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

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

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

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

    […]

    Older accounts can also cause verification issues…

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

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

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

    Papers please? On yer bike, officer…

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

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

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

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

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

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

    Notes:

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

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

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

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

    feckless financial foolishness deconstructed:

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

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

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

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

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

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

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

    Look at those mad assumptions

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

    Past performance is no guide to the future

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

    Winter is coming…

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

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

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

    Notes:

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

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

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

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

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

    Seneca the Younger

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

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

    Time to turn this into action.

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

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

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

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

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

    Gnothi Sauton – know thyself

    Know Thyself in Greek in a stained glass window

    ‘Know Thyself’ in Greek in a stained glass window

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    This ain’t gonna end well

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    It’s too late when this happens

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

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

    Notes:

    1. opportunity cost – I didn’t have to save this up first
    2. my biggest fail was expecting Betfair to have a modicum of integrity in returning my money – the takeaway is only deposit the minimum with any betting shop to test if they will verify your account. I didn’t actually screw up any of the matched bets and I am up overall despite the shafting. I was only in this biz for a month and a half. The ROI on matched betting is crap when you factor time into the investment, the money is fine.
    3. I’m not hard and fast on that, I save £500 a month of my SIPP pension with the Nationwide because they’ll give me 5% on it and it can be set up once. It’s the stuff you have to do every month and watch what goes where and when I CBA with
    4. for anybody born after 1980 a typewriter is a machine where the keyboard is connected straight to the printer without the computer we didn’t have in those days jammed in the middle
    5. 300 bits per sec in ~10 bit character chunks at 8,n,1 is 30chars per sec. A word is about five character average so 6 words per sec, or 6*60=360 wpm
    6. let’s hear it from Volkwagen for what ambient lighting is and why Merryn S-W or you might need want it
    7. as Northern Rock showed, instant access can fail you when you need it
    31 Jan 2017, 12:03pm
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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
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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 😉

     

    9 Nov 2016, 8:14pm
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  • Trump-o-calypse turns into a stock market Meh

    Looks like we’re with stupid, then. Yeah, I’m one of the college educated Remoaning cheese-eating surrender monkeys that the majority all hate, and in the last few remaining moments of freedom I have before The Donald makes America Great and Brexit makes Britain Great I’m going to sneer. I don’t know who the hell I am walking amongst, but they don’t think like me and I am the minority. Shit. Brexit could be considered an aberration, and doesn’t really matter in the grand scheme of things, now we have a great big dose of the same old shit in a different way coming from the same motherlode. A group that’s been Cock of the Rock for years isn’t any more, and they want the 1950s back. That Obama geezer called out the problem in a State of the Union speech five years ago. Unfortunately he didn’t give DARPA enough money to invent a time machine to rewind history 60 years.

    At least in America you now get legalised weed whereas I don’t even get to apply for EU citizenship after my fellow countrymen arranged to strip me of it. So following Stephen Covey’s principles of the Circle of Concern I will change the things I can. I will follow 3652days lead and configure my affairs to subsidise it as little as possible.

    Because they got their country back, and I sure as shit ain’t paying for it.

    3652 days

    Anyway, this is about something bigger, though oddly enough opinion is divided even there.

    Stock markets to Trump-o-calypse – “Frankly my dear, I don’t give a damn”

     

    Mr Market sauntered on by, doing a Rhett Butler to the passionate heaving bosom of the punditry that had called a win for t’other side. And the ermine was poised to snap up some US stocks, hell, even to sell some gold to do it, because I have been light US equities because they have been overpriced for years. Obviously good old TD direct had a hissy fit and went titsup in the morning, though they’ve got over their fit of the vapours now. Hargreaves Lansdown and Charles Stanley weathered the storm, I guess you get a better class of big iron for Hargreaves higher annual fees. Trouble is, there’s not much difference in VUSA since yesterday. So I will leave it be. I am regularly buying a L&G dev world exUK fund monthly so I was buying the S&P cheaper for most of this year. Particularly before June…

    Looks like the experts lost out this time too. Maybe that slimeball Gove was right. Experts were experts in the old world but then the magnetic poles shifted or the flying spaghetti monster got crushed by an asteroid and now they always come up with the wrong answer. This Ohio report reminds me of the barmy summer day of the Brexit vote and I went to the polling station in the day 1 and saw loads of a particular demographic with a creepy grin from ear to ear and a spring in their step, it was like being on the set of the Stepford Wives and their retired colonels.

    Let’s look on the bright side of this, shall we? Mebbe the gimlet-eyed Mr Putin won’t feel quite so pissed off about whatever deep childhood tragedy makes him such a nutcase, because he has a more congenial nutcase on t’other end of the hotline. Sod it. I’m with Vlad, too, HRUB has almost come to parity, although I think that is more to do with my bodacious band of buccaneering Brexiteers dreaming of imperial glory to thank for that, by making everything foreign dearer 😉 But what the hell. Make Britain Great, Make America Great. Perhaps Vlad is Making Russia Great. If we all pull up the drawbridge, thump on our chests maybe the cargo cult dreams will come true. The US cousins of the people with the creepy grins who stole my EU rights seem to be voting for Trump.

    Millions of people voted for his promise to achieve an improbable reversal of the decades-long structural decline in American manufacturing. By November 2020, the voters of Mahoning County will expect results.

    “I want him to bring America back,” said Smith, the carer for disabled children. “Bring back the jobs, bring our country back.”

    Good luck with that, lady. The 1950s ain’t ever coming back.

    Notes:

    1. because being a retiree means I can
    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:
    by

    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
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