    Before they are financially independent, most people work to earn the money to buy the stuff they need and want, it’s how 21st century capitalism is meant to work at the moment. It gives rise to the term ‘work’ – something that you have to do otherwise bad shit happens, like you end up with all your stuff thrown out on the pavement.

    1609_evicted

    Because it’s something you have to do for many years, many of us get Stockholm syndrome with work. Inveterate story-tellers that humans are, we tell ourselves that work is innately a Good thing and lends meaning to our lives. Let’s take a fine example of this from someone who I’m generally in agreement with, other than in this aspect of life:

    But I believe almost everyone will benefit from having an ongoing economic relationship with society while they can – even if only for a day or two a week.

    Monevator

    I’m the poster child for disputing this paradigm. I consider it a limiting belief, and have taken pot-shots at the Calvinist work ethic every so often on here. The beauty of financial independence, however, is that you get to have the choice of whether to work or not. Over at SHMD, Jim has decided that he missed work, so he went and got himself a job, even though he doesn’t need the money.

    Now I have never missed work, ever since I handed in the tools of an office-worker’s trade way back in June 2012. There is, however, a general psychological principle

    Everything that irritates us about others can lead us to an understanding of ourselves

    Carl Jung, MDR

    I would generalise that to everything that irritates us… I don’t think it’s particularly personal in this case. If Monevator and Jim and 99% of the rest of the FI world want to work till they drop, good luck to them. It’s just the concept that work is an inherent good that gets my goat. As a society, we are going to have very serious trouble and mental distress with this meme if the robots and globalisation really do take half our professional jobs in the coming years, unless we have a social revolution that probably involves bending some of the axioms currently underpinning society. Hopefully one of them will be work = meaning 😉

    I realize today that nothing in the world is more distasteful to a man than to take the path that leads to himself.

    Hermann Hesse , Demian

    In order to live intentionally, therefore, I need to separate the beliefs coloured by past experience from my current experience, and my temperament had the past experiences not happened. Otherwise I will live in an imaginary prison, boundaries that once had value but have no more.

    What does the word Work mean to me

    It means a lack of freedom, it means grind, it means being trapped. It means earning money, it means selling my time for money, it means restrictions on my time. It means doing stupid shit like justifying my existence, it means filling in time sheets that have no bearing on reality, paperwork just because. Because humans are devils with their recency bias, this litany of woe is because the most recent experience was largely negative. But for 27 years out of my 30 it also meant the opportunity to travel, to do good interesting stuff and to build capital across my working life as I slowly exchanged human capital for financial and social capital. If I were to allocate the experience of my years evenly, then only 10% were bad, maybe 12% if I add in the six months I was unemployed between graduating into Thatcher’s first recession in the 1980s and starting work.

    So it’s easy to see the limiting belief. Work = pain, and I need get as far away from that as possible. Even in 2009 I intellectually knew that was an extreme view, but one that because of where I was in my working life I could get away with. The power of the intensity of feeling galvanised me to clobber wasteful spend and save and take the necessary risks with extreme prejudice, and reach FI 8 years early.

    What I did not realise was that simplification also distorts

    and it is the distortion that clouds much of my thinking when it comes to the topic of making money

    I think the word ‘work’ has picked up some unnecessary bad connotations […], especially as we’ve transitioned out of the years when ‘the recipe’ (grammar school -> degree -> job for 40 years -> pay your dues -> final salary pension scheme) still worked.

    liberate.life in this comment on here

    I was that grammar school guy, son of a maintenance fitter, who went to university, got a degree, then worked only four real jobs 1, have a final salary pension scheme. It worked for me. I was able to retire early because I saved roughly half the notional capital behind my FSP, but having the FSP effectively gives me a massive bond-like holding, which means my risk tolerance with stock market investments is insane, because the FSP will keep the wolf from my door.

    Liberate.life is the counterfactual to my experience – younger and more dynamic, but electronics engineering is the field the younger Ermine worked in. And yet he is yin to my yang – he can sell, and freelances, and as I read this it looks like the antithesis of everything I know about work. It’s like looking in the mirror and seeing half the image right way up and half of the reflection upside down. I’m damned if I know which half is off but I suspect it’s mine 😉

    So it was time to investigate the subject of work and money deeper. For a long time the obvious issue, that I associate work with pain, simplified things too much

    I associate specialisation with success with work

    For 25 years I was working in a big company, and in a big company hierarchy. Big companies tend to narrow people down into specialisms in engineering, because they have enough people that they can do that. I pursued some technical interests after leaving work, and have some of this on a blog, when I read it back it is a whole load of random bits and pieces on all sorts of subjects as I flit from one are of interest to another. Mine is worse on that front than your typical engineer’s blog, they at least tend to have a reasonable common thread for a few posts. As someone who is financially independent I can afford to pursue my whims, but if I were looking for staff and I saw that sort of character, I would think Jack of all trades and master of none, and file the CV in the round filing cabinet on the floor.

    I haven’t even stayed with electronics and software, a few weeks ago I offered to fix a generator on a no fix no fee basis. I was pretty sure that Google was going to be my friend, the world is full of Honda GX small single cylinder 4-stroke petrol engines and Google is full of people who are describing faults and getting hints on how to fix them. The fault was the engine would run for about 20 seconds and the die. Google told me this was likely a blocked breather vent in the fuel cap, which I confirmed by unscrewing the fuel cap as the engine was about to conk out. Whereupon it ran fine 2 😉

    TFS identified this sort of mentality as a ‘scanner’ but twenty-five years of working in big companies has taught me to identify it as ‘dilettante’. Apparently it is more tolerated in today’s world of work, a kinder term for that sort is multipotentialite. It is more tuned to today’s world in some ways, because better communications means provided you can search well, you can gain the benefits of other people’s experiences by covering masses of ground. You just couldn’t do that before the Web, you couldn’t find enough different people to talk to, and it would have taken ages anyway. Multiple tabs were made for that sort of approach to finding stuff out – cover masses of ground, fast.

    lots of tabs is the way to search - untill you run low on memory

    lots of tabs is the way to search – until you run low on memory

    So I have uncovered some unhelpful associations, and indeed at some level I despise that generalist tendency because for 25 years that wasn’t how to have success at work. It is possible I played against type for a quarter of a century because I prized security and stability and did not know how to manage money over more than a monthly basis. I always needed an answer to the Micawber question, and a regular income made that possible. I struggled with that while running several years from savings, in hindsight I didn’t spend enough. The generalist tendency occasionally caused me grief at work and probably slowed my rise up the greasy pole, on the other hand even in a big company you need people who can cross domains. It tended to work well in good times but be awkward in bad times.

    But since I have the drains up I may as well keep on digging at these unvoiced assumptions…

     I associate a steady stream with income – I am virtually blind to feeling uneven income is income

    I can’t really relate to income that comes in unevenly in dribs and drabs, because for 30 years income arrived in roughly the same amount each month, apart from overtime (in the early days) and bonuses (in the last couple of decades). It’s still a little bit of a mystery to me how a string of lousy £50 here, £100 there dividends in my ISA adds up to a good few thousands of pounds of income when rolled up over the year. I was able to jump over the uneven lumps ≠ income in the ISA because there are so many of these minor transactions I can think of this statistically. Many people work really hard to make their dividend income spread evenly across the year, this sort of happened naturally for me, although slightly peaking in Q1 and Q3. You can have 20 companies working for you in a HYP, but I would defy anybody to work 20 part-time jobs or even have 20 streams of income, that sort of diversification is hard to have with many income streams.

    At a gut level I don’t really consider the sort of hit and run one-off jobs like the generator as income. For sure, Quicken adds them up for me so I can declare this, as long as I keep my pension + earnings below the personal allowance I am chilled. Last year I was able to toss a lot more than the usual £3600 in my SIPP because these things added up to a fair bit more than that. But it doesn’t feel like income, because it is unreliable and lumpy.

    I associate earning money with work

    and worse than that, I associate earning money with selling my time for money. So these one-off jobs don’t feel like work which is good, but they don’t feel like earning money either, which is bad. I don’t trust them, so I just bung the result into SIPP and live off the steady income from the SIPP, because I can’t budget with variable lumpy amounts. By a curious twist of fate a retiree older than 55 can put all their earnings into a SIPP in one year and get it bumped up by 20% to extract the next year, provided they don’t draw more than the personal allowance. I’ve only got another few years worth of that before my main pension shoves me well into the normal tax bracket, but I may as well enjoy the windfall while it’s there.

    And yet together with the income from the ISA these odd jobs will start to add up to about the national minimum wage. It was not so long ago that I was chuffed that the dividend income from the ISA matched what I would have got from jumping through the hoops to get JSA (£71p.w so ~ 3700 p.a.) and yet the rate of increase of the ISA income per year is creeping up 3. I don’t draw an income from the ISA because I don’t need to – I want to pump that up as much as I can before I enter the regular BR tax bracket in a few years, since it is tax-free income.

    I have lived in a big-company bubble for 25 years and it has limited my vision

    I owe liberate.life some beers for widening my search. Because the similarities of the engineering skillset (naturally separated by 25 years or so due to the age difference) and yet pretty much everything else looking like a counterfactual, he’s shown me a set of limiting beliefs I was unaware of. More surprisingly to me, they aren’t particularly due to the trauma of the nutty performance management usage and abusage I took in 2009. That does exist, and has it’s own consequences. The idea of following Jim SHMD’s path and selling my time to an employer to draw a salary brings me out in hives. I’m not gonna go there, and I don’t need to.

    But unassociated with that, my concept of making money was massively narrowed by my experience of working life, the unchallenged assumptions of that grammar school kid who followed the default track. Now that I am grizzled of fur and sufficiently past the finish line that I have options all the way up to and including doing nothing, I can zoom out and ask myself the question – is there a better way?

    Perhaps I should turn the telescope round and ask myself what do I want out of earning money. I have identified a project where I could use a bit more money. It doesn’t directly change my own lifestyle, so my greatest fear of earning more through selling my skills doesn’t apply – that fear is that I would earn money, inflate my lifestyle with Consumer Crap™, get locked into it and lose the delightful freedom of FI. I am happy with what I will have, my lifestyle will inflate somewhat anyway as my income increases once my main pension starts. I don’t need to earn more money to raise my lifestyle. Although once I believed that I screwed up discharging my mortgage early which meant I took an income suckout for the last four years, now I am on the other side I’m not so sure that I regret taking the suckout over the convalescence period. but that’s easy to say from the other side of the mountain. I got a significant ‘pay rise’ this when my DC pension started in June and will get a massive ‘pay rise’ when my non-deferred pension starts in a few years. Breaking the link between making money and my own lifestyle gives me detachment which can distance me from the suffering normally associated with ‘work’.  It is one aspect of the freedom to that financial independence is about, once you have spent the time integrating the freedom from.

    So what do I want from off-piste opportunities to make money?

    It is a subset of asking

    I think I would feel truly fulfilled if I spent most of my days…

    a subset for the simple reason that I have command of my time, being FI. I will do other things that fulfil me, this does not need to replace my use of time, but it needs to add, or at the very least not take away.

    1. I want to earn through doing something that is congenial
    2. and interesting
    3. has some originality or novelty
    4. creative in some way 4
    5. with decent people who aren’t dickheads in general 5.
    6. that helps people or causes that I know or care about personally
    7. that is specifically something I bring to the party from skills, temperament or talent if any
    8. I want to spend less than a day a week on this, but I favour that being in all-or-nothing chunks with long gaps in between. Part of this is that I am limited by the tax system, I don’t want to work for the government 20-40% of my time. I have done my share of that over the last 30 years.
    9. I don’t what to sell my time for money. Obviously doing something creative takes time, but I don’t want it in the form of billable hours, more billable results
    10. I don’t want to ever see performance management. An engineer’s work speaks for itself, should that be the field I use
    11. I don’t want regular or ongoing time commitments. Hit and run jobs are what I  want, get in, do, then get out
    12. I don’t want to carry a smartphone all the time
    13. I am happy with no fix no fee and no guarantee of regular work – but if you aren’t there regularly for me there’s no guarantee I will be there for you 😉 and yes, that is sort of at odds with 9
    14. I prefer to sell Mind, not Stuff. Stuff gives warehousing and cashflow problems, and regulation is a bitch. It’s not hard and fast though.
    15. I do not want to be derivative or routine. I don’t want to be a replaceable work unit. No chuntering out ebooks or matched betting which seem common fave side hustles in the PF scene. I am rich enough not to have to do this, and old enough to know my time is limited.
    16. no franchising, if I am not original enough to make a decent return then I will just walk away

    and if I do do this, I want to earn a lot more than the minimum wage for the time I do spend on it. Unless it really is so much fun that I don’t mind, but I’m not building that assumption in from the off. I am not volunteering. I don’t do that, particularly the sort of staffing job. I have done one-off data analysis and design stuff for the RSPB, but not under the usual volunteer x hours a week, it was task-oriented.

    Unfortunately the logical conclusion is freelancing or contracting. I have no experience of that at all, zero track record, no domain knowledge, I am an introvert and can’t sell. So I have never done this in a big way although I did have a multimedia/web design company on the side in the early days of the WWW mid 90s to early 2000s. But selling was my weak point and when the major customer changed technology I folded the company. I read this and think ‘bloody hell, I can’t do any of that’.

    Not only that, but it appears that small companies are where the most likely chances of success are. I have worked for a small company, a 10-15 man band, but it was at the very beginning of my career 34 years ago. Small companies are like the past – they are a foreign country; they do things differently there.

    The Ermin place of work at my first company. The duff sensor heads are lined up on the back wall. I don't have a good explanation for the can of wifebeater on the bench, perhaps were were celebrating a big Egypt order. 'elf 'n'safety would shut this joint down i na jiffy. We used to wash PCBs in boiling Arklone, a CFC with the instruction 'don't fall down, else you'll stay down'. The vapour was heavier than air.

    The Ermine place of work at my first company. The duff sensor heads are lined up on the back wall. I don’t have a good explanation for the can of wifebeater on the bench, perhaps we were celebrating a big Egypt order that came in around this time. ‘Elf ‘n’safety would shut this joint down in a jiffy nowadays. We used to wash PCBs in an open tank of boiling Arklone, a CFC with the instruction ‘don’t fall down, else you’ll stay down’. The vapour was heavier than air.

    I had some bizarre engineering experiences in small firms, two stick in my mind. In my first company, the design engineer swore blind that a virtual earth amplifier had a high input impedance. Now at 22 I didn’t know a lot, particularly when to keep schtum and STFU, and I had been testing these blasted things which used to want to take off and oscillate more often than not. That’s bad in an optical sensor. But I did know that a virtual earth was a low impedance input. So when there was much head scratching in a meeting as to why we have more duds than good ‘uns I go and pipe up “but a virtual earth is a low impedance – the clue is in the name”. I was dead right, and the clue is indeed in the name, but there was a deathly silence and the assembled multitude digested the unwelcome fact that the lead designer had goofed, as pointed out by the rawest recruit. Seemed a good idea to move on from there after a year…

    The second was when I was the lead engineer on a project at The Firm, and we had contracted some clever fellows in the Cambridge Fens. These guys had minds like planets, and I had told them the average TV sound in expected typical audio levels of 0.7Vrms. For some reason they decided they only needed a peak to peak level of 1V, sadly convention has it that the peak to peak amplitude in this case is 0.7×(2×√2) or nearly 2V. The passage of time had gentled the Ermine’s needle-sharp teeth and I had learned that it pays to nudge people to coming to the conclusion that perhaps a mistake had crept in somewhere. But I confess I had to look it up in a textbook after a meeting where one of these guys a lot brighter than me was declaiming that the signal was entirely correctly 1V, he really believed that. They were awesome at digital stuff, could pull their set-top box code apart and have it have it changed in a few hours. In a bigger company somebody else would have been in charge of all that fuzzy analogue stuff and this challenge to basic engineering fundamentals wouldn’t have happened, particularly in front of the customer 😉 Small companies have much more of a heady mix of absolute brilliance and the occasional absence of fundamentals, in my limited experience of them.

    For many reasons I would be a fish out of water trying to apply what’s left of my skills in this different world. I have no knowledge of the terrain, and I don’t know if my passport is good for the country. To my advantage I don’t have to succeed, though of course that may work against me too, perhaps I will not have sufficient fire. It’s not looking good, but I have one key advantage. I am not desperate – I am financially independent. Even at the moment the amount in my current account slowly creeps up month on month and I need to toss it into the Nationwide every so often to win 5%. As a result my risk profile is very different from normal, I can screw up a few times and let it go.

    There are other odd wrinkles, take this perfectly reasonable recommendation

    To free yourself from the grind, be defined by your strengths

    I can see that might work when each piece of work is won anew, ie there is no history, it’s obvious to play to your strengths. But in my career I achieved many wins by fighting down weaknesses – it is this which turned an introverted young Ermine into someone who could speak in public and lead international teams. Even in the specific realm of personal finance I had to fight down the common get rich quick belief that trading is the way to make money with stocks, and come to understand that the noisiness of the information, the abnormally high likelihood of infrequent outliers and the high frictional costs mean that often the less you do 6 the better your long-term performance.

    So there are many hurdles and mindset-shifts before I could turn freelancing for small companies into something workable. And surprisingly, none of them are particularly associated with the issues that finished my big company career. Why consider this route? Because the one thing I know I don’t want to do again is a regular job. I don’t have the time, there are all sorts of bad associations, and it’s not what I want to do with my life. Because that was the only way I knew of making money, I accepted I was never going to make money from my human capital again.

    People have occasionally challenged that assumption. But it took time for the noise and hum from the crash-landing of my career to die down, and for me to see an opportunity that wouldn’t lock me into a consumption lifestyle, so that I could see the remaining limiting beliefs. Whether it will amount to aught is unknown at the moment.

    Andy’s liberate.life is a different take on financial independence, with less emphasis on the financial and more on the independence

    In the personal finance sphere our weapon of choice is  of course personal finance, it is the Law of the Instrument. If all you have is a hammer, everything looks like a nail. It’s written in the term financial independence, hell, what other sort is there? Well, given the assumption we are talking about living in a First world consumer economy in the 21st century, that is.

    We are aiming to save enough money to not have to work. RIT is the poster child for doing this relatively young, but his journey to FI was a pretty harsh ride. I’ve never earned anywhere near the amount of money I guess RIT earns, but I’ve never taken that sort of punishing schedule for years on end either. In my case, because I was naturally closer to the end of my working life, I could get away with focusing on the financial route to independence. You can become more independent, in terms of choice on how you spend your time, without becoming financially independent. The model I and most people follow, working for a company to get nearly all your income, is one of the least independent ways to get the financial capital you need to live life in a Western consumer economy.

    Andy at liberate.life is a new kid on the PF block. Although it doesn’t apply to me, he challenges the principle that financial independence is an indivisible unit. His site is well worth a look if you are in this position

    You made it! You’re financially comfortable. Your car is new enough to not break down all the time. You live in a nice house. If you have kids, they’re well dressed. People hold you in high regard and by society’s standards, you are a success.

    So why the hell does your life feel like such a grind? At one point, you were young and full of optimism but now you just follow the routine, day in, day out. You don’t have any passion for what you do any more. You do it because you have to. You’ve got bills to pay.  You can’t see a way out of this before the sweet release of retirement at 60-something… and then you’ll be too old and worn out to live out the dreams you’ve always had anyway.

    Now since I am not a million years off 60 I would dispute

    and then you’ll be too old and worn out to live out the dreams you’ve always had anyway.

    Bollocks to that, mate, remember that statistically happiness is U-shaped across the life cycle in many Western societies, so some of this is part of the human condition. But that proviso aside, he’s offering a freebie course in how to get FI 7, and if you want to pick his brains specifically 1:1 interactivity is there if you pay him for his time.

    In many ways getting to FI is a matter of asking the right questions as much as finding the right answers. The right questions can lift limiting beliefs into the light of conciousness. You don’t have to fight limiting beliefs if you don’t want to or need to. I’m not going to bother fighting the belief that working for an employer has become a soul-destroying issue of gamesmanship and playing the game with meaningless metrics that strip out the joy of solving problems sometimes otherwise known as work, because I don’t need to. It’s probably not universally true, even for me now.

    But now I have found a potential application for deploying the residual vestiges of human capital I may still have which won’t lock me into lifestyle inflation and consumer crap, it is worth challenging some of the limiting beliefs about making money other than just using my financial capital. And without a doubt, Andy helped me ask some of those questions, and I have found that the default answers were often wrong, inconsistent and incomplete.

    So if you feel you have made it but want a way out go read some of his work, if only to ask yourself some awkward questions. You may not like the answers but they can serve you well.

    Notes:

    1. excluding casual crap before leaving university – kitchen portering, repairing radios and TVs and odd-jobbing
    2. Obviously you shouldn’t run an engine with the fuel cap open because petrol vapour is inflammable and invisible so don’t try this at home.
    3. in fairness that was written nearly six years ago when the best you could put into an ISA was about 10k p.a. Some of the win in getting to three times that was the fact Osborne turbocharged this to time and a half, the time honoured magic of Saving Hard at work rather than any particulalry sharp investing chops
    4. it doesn’t have to be engineering – for the past few years I have been makingsome money from photography and from sound recording. But trends in the wider economy are running away from those sorts of things
    5. Everybody s a dickhead sometimes, it’s part of the human condition, and that’s OK. Persistent dickheadery is what I want to avoid
    6. inaction on its own is not enough although Robert Kirby’s The Coffee Can Portfolio made a good case it was, inaction is necessary but not sufficient IMO
    7. for the sake of full disclosure I have done neither
    19 Aug 2016, 7:40pm
    personal finance
    by

    28 comments

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  • Telegraph to wannabe FI/RE new parents – you must be kidding!

    The Telegraph’s Money Makeover is a rich seam of entertainment for a grizzled mustelid observing the triumph of hope over experience in the human condition. It seems to be an endless tribute to wannabe buy-to-letters wanting to retire on a woefully small portfolio, thirty-somethings with a tenuous understanding of just how much money you need to have to retire before midlife and the oddball doctor with a massive salary, none of which ever seemed to stick to the sides. I could generalise many of the tribulations as “if you are asking whether Buy-to-Let will solve all your problems, the fact you are asking the question tells you the answer is no”. As a respite from this folly, this week we have a paragon of financial rectitude who is debt-free by 37, but there’s still no pot of gold at the end of his rainbow.

    Consider this plangent photo of domestic bliss and unachievable dreams, a comely couple and two preschool rugrats with their associated plastic paraphernalia.

    with two young sons, JM wants to retire as soon as possible to spend more time at home.

    with two young sons, JM wants to retire as soon as possible to spend more time at home.

    Our man has done an awful lot of things right in the search for early retirement. He appears debt-free in the true sense – paid down his mortgage on a Cambridge semi at £300k, which is a very respectable achievement at 37 1. But he’s done two things wrong for his dreams of early retirement, and they’re in the foreground of the picture.

    I’m not saying that having children means you can’t retire early, but JM has a fairly pedestrian job for early retirement ambitions, and kids will seriously hamper his ability to reduce his outgoings, which is the other route to early retirement – being able to sustainably reduce your spend. Which is pretty much what the Torygraph had to say to him. To wit:

    JM is doing well in retirement provision but the challenge for him will be getting enough funds to enable him to retire early and provide for his family.

    followed by the coup-de-grace

    I would sound a note of caution, as one parent to another: children tend to get more expensive as they get older. 

    The other lot aren’t that much more encouraging

    Mr Massey’s primary goal of retiring early to spend more time with his family is unrealistic given his current financial planning route.

    and

    should concentrate the bulk of his pension savings into shares-based investments as, realistically, retirement is at least 18 years away.

    A quick tappety tap on the Ermine abacus tells me that 37+18=55. As for spending more time with the fruit of his loins, in 18 years time they will have just come of age. He’s not gonna do it before then  unless he does something very different.  Having children is going to be a big project for anybody- if we say JM is exceptionally frugal and gets his two for the £230,000 they say it costs to raise one child, then clearly in 20 years time his pension pot will be down that much 2, or at a 4% SWR down about £9000 p.a.. That’s not the sort of thing that early retirement dreams are made of. Of course some people with children  can retire early. But you’ll usually find they were in a different class of earnings to JM – The Escape Artist for instance, worked in the City. He probably earned a little bit more than JM, who doesn’t even pay higher-rate tax, which makes paying a fixed sum into a SIPP much less painful than for basic rate taxpayers.

    There are other minor aspects of JM’s carry-on which could make it less of a stretch. Let us take this oxymoronic statement

    He takes risks where he understands them and has £17,000 in a stocks and shares Isa invested in Greggs, BP, Poundland and Tesco – companies he is “familiar with”.

    Mr Massey is satisfied with his investments so far, although Tesco has delivered some losses.

    He said: “Everyone always goes to Tesco – I thought how could the shares fall? Well, they did.”

    JM, you got frickin’ soaked on Tesco. I’m not particularly having a larf, so did I. I didn’t buy them from a careful consideration of the company, but figured if I paid less than Warren Buffet I would be okay. Turns out this was one of the few occasions when WB didn’t know what he was doing. So I got soaked too. I didn’t understand the risk, and nor did you. The big difference between us, bud, is that Tesco is less than 1% of my portfolio, whereas it’s probably more than a fifth of yours. I also realised within three years of starting along the high yield portfolio route that the global imbalance 3 was probably hazardous to my long-term wealth and started to shore it up all round with diversifying index funds, focusing on ex-UK to specifically fight that bias. So go do yourself a favour and listen to Lars Krojer and sharpen up your act. Once my contributory investing career is over 4 I may choose to listen to Lars, so save myself a hunk of time I could be spending on more interesting things to do.

    So, JM, you had your two precious little bundles of joy because of all the warm feeling, extra meaning and richness that they add to your life. Good things are worth paying for, and life is full of choices. That particular choice means you won’t get to put your feet up at 55. For God’s sake don’t suddenly decide that your special snowflakes need private education, else you’ll be retiring about never on that salary. Now of course you could go out and get a much better paid job working for The Man, but pushing 40 is leaving it a little bit late to do that. Colour me a heartless bastard but “trust and grant manager at a charity” sounds like a) you’re milking it b) there aren’t that many opportunities for progression and most of them will be dead men’s shoes, the charity sector is notorious for crap pay 5 and c) you are just one re-org or restructuring away from redundancy. So better hope nothing goes wrong in the next 18 years, eh?

    There are things you could do to make yourself better off in retirement. But you ain’t getting to retire early. Paying your mortgage off was a grand achievement and hats off to you, but paradoxically it was probably a bad move for retiring early. I cocked this up too. At historically low interest rates, you could have carried that sucker for longer and pumped more of your salary in pensions, getting a 20-32% lift and getting longer for it to appreciate, while paying 3% on the money. The 20% uplift plus the ~4% real return on equities make that a win even if you get to  put your 25% pension commencement lump sum into clearing the mortgage in 20 years. Think of it as tax-free mortgage saving. Of course mortgage rates will go up over two decades but you will also be paying it off slowly so you’ll take less of a hit, and inflation will erode the principal anyway.

    So listen to the drunk telling the traveller how to get to the city with your unrealistic dreams of early retirement.

    If you want to get to there, you don’t start from here.

    I am curious that none of the advisers asked this fellow whether his question was wrong. It often pays in life to try and make sure you ask the right question, because once you have framed that you’ve eliminated some of the options. Surely if he wanted to spend more time with his family, perhaps the question should be ‘ Can I afford to go part-time for 10 years and see my family grow up’ rather than “Can I retire early”. He still won’t get to retire early, but perhaps he gets something else of value. His wife has clearly jumped to this option, and by reducing the £700 a month childcare bill he would reduce the financial hit and get to see more of his children rather than more of the office.

    Notes:

    1. a cynical Ermine wonders exactly how he has managed to pay off £300,000 on a household income of £77k within’ say, 10 years. One assumes the untimely demise of a rich aunt may be a factor
    2. a DINK couple usually spends more on other things, so the difference may be less
    3. that imbalance is less bad for me because many of the FTSE100 firms I have in my HYP make their money partly overseas. Greggs and Poundland seem pretty domestic, looks like JM invests in what he sees on the High Street. From what I see on the High Street I would actively run miles from any firms with a High Street presence, the Internet is eating their lunch. Tesco is in fact my only such firm
    4. I am reasonably convinced by Lars’ argument you can’t long-term sector pick and beat the market, though I am less convinced that if you only have a few years to get into the market that valuation/when you get into it is irrelevant. I happened to be very lucky in starting in 2009, though of course the effects of the GFC on my job was the reason why I started then.
    5. until you get to the executive levels where anything goes
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