3 Jul 2014, 9:37am
living intentionally personal finance:
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  • Ralph Borsodi, and a codicil to Two Years on

    One of the features of Mustela erminea is that they are curious. You only have to look at someone trying to walk a ferret (another mustelid M. putorius furo) in a straight line to see that. I think if you are going to retire early you really do want to be curious. I read a lot as a child, and the modern world gives a lot of opportunity to be curious about it. The tools are immeasurably better too, compared to those of 30 or 40 years ago. Starting with Google but extending to the fact that information is much easier to collect, store and marshal. People share ideas more widely, because they can, and humans are a social species.

    The world is full of fascinating stuff – it is good to heave the freedom to get a hold of interesting ideas, run with them for a while, then stick them into the armoury of things that might be applied to different areas. I find it a little bit disturbing how many people imagine that people who have retired get bored, unless they can spend loads of money on entertainments. Jacob’s trifecta of shopping, restaurants and tickets springs to mind here, in supporting evidence I cite this page on MoneySavingExpert. Key headings

    Clothes and Fashion, Food and Drink (generally fast) and Travel and Days Out

    looks much like shopping, restaurants and tickets to me. This is on the otherwise generally awesome Money Saving Expert site where many of the users have got themselves into deep financial doo-doo by buying too much of these items on tick? WTF? The hot tip here, guys, is take the fight to the enemy: do much less of these things. Not only will you enjoy each instance more by dynamic contrast between going for a decent meal set against the norm of not doing that, but then you don’t have to prostitute your personal details to try and get a lousy 5 or 10% off. Just. Do. Less. Do half and that’s a 50% discount – even if you pay full price ;) I don’t muck around with Quidco and the likes of that sort of thing because I don’t spend enough on the sorts of things that Quidco works with to make it worth it. I buy components and raw materials to make stuff, not finished goods, which seems the key to the boredom problem – create more,  consume less.

    from DJing to personal finance…

    That curiosity recently delivered me an insight, combined with some of your comments. The Oak Tree farm party is this weekend, and I largely solved the problem of how to rig a couple of hundred watts of power on an unpowered island site. That’s not rave or Glastonbury level, but enough for a party of about fifty people outdoors (and a few hundred metres away from neighbouring houses – sound fades quickly outside).

    In the past I’ve stuck the tracks on a mp3 CD player and set it to shuffle, which is okay as far as it goes, but I wanted to understand how to do better. Although for some reason I actually like some of the more mainstream EDM despite being one or two generations beyond clubbing and no aptitude for dance, I don’t think our members want too much of that, but I figured a look at how DJs 1 do this sort of thing. Now I don’t want to do all this live, so I want to create the CDs with the right running order (apparently called a mixtape) and then patch in people’s iPods with a DJ mixer I bought at a radio rally for £10. I learned about BPM and mixing in key and a whole load of stuff about music theory I didn’t know, and came across this article about bringing back flow, which introduced me to the difference between insight and analysis.

    a modern-day Mark of the Beast

    Investing by insight rather than analysis

    For the last five years I shifted greatly towards analysis, because insight isn’t easy to do under pressure. There are some classes of problems which are only amenable to analysis, and personal finance has a lot of these. For instance if most people use insight to qualify risk they end up doing the National Lottery and ‘investing’ their money in Cash ISAs (which is indeed what most people do) whereas analysis shows there may be better ways. And the National Lottery is always wrong – though if you want to have the it could be you buzz then do it. Once, and only once. That turns ‘it couldn’t be you’ into ‘it wasn’t you’ for a modest cost. There’s vanishingly little more to be gained by pursuing the ‘it wasn’t you’ any more – analysis is the way to know why.

    However, I have got that analysis/insight balance wrong for the future, and worse still, some of my insight is distorted by outdated forms that have become linked, particularly with the term work but also some wider principles. Unfortunately only insight can connect me with my values as far as I can see; analysis addresses the how I do something but insight is a large part of knowing why. Because it can’t be decomposed into steps it’s easy for insight to be distorted – by advertising, by rotten experiences, by general state of mind.

    Few things really a pair of totally isolated poles, I need to add insight to my analysis to direct things closer to my values, and analysis to my insight to clear out some of the distortions and old forms that bias the compass away from my values – try and use more insight and less instinct.

    The past is a different country. I did things differently there

    One of the things I learned has been that I have shadowboxed the experience of getting out of The Firm for too long. Two years is enough to integrate the experiences.

    I need to shift focus from trying to outrun the past to run towards the future. The shift to a more frugal way of living does seem to have absolved me of the requirement to work, as it was designed to do. In doing so, however, I have linked unhealthy subconscious forces to the concept of work. It is very unlikely that I will apply to work for a company as an employee in future. So I am done with all the Digital Taylorism that is screwing up work at the middle level I was working at. I need to let the toxic waste go – it served me well in bringing enough focus to escape the rat race. It’s as if I had read this by ERE and followed the instructions but retained the anger ;)

    curiosity is not the only way

    There’s a massive variation in what people want to do with their life. For many people the value to be had from shopping, restaurants and tickets is well worth the cost of working, particularly if they can’t imagine any other way.  If it weren’t presumably they’d do something else. As long as they find working agreeable there’s no problem, in which case why not take part in the cornucopia of goods and services a modern industrial economy makes available? Indeed, I need you to consume so some of the companies I own a share of can make money, but more to the point, if you enjoy it, knock yourself out.  Obviously if you design this into your life you may want to consider how stable your work is, because it would be tough to build in so much cost into life and then feel rotten if work dried up. A portfolio career is better in that way; you can lose some strands without it becoming catastrophic.

    Although there’s a hint of bread and circuses in it, there’s nothing fundamentally wrong with hedonism. As long as it isn’t done on borrowed money that is, because you borrow it from your future self and your future self might feel differently about your current self’s inability to wait. There’s an inherent asymmetry between saving and borrowing – when saving you electively choose to live below your means now so that your future self can live above their means for a while. Your future self still has choice – they don’t have to live above their means – they could give it to their(your) kids, or the cats’ home, or burn it in the backyard. Whereas if you spend your future self’s money now they get no choice in the matter though you do – they have to live below their means, or go bankrupt.

    Another perfectly good reason is that you find the shopping, restaurants and tickets worth the aggravation of working. In that case, the game is worth the candle, but again, doing with borrowed money there’s still the issue of your future self not getting a say in the matter.

    For those who come it find working disagreeable in a way exceeding the buzz of shopping, restaurants and tickets, one good option is then to spend less. The sheer variety and range of stuff on offer can easily bamboozle us with its richness, the essential question to ask is how much is more doing for you? You first smartphone is presumably transformational 2 – it means you don’t have to arrange to meet up before hand but can do it on the fly, you can Google the price of alternatives when you are in a store thinking of a bit more retail therapy, and you can ignore the real world a bit more and walk into lamp-posts/other passers-by/the road while being virtually somewhere else, and play Candy Crush Saga to get rid of some of those empty hours. Each to their own. Your second smartphone, and indeed all the upgrades add much less to your life in terms of extra capability than the first one. When you get to this stage

    1407_apple-iphone-5s-queue

    queue of punters waiting to buy an Apple iPhone

    you’ve probably lost the plot and are out of touch with some part of yourself. Or trying to make a few bucks, but getting paid to queue is telling you something about the value of your time ;)

    I needed to get a mobile web browser a while back to test a piece of web work I had and what it looks like on a mobile. I got an iPod, and use WiFi, because it was the cheapest, didn”t come with a mobile contract and did the job. I’ve occasionally used it out and about with BT Wifi in towns and campsites. It works fine for what I want to do. For mobile telephony I have a bog-standard mobile phone with Giffgaff PAYG for when I want to do such things, and a really old hand-me down from Mrs Ermine with a Virgin SIM in it, because that’s free to call her.

    The Ermine mobile phone estate

    The Ermine mobile phone estate. Skanky, n’est’ce pas? All bought and paid for, no contracts, and cheap. But not ‘with it’ at all

    The most useful item is the USB dongle, of course now hacked to break the 3G lock so I can use it on Giffgaff to connect my laptop PC to the Internet if I am on the road. I can afford a smartphone and I’d buy one cash without a contract if I wanted/needed one. But I don’t need the continual contract cost, because I don’t prize the service enough. A typical mobile phone contract seems to be £30/pcm or £720 a year, so while not outrageous, it’s a fair yearly hit. Plus a £300 smartphone seems to be amortised to scrap over one or two years because of upgradeitis or the disgraceful habit of Apple IOS orphaning their older products after three years or so – deliberately.

    The key to early retirement is to look at how you are living and to ask yourself how much of this spending matters. And target your spending on what matters to you, rather than what matters to people you know, or to the companies getting rich off it. Mistersquirrel has a rant on consumerism sparked off by an OU programme that sounds interesting.

    Personal finance works

    Get out of debt and stay out of it 3 and live below your means.

    That’s it. easy to say but hard to do – like living like a celibate monk in a brothel. The ERE theory of living on a lot less than half your take-home really does work, and it works in spades with the 60% boost into pension savings (why 60% and not 40% is explained in the previous post) where the saving is applied to the tax-free lump sum. The pension changes have opened this whole area up. This is also easier for me because it builds upon 30 years of conventional work – the extra push to ice 8 years of work is nothing like the push to get rid of 20. Obviously the 20 year early retiree has 12 more years of freedom and life to enjoy.

    A decent amount of luck, seizing the day in Spring 2009 and maxed Sharesaves and ESIP helps. And of course there are the known and unknown unknowns. Much can happen over the next 20 or 30 years, though some of the bad stuff cannot be hedged with financial assets. Or at all… Nevertheless, it’s good to do something about the things you can control. Coffee is there to help with things I can change, red wine to help with those I can’t ;)

    It is more important to me to be of independent means than to be retired

    man-with-savingsUntil I integrated some of insights in some of the comments I had not realised a simple fact. It is the powerplay of not being financially independent that I came to detest. I don’t really give a hoot about being retired.  But I really do care about being of independent means – because it is the latter that fixes the powerplay, not the former. You often do retire once you are of independent means,  if you aren’t you have to keep working. To my chagrin, I failed to understand that difference. It doesn’t particularly change what I do, but it does change how I feel.

    MMM cited this cheesy ‘A Man with Savings’, and he can get away with it because he’s American 4. I even used it in 2011 and had got half the story right. A man with savings does not have to be always running.

    I missed the other half. It is the freedom to do things independently of needing to earn money. I liked this account of James Lovelock and the need for non-institutionalised engineers and scientists – I’m not in his league but I can recognise where he’s coming from.

    It’s been two years, and it’s obvious looking back, but I didn’t realise that, until seeing some of it reflected back in some of the comments. As an example I constructed a camera using a Raspberry Pi to see if our newly arrived cows are still there. It needed to happen quickly, because Mrs Ermine was worried the cows might scarper. As it is, although I am still scared of cows (particularly as these are bullocks/steers) and I really don’t like the way they follow you around, I will speak for these guys in that they are fairly placid. Look to pigs if you want to see troublemakers, and a pig is a lot sharper of mind than a cow or steer. I’d watch them rather than the cows, but what the hell do I know, this is not my area of expertise, so if Mrs Ermine thinks there’s a cunning interior to those steers then maybe they are the awkward squad in bovine form.

    Camera is the mess top left of the IBC

    Camera is the bodged mess top left of the IBC. And the plastic bags for the MiFi box to keep the water out…

    It’s a mess, indeed if the IEE get to see it they’d probably revoke my C Eng for unprofessional bodgery of the first order 5. But Mrs Ermine knows that she’s got cows.

    Got Cows.

    I may see if there’s and wider application – I know a guy who is into wildlife and Raspberry Pi, because he is into trailcams and had ideas for a time-lapse Raspberry Pi camera. I have the edge on the engineering, but I want to retain my freedom of action and don’t really want to be into selling or dealing with people I don’t know in connection with money. I might be able to add value to his panoply of devices and services, and if not – well, that is what is precious about being of independent means. There isn’t any of the desperation that bad shit will happen if not.

    now this looks like trouble...

    now this looks like trouble…

    Update – Mrs Ermine has now reallocated the camera to the pigs. You really can’t trust hogs…

    ...whereas though this is huge and a bit scary, it's basically gormless, the lights really aren't on much in that head

    …whereas though this is huge and a bit scary, it’s basically gormless, the lights really aren’t on much in that head

    If I can add value, then naturally I want to make something of it – otherwise my contribution isn’t valued. It becomes the symbolic talisman of the exchange of value, because the money itself wouldn’t change my life. I’m not Russian oligarch rich – I don’t have a million pounds if I liquidated everything I own. Over at RIT and Monevator, intelligent and wise people are generally making the case that a million pounds is not quite enough to retire on; I guess their lifestyles are more expansive and therefore expensive, and they sometimes have requirements like the desire to pay for university for their children which adds up. More money wouldn’t hugely change my life, it is still Time I am short of ;)

    The money is then much more along the lines of Ayn Rand’s exchange of value between free agents 6, who choose to do it (if they do) because of mutual added value. And I know all the theory behind the Ricardian advantage and all that, but it never felt that way as a wage slave, because I felt I had no choice. I should not be bound by old thinking.

    Work is a four-letter word…

    It’s something I did, and for long enough to make my fortune, as they used to say in the fairy tales of old. The last three to five years should not so dominate the first twenty-five, during which The Firm and other companies served me well. I should appreciate that a bit more. I used to read Gretchen Rubin’s The Happiness Project in my last three years at work, and I am sure that somewhere in there I read that it is good to recall some things that one is grateful for.

    In the round, The Firm served me well, particularly in the early days. And if it was going to go bad at least it stayed together until I was able to get enough together to purchase manumission.

    Despite work being a four-letter word it should become a neutral one. I need to stop running from the idea, because that is stupid. The ermine does not need to run from a concept. I like Mr Money Mustache’s take on the end of J.D.Roth’s guest article

     Mr. Money Mustache’s Afterword:

    Part of financial independence is that you don’t have to advertise yourself anymore. So while J.D. didn’t mention all of his other work, I don’t mind sharing it with you…[read more]

    I was always a supplicant in connection with work and finding work, and the concept has been linked to the yoke of wage-slavery. Something about writing that post,  the different perspectives and indeed MMMs angle there helped me shuck the outdated form. I have the FU money, so I am not a supplicant. And for two years after retiring, while I knew this in a theoretical and intellectual way, I hadn’t let go of the old forms so I didn’t feel it.

    I still have no great desire to get into the world of work however ;) It still consumes time, indeed this is the biggest charge I hold against it…

    Living intentionally

    Four years ago, in the About page on here I wrote

    I want to craft a richer life. and to do that I have to master the essentials of personal finance, rather than subsist in employment. My younger self chose his career well, but I now want to cut it short by about fifteen years. I have seen too many days from inside office windows, I want to hear the birds, live more simply and frugally and drink in the days, rather than sleepwalk my way through them.

    I’m not quite sure why I listed that under personal finance, maybe I was confusing the means with the end.

    by buying a camper van. WTF? What’s this outrageous consumerism then?

    So I did something highly unfrugal, and bought a mini camper van, Well, I bought half of one, from Mrs Ermine, I already owned the other  half of it. Because I want to travel slowly, and overland, and hear those birds. Since it was our only vehicle, Mrs Ermine was using it to move all sorts of stuff for the farm, like mash for the pigs and pallets. Although I can only really make great use of it once I am drawing my pension, because I have an income suckout until then, at least that will stop the wear from that, and Mrs Ermine now has a small car which is better suited to that sort of thing. The camper van back overhangs somewhat, which is bad for shifting heavy stuff. You want the wheels pretty much at the corners of the car so that when you sling the heavy stuff in the back it lies within the wheelbase. We already managed to break one spring, though I think the rough roads of northern Scotland had something to do with that, but it’s made me windy of bad loading.

    Great landscape, but hard on the suspension

    Great landscape, Scotland, but hard on the suspension

    I wouldn’t have gone out on the open market and bought this – but that way the proceeds stay in the family. And I can use it in Suffolk in the interim for modest cost – the great thing is I can put a bike in the back without taking the bike to bits. But I’m not badass enough to ride tens of miles on a bike. 7 The combination is great – you see a lot more on a bike, particularly nature but also photographic opportunities and stopping to investigate something is so much easier on a bike. Using both gives me range and local agility. So I’ll get some use of it and hone my craft. Long distance or long time period camping is very different from day tripping – you need decent prep and checklists, because otherwise you end up without something apparently trivial that greatly improves the experience. Like the kettle, or a can opener or the spanner to change the gas cylinder – been there done that on all counts.

    It’s not frugal. But I don’t have to be frugal everywhere – just in enough places. And of course I bought it cash ;) And secondhand, I’d hate to break the habit of a lifetime and buy a vehicle new. I left that kind of thing to Mrs Ermine. Even if I were rich as Croesus the way half the value of  a new vehicle drops off it as soon as you buy it would take the edge off my day.

    In the longer term I want to go on longer tours, maybe a pilgrimage to some ancient sites and places that may or do hold meaning to me, places with history, ancient stones, where people live slower but with more depth. One of the things Philip Greenspun picked out was

    Travel: No to the Beach; Yes to the Organized Tour

    No the the beach is easy for me. I hate heat and have never sunbathed, I have never been on a beach holiday and don’t get it, and this still holds. The second intrigues me, I have never been on an organised tour of anything – the regimented nature never appealed. There is some logic in his position. If it didn’t work out while working I’d be sore of being out half my annual holiday but this reservation doesn’t hold now. So I might try something in that line.

    a codicil on the last post on two years on

    The last post on Two Years on was cathartic, but not an easy one to write. Thank you for the great comments and thank you too to Monevator and mistersquirrel for featuring it   – I got an interesting angle from some of the c0mments there too.

    I am not the only one to exit the workplace earlier than anticipated. Over the years I have had a few people contact me offline about keeping the flame of hope alive in a difficult workplace, I hope that showed it’s possible to get to the other side.

    I don’t want to labour the point, but stress as a mental health issue is very different from what is normally called stress. Some stress is necessary to achieve anything, and if your life has dynamic balance between that and other parts of life then it is not a problem. The NHS has a good summary of what to look for and the typical triggers. It is a very different kettle of fish to having to pull a string of all-nighters and then get hammered at the topping out party when everybody high-fives the results of all that massive effort. I didn’t know that till my late 40s either.

    MMM has a great post on how to avoid falling into the trap. It won’t help many people, however, because he speaks from a position of strength. The drip-drip-drip of a slowly changing situation creeps up on you, and the tipping point is sharp – a few days IMO. Once you have passed the point of no return then the original problems must be alleviated in some way for healing to begin.

    Although different for everyone, recovery is protracted but usually does come – you shouldn’t  lose hope if you aren’t 100% in a few weeks. I spent three years flying into the storm, so two years isn’t unreasonable for the recovery, but in the end it takes as long as it takes. It isn’t a linear improvement day on day, sometimes its three steps forward and two back. I had to be prepared to fall back, and fall back and fall back long enough, and when I was not watching it the faint spark strikes in the darkness and one time it takes hold. Many aspects of self-development have this sort of thing in them where you have to let go to be able to go forward, and otherwise subconscious resistance is induced by the conscious effort to force things; it is in Scott Peck’s The Road Less Traveled, in some of Carl Jung’s work and the mystical concept of the dweller on the threshold.  Camus put it well in a different context in Return to Tipasa

    In the middle of winter I at last discovered that there was in me an invincible summer.

    I learned a lot from writing the post, because to actually write things down clarifies things because they must be lifted into the light of consciousness, and I learned more from the comments, which are a different kind of light in this case. One of the things that is clear is that I addressed the first part of the tagline of this blog, breaking free of the rat race. That is good, it was the most urgent part. But on reflection I can take the living intentionally part further.

    But don’t you get bored now you have more time and less money?

    No. Really. The keys to nailing that aren’t shopping, restaurants and tickets. Be curious, learn something new however trivial each day and create, don’t consume unthinkingly. There is also a subtext in that while my income was much higher when working towards the end my spending was probably lower than now because of the savings rate. I needed to get my taxable pay down to roughly the minimum wage because the taxman’s blood-funnel in my retirement strategy was beginning to really piss me off. I learned something unique and unforgettable when you do that, which is that a lot of my spending didn’t really work for me, and was simply dulling the pain of working 8

    I’d really, really, like to be able to say that this insight is mine alone. But it isn’t. As long ago as 1929 Ralph Borsodi wrote in This Ugly Civilization

    They do not realize that the idea that mankind’s comfort is dependent upon an unending increase in production is a fallacy.

    It is more nearly true to say that happiness is dependent not on producing as much as possible but on producing as little as possible. Comfort and understanding are dependent upon producing only so much as is compatible with the enjoyment of the superior life. Producing more than this involves a waste of mankind’s most precious possessions. It involves a waste of the only two things which man should really conserve–the two things which be should use with real intelligence and only for what really conduces to his comfort. When he destroys these two things, he has destroyed what is for all practical purposes irreplaceable. These two things are the natural resources of the earth and the time which he has to spend in the enjoyment of them.

    When he produces more things than are necessary to good living, he wastes both of them; he wastes time and he wastes material, both of which should be used to make the world a more beautiful place in which to live, and life in it more beautiful than it is today.

    Lest you think Borsodi was some turn-of-last-century Luddite, he opened that chapter with

    ALL civilizations have been ugly. They could not well avoid it.

    But this civilization is unique. Machines make it possible for this one to be beautiful, and yet it is in many respects indescribably uglier than the civilizations that have preceded it.

    For this civilization, instead of using machines to free its finest spirits for the pursuit of beauty, uses machines mainly to produce factories–factories which only the more surely hinder quality-minded individuals in their warfare upon ugliness, discomfort, and misunderstanding.

    Why did nobody introduce me to his work earlier :)  The big problem with work is that it wastes time. Britain’s productivity has apparently fallen since the financial crash. What we need is to match the rest of society (in particular house prices) to that lower productivity. Then people might have the time to raise their children by spending time with them, and pursue outside interests while working, rather than having to stagger to the finish line and then look around.

    Mixer and 12V power supply, for about £20 all-in and a bit of Ermine design and build

    Mixer and 12V power supply, for about £20 all-in and a bit of Ermine design and build

    Today I finished off mastering a compilation CD for someone’s wedding, I was investigating how to make a raspberry PI camera take pictures of our cows every 15 minutes (see above – I started writing this before I made that and got it into service). Then I am looking for a way to make an isolated power supply for the DJ mixer I bought for a tenner at a radio rally on Sunday to be able to use it for our farm party run off a leisure battery 9

    I repaired two electric fence energisers. I determined the range of WiFi on the farm (not enough) and investigated approaches to improve this at low cost, using a directional antenna.

    Then I tried to work out what my policy is for the new ISA limits. They are greater than the capital gains tax limit so I need to contribute some as real cash rather than from gradual sales of my unwrapped holdings. And there’s also the new pension rules making it favourable to have a SIPP. I am getting to the point where I will be prepared to borrow money next year maybe to put into the SIPP, because all these changes mean I have to find about £20,000 extra before I draw my pension, and I don’t want to run down my NS&I cash fund or bend my cash ISA.

    Trust me – there’s too much interesting stuff out there to poke a snout in to get bored. The bits from roughly a week described there has involved very little shopping, no restaurants and no tickets. Borsodi was right. It isn’t that you need nothing, you need the right amount of Stuff, and the way it’s promoted it’s easy to end up with way too much. There really is not shortage of things to think and do, indeed unfortunately the box of half-done parked projects seems to be increasing of late, although the box of stuff made, in service or fixed is increasing too!

    Notes:

    1. DJ seems to mean something very different from the straight scheduler of songs it meant in analogue days, it is a performance in and of itself, particularly with clubs and EDM where the aim is to achieve a seamless sequence that works together. I was warmed up to this by the stupendous amount of DJ gear available in the local Cash Converters when I was in the market for a PA amp
    2. I don’ have one, so I don’t know
    3. mortgage in my case, I didn’t have any other debt
    4. I don’t mean this disrespectfully to Americans – they haven’t got to be the richest nation on earth by being cynical, not being open to new ideas and having a great awareness of irony :) There is notable truth in ‘The Pleasure of Walking Tall’ despite it being gagworthy reading to British eyes
    5. The bodgery is acceptable because this is a proof of concept. There is a waterproof case available for the Raspberry Pi so there wasn’t much point in putting a lot of effort into making a repeatable waterproof case. Electrical tape and a minimum of holes, mainly underneath is good enough. If the project has a longer service life then a rebuild is in order
    6. yeah, I know, dangerous territory and who the hell is John Galt anyway
    7. Even if I were, I am also not leaving many hundreds of pounds worth of photo or sound recording gear on a bike and not shaking the hell out of it on the road – the conversion of a cheap Chinese bike camera to a kit of loose parts after a few hundred miles on a bike was an education in itself as to how bad the vibration is on an unsprung bike frame – I only carry camera gear in a backpack, not in the panniers now.
    8. It’s much easier for me as part of a child-free couple and at the end of my career to live on an income of the minimum wage because I have capital assets (paid-for house, productive farm and firewood). I am not a heartless bastard saying it’s easy to live on the minimum wage – it depends on what stage of life you are and what commitments you have, though I am of the old-fashioned view that one’s financial resources should be considered before taking on some commitments.
    9. the mixer take 9Vac and uses a short Cockroft-Walton stepup in the power supply to make the ±12V split rails. So you can’t just stick 9Vdc into it.
    18 Jun 2014, 9:46pm
    living intentionally personal finance simple living:
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  • Two years in – how’s that early retirement working out

    It’s soon coming up to two years since I checked out of the rat race, a good time to take stock and look at what I’ve learned. This is particularly long. I did think about breaking it over several posts, but what the hell, it is a long story. I’ve collected a few pointers to some things I’ve heard people being interested in over the years as a table of contents

    1. become an opportunist
    2. A lot of early retirement is about reducing living costs
    3. Retirement is a different phase of life. Making it like work without the work is not the only choice you can make
    4. Not having a regular income is scary
    5. what it feels like to live off ‘drawdown’
    6. The extra win a 40% tax payer gets from pension saving is much higher than that for a basic rate taxpayer
    7. Work and all that
    8. The distinction between work and not work is peculiar to the non financially independent
    9. Grow within yourself – or else
    10. The tl;dr summary

    Overview

    First off, I am not using any of my retirement savings – my pension remains deferred along with my linked AVC savings.What I am using now to live off is saved cash, though I also have income from ISA savings but these are reinvested. If I were to draw it now, my pension is notably above my annual running costs.

    Three things contributed to this –

    getting the mortgage monkey off my back

    Paying off my mortgage eliminated much of the static drain of housing from my finances.It was a long job paying down the debt over twenty years. It’s not always a wise thing to do for an early retiree – anybody who is retiring before they can access their pension savings may want to consider keeping their mortgage and saving into pension savings with the aim of paying off their mortgage with the pension commencement lump sum. I didn’t do that because I was reactive and fearful. It’s a mistake that’s fail-safe – I live off less at the moment but will have more later on. It so happens that I was able to save the maximum worth saving into my pension savings and pay down the mortgage, after which I tossed what would have gone into the mortgage into ISA savings because I also saved money by

    shooting the consumerism monkey

    Breaking the cycle of mindless consumerism has helped me no end. Initially I did it because I was desperate to win freedom from The Man and needed to save every pound I could. I’m not going to bullshit, the first six months are hard. I never borrowed to buy consumer crap, but I wasn’t above buying Stuff because I thought it would make me happy. Only after about a year did I come to the awful realisation that

    Stuff very rarely makes me happy

    Now the validity of this varies across one’s life-cycle. When starting out, and you have very little, of course Stuff makes you happy, from you first iPad/kettle/car/bed/chair whatever. It’s later on, particularly in the upgrade cycle where the wheels come off the whole spending money on Stuff thing. People started to realise this, so there are some classes of Stuff that are deliberately engineered to become worthless or hard to use over time – the way Apple manages IOS to depreciate their historic gear is a classic example. Other examples are cloud services. I am using a 10-year old copy of Quicken because it does what I want it to – the rental versions introduced after 2004 have become worthless in the meantime.

    I say very rarely because some Stuff does make me happy. The key to achieving a decent balance with consumerism is to know why you are buying something, and to evaluate its likely impact on your life without the spurious trappings of advertising. One of the simple rules to help with that is to wait 7 days before buying it – the initial sugar rush of ‘this will change my life’ decays over a couple of days, leaving me with a clearer head.

    Mr Money Mustache has an entertaining read on this topic, titled recovering from the Pack Rat years. I came to a very similar conclusion to him independently – all the way down to no longer having a broadcast-TV capable viewing system. The only area I disagree is that I have no smartphone, because a smartphone is an absolutely shit digital camera and equally crap audio recorder 1, and it seems I am more demanding of these functions than usual. However, all my camera and recording gear was bought before 2007 – I am still the limitation there. In the event that my skills and creativity become honed to get better results out of better gear and I can turn that into profit I will consider it.

    savouring the moment

    It took a long time to realise this, and it wasn’t the result of any conscious decision. Perhaps it’s the result of having more time – when I was working I was always chasing after being somewhere else, in space or in time. I don’t know why, maybe it’s the ‘anywhere but here’ of a drone, I spent too much life energy wanting what I didn’t have rather than wanting what I did have. I need time to appreciate what I do have, and maybe it was time I didn’t have before I retired.

    There’s a corollary to this, which is

    become an opportunist as a retiree. It’s cheaper, and more fun

    Many of the costs associated with life are to do with controlling your world. As a wage-slave you must control your world to fit in with the strictures of your job. You have to make sure you are somewhere for specific times. Even if you are a freelancer you have to work a certain amount of the time unless you are financially independent. You have to arrange a lot of things to be just so, you have to take your holidays within so many days, often people have to match their availability with the requirements of other people’s jobs and childcare etc.

    All of this takes optionality out of your life so you need to control your non-work life to fit in, and control costs money. If you have to be at work you have to pay someone to look after your children in the day. You have to pay commuting costs. And so on.

    It takes a long time to realise that there are other ways of living, that are far less structured if you let go of the inner control freak that had to fit in with work. Roll with opportunities.

    A lot of early retirement is about reducing living costs

    As we go through the many decades of a working life, we tend to see some lifestyle creep. We are social animals, we spend money on things that other people do because no man is an island, entire of itself. Others may spend money on things that really matter to them, and often we end up apeing these or hankering after stuff because, well, if it’s valued by others it must be good.

    In the first couple of decades of working this social pressure is stronger – as time goes by there are more differences in the way people live their lives and this pressure is less. In my twenties most of my peers lived similar lives, often flatsharing or in digs. As time went on they paired up, then many had kids. The differences in living styles diverged more, and these divergences add up, reducing the social pressure. I should add that being childfree means I don’t know about child-related social pressure, though I suspect this is high. The way people work themselves up about schools indicates this child-related peer pressure is of a quite stupendous nature!

    The key to early retirement is to look at how you are living and to ask yourself how much of this spending matters to me or people dear to me, how much does it enhance my quality of life? Then stick with that, and start to eliminate the rest, and simplify things. Complexity begets cost and dependencies. And take a wider systems approach to your living – how far you are living from work, how big a house you have.

    For instance I took the shaft from housing early on, so I am in a lower grade of housing than most of my ex-colleagues. There is an indirect upside to that – my house is smaller than theirs, easier to heat, less to decorate and furnish, and less council tax to pay. Year on year on year, and that adds up over time. Some of this shows in the result – I discharged my mortgage in 20 years despite buying at a stupid time, taking a hit on a relationship breakup and buying with an endowment. My ex-colleagues often still had big mortgages on their big houses as they entered their 50s. Obviously I don’t get to spread myself out over such a wide area. Unlike them, housing is not the largest capital ‘asset’ I have.

    A lot of consumer complexity I seem to have avoided by a combination of luck and the fact there were fewer temptations in my formative years. ERE has a nice wiki article on this for people who want to design their lifestyle by intent rather than by happenstance. Like starting to save for retirement, ideally you try and design your life consciously by the end of your twenties, because a lot of big lifestyle costs start to get baked in to your life after that.

    You can reduce living costs further by ignoring differences that don’t really matter to you. MMM has a great rant on Cure Yourself of Tiny details Exaggeration Syndrome which saves me the bother of explaining that. It often staggers me, when talking to people who in theory would like to retire early how much they cling to things like being able to run new cars every three years and regular high-cost things like the fast and furious skiing holidays of the cubicle slave. As for golf – it seems designed to be the nemesis of economy, with high course fees, club fees and equipment costs plus the depredations of the 19th hole.

    Now if they have sat back and asked themselves does this really matter to them and the answer is yes, then of course that’s intentional living and to be saluted. But often if you scratch a little harder it is because they fear the loss of status. The obvious question is who are they living for, because the Joneses don’t really give a shit. But to ask it would be unkind – people can only shift their world-view at a certain speed, and it’s always better if that shift comes from within.

    Retirement is a different phase of life. Making it like work without the work is not the only choice you can make.

    Retirement is a different phase of life. The tradeoffs are dramatically different. If you want your retired life to look exactly like your working life but without the work, then fine, you gotta do what you gotta do, generally working to 65. You will be able to broadly maintain the same spending, provided you have paid down your house. But you owe it to yourself to at least challenge the assumption and examine alternatives. Many people at The Firm have this pathology – they’ve been there so long they struggle to imagine anything other than the same life they have, but without the work. Some indeed fear that subtracting work will subtract meaning from their lives. These types of people should never stop work – because Nature abhors a vacuum. It goes along with the general thread that flexibility and openness to new ways of doing things is important to retiring early successfully.

    Not having a regular income is scary

    Two years ago I went from being a wage-slave with a steady income to being some odd combination of drawdown retiree and investor, I’m not even an honest pensioner because I’m not drawing a pension. I am doing what any early (pre-55) retiree has to do for some of the time. It’s impossible to overstate how different that feels to having a regular income. People who have been self-employed or otherwise handle a variable income will find that transition easier, but I find it scary.

    The problem is that the job of squaring the financial circle is easy to define to a wage-slave. Keep at it, don’t do anything to lose your job without lining up another, and don’t spend more than you earn, with some notable exceptions (housing and education).  Summed up pithily by the distillation of my parents’ wisdom

    Don’t spend more than you earn, son

    The definition is easy, though the implementation isn’t. What you earn in a year is a number, written on your P60, and what you spend is a number too, in my case available from Quicken. Take one from the other, and Wilkins Micawber is your man

    Tools of a typical office-based trade

    checking in the tools of a typical office-based trade

    So the Ermine checks in his computer, phone and staff card and all of a sudden the inflow stops. Now I got a year’s salary as redundancy, so the intuitive answer to ‘how long to go before I have to draw my pension’ is one year, but all of a sudden everything gets more complex.

    For starters I had to toss a significant part of the redundancy into my pension AVCs to avoid paying tax on it. I also want to fill an ISA’s worth every year, so doing that for a couple of years means all of a sudden I am left with less than the minimum full-time wage for a couple of years. And at the moment I don’t use any of the income on my savings; the reason for that is that at the moment I cannot turn a useful return on cash savings so it makes sense to run my cash reserves down and reinvest the dividends from the ISA.

    Many aspects of finances are easier for a wage slave, with their steady flow of income. For instance I have to hold much higher cash reserves against the unexpected – fortunately this is held with NS&I so at least it doesn’t particularly depreciate over time. If you have a regular income you don’t need to do that, so simply need enough slack in the system to be able to cut back if something untoward happens like the roof leaking. You simply cut down your partying until you’ve paid the unexpected bills down. I have to hold the cash to address these hits up front.

    But the hardest part of having no annual income is that it’s hard to qualify what a sustainable annual spend would be. If  you ask Wilkins Micawber he’ll shoot back

    expenditure > income, result misery, wrong way, do not enter, turn back now, don’t go there bud

    I don’t have any of my retirement capital available to me, as I am deferring my pension to raise its annual value once paid. So my AVC savings are also quarantined by that. In one limiting case I am okay now – if I drew my pension now my spending is lower than the net amount, and that also excludes any value from my AVCs or existing share portfolio. The job of bridging this gap has also been made harder by some of the opportunities that the Chancellor has made – the greater flexibility of taking a DC pension pretty much mandates saving about a personal allowance-worth of DC pension because HMRC toss a fifth of it in the pot and the new increased ISA allowance needs filling up.

    Fortunately I have a shedload of The Firm’s shares purchased under Sharesave and Share Incentive Programme, all unwrapped. These can get sold over time and the proceeds bulk up the ISA. Once I get hold of the pension the I will have the AVC funds to shove into ISA savings over a few years. In the long run my ISA savings will be about half the capital value behind my pension which is RPI linked to a point. The ISAs  job is to fight inflation in the medium to long term.

    what it feels like to live off ‘drawdown’

    So I’m easy with the long term strategy. But obviously, I am running down the cash at the moment. And that’s not a good feeling. I fought against the depreciation of my net worth intially after I retired, before coming to the conclusion that wasn’t possible. At the moment it turns out that it was possible – this is a zero based networth chart, excluding the value of my house and any pension associated savings.

    Ermine instantaneous networth excl house and pension

    Ermine instantaneous networth excl house and pension

    It looks okay, but I’d also have to deflate this by inflation, two years of inflation roughly knocks 10% off the real value. I don’t have an excel version of this so I used the shear function in Photoshop to drop the right hand side by about 10% 2.

    inflation-adjusted version

    inflation-adjusted version – the original baseline is shown by the dates

    What is, however, happening is that the balance is shifting from cash to equities, which looks in Quicken like a madcap 20-something’s asset allocation. Although the equity allocation is getting on for three-quarters equities, this also explains the strange image of networth increasing while drawing down some of the capital. I need to remember the good men in white coats (hat tip to Monevator) who rock up just in the nick of time with their ‘this too will pass’ ring and remind me that this is illusory.

    Observe the increase, and increasing volatility with time. That, my friend, is what the stock market does to you. In exchange for a little bit of real return, it gives you a hellaciously rough ride with a massive noise signal to bamboozle any attempt at rational thought. Remember there isn’t any income in here 3, there is some spending, and the equity ratio is increasing. And stock markets have been on a tear for the last few years, only last year people were asking ‘I don’t know what the ‘king hell we’re doing up here mate‘. Twice

    Three-quarters of my current asset allocation is in equities, and in a bad year, equities can fall by 50%. In a different world it could look like this

    the retired in 2007-ish version

    the retired in 2007-ish version. Okay, falls happen more sharply than rises so it isn’t that realistic. There’s only so much you can do with Photoshop ;)

    This sort of roller-coaster ride is what awaits anyone with a DC pension who does not annuitise any part of their capital on retirement or shift to some safer asset class. In particular, the good people who the Pensions Minister exhorted to enter drawdown rather than go buy a Lamborghini are going to be facing this. Yes, they don’t end up getting a fixed crap income of 5% of their capital, non RPI linked. But they have to accept that bronco ride. And every time an IFA asks Joe Public about his risk profile the answer comes back that he hates risk. I am in the stratospheric nutcase end of the risk tolerance (because my risk tolerance is balanced by the bond-like nature of a final salary pension)

    An Ermine's risk profile

    An Ermine’s risk profile

    And I don’t like it. Am I drawing down at a sustainable rate? The 4% SWR is an article of faith, and that faith is easy to come by at the moment, as the good doc said. It was probably harder to find in 2009. If it mattered greatly, I’d have to ‘fess up that I have no idea to that sustainable question. However, since I have a pension that is greater than my rate of spend waiting, plus an AVC fund that is in cash and larger than my ISA I will probably get away with it.

    The takeaway is that living off a large equity based capital allocation feels like a very rough ride indeed, and let’s face it, I’ve only have the upside of that ride. For someone who has drawn a steady salary for 30 years, that is not a peaceful feeling. I have other options, and perhaps I am more fearful than others, but it would totally creep me out to rely on that 4. I don’t know what the answer to that is, but I am happy to say I don’t need to find out, because I will get some of that steady income back.

    I am probably underspending

    It’s not a common observation in the PF universe, but I am probably running below my financial capacity. I had expected to reach the zero cash line between a year and a year and a half out (that would have been end of 2013), and to be drawing my pension already or imminently. I am six months into extra time. The reason for the underspending is because I extrapolated from spending at work, and it was also cluttered a little bit by spending on establishing a business.

    Now if you’re going to err in retirement, err on the underspending side. However, da yoof is not totally wrong with YOLO and at some stage I need to review this. Even after two years, I am still in the recovery phase from a pretty rough experience of the last couple of years of work. So this spending pattern fits my needs at the moment.

    The extra win a 40% tax payer gets from pension saving is counterintuitively high, compared with the BRT win.

    We all know the pack drill. When you save £100, you put it somewhere and you can’t spend that £100. Easy – that’s pretty much how your ISA works, and almost all non-pension saving. The deal with pensions and taxation is different – you save some amount x and you don’t earn £100 net. The net effect is the same – you have £100 a month less to spend on beer/chocolate/paying off your mortgage.

    It’s very counterintuitive, but forego £100 of net income and you get to save £166 in a pension. That’s because the £100 has been taxed at 40%, ie your net £100 is 60% of the gross amount, so the taxman gives you back 40/60 ie 2/3 of the amount you have foregone. Everybody thinks oh it’s only 40%, but in truth of the amount you can forego it is 66% – for every £100 net you don’t earn, you save £166 in your pension, a 66% bump up compared to if you earn it and bung it in an ISA.

    Compare that with the basic rate taxpayer – they forego £100 and it’s made up to £125. Okay, it’s still a 25% boost but it’s nowhere near the boost the HR taxpayer gets. It was a little bit better at The Firm because they used salary sacrifice, so the BRT payer gets 32% (20% tax and 12% NI) so for every £100 he doesn’t earn he gets £47 added, which is nearly twice as much.

    I hit this hard, and I started investing in a Global:FTSE100 50:50 fund from March 2009 on, so I got a 20% uplift in my AVCs from the stock market and the depreciation of the pound. But even so, I look back at my AVC savings and wonder how the bloody hell did I manage to save a year and a half gross salary in pension AVCs in three years. And fill my ISA each year and save a third of a year’s gross from net savings into NS&I ILSCs. I still don’t really understand it, but that tax relief did a lot of the heavy lifting, and the stock market played its part too, in that lift from March 2009.

    This is why old gits at the end of their working lives can karate-chop the much vaunted magic of compound interest and bust its ass. They’re more likely to be higher rate taxpayers, they have more chance of having paid down their mortgage and they are a hell of a lot closer to getting the win so they are much more motivated because of the effect of hyperbolic discounting – loads of wedge in five years is a damn sight more interesting than loads of wedge in four decades. I saved a quarter of the total value of my work pension in the last three years, which is roughly an eighth of my time there.

    Work

    I retired early because I was stressed and became increasingly out of sync with the way work was being run. I am still recovering from that. It is only recently that I can reliably hear what is good in music, and there’s still a while to go before I will have recovered this to what I once had. In a myriad of small ways I am still reminded that I pushed my luck flying into the storm for three years, and indeed to carry on after I had been off sick. To a large extent the emotional centre shut down, and what was left was fearful; I retained most analytical capacity. Emotion gets a lot of flack in the PF world, and people draft long lists of ways it leads us astray. And yet it relates us to others of our kind, it gives us the hope to carry on against adversity.

    Emotion is the chief source of all becoming-conscious. There can be no transforming of darkness into light and of apathy into movement without emotion.

    Carl Jung Psychological Aspects of the Mother Archetype (1938)

    The old boy had a point, try living with that function shattered – you attempt to strike lights and they sputter and flare out, never overcoming the steely greyness of undifferentiated days. The analytical capacity did refine my investing behaviour and this was easier with a spanner jammed into the works of some of the biases. But it’s no fun, because I would see how to do things but not why. Motivating yourself when you know how but not why is sheer effort of will, not inspiration.

     

    It’s also interesting that ERE observed

    On an anecdotal note, I vastly prefer less stress to the low level stress that is present in most modern life. The stress I feel now is the “original” stress of a boat about to crash. Not the continuous stress of not being able to meet deadline after deadline.

    Because the world of work changed slowly, I did not realise the low-level stress increasing at work with the gamification of the workplace. That sort of continuous stress is bad because the response of increased heart rate and adrenaline has nowhere to go, it doesn’t help. Whereas when some stupid twat got pissed up at lunchtime last year and came round a corner fishtailing on my side of the road then yes, that is stressful when you see a dark Jag incoming at 12 o’clock. But it did some good, because it did the time-dilation thing and I was able to see what was happening, brake and pull way into the side, turning a head-on crash into a glancing blow. That is one of the correct uses of stress, because it did some good in improving clarity of thought and reactions for a short while where it matters.

    ERE is much younger and fitter than I am, so if he noticed that it took a while to adapt  then it isn’t surprising that the results of the work stress is still washing out of my system. I crossed the finish line exhausted and no reserve capacity. I didn’t expect to be still recovering two years on and to still have significantly impaired capabilities but it is better to roll with it than fight it. It’s also a warning call for all those ‘one more year to comfort‘ merchants. You will almost always be financially better off working for another year. But you may be running out of other resources that occasionally matter more. And everybody is running out of time, 24 hours in every day.

    The two years since retiring has given me some space to see where the working world and I drifted apart. The obvious reason is a combination of the 2008/9 financial crisis and changes in the way The Firm was being run. The obvious reason is not always the whole reason.

    I’ve avoided the vexatious issue of making money myself, largely because I don’t want to enter the world of wage-slavery and I have no desire to fill in an income tax return for lousy itty-bitty amounts. However I haven’t avoided directed action of the sort that sometimes goes under the title of work, I’ve taken these to add value to other people’s projects. And I look at them, and I realise that there was one big thing that I missed where I was diverging from the world of work at The Firm.

    I am a generalist, and worse than that the sort that Firestarter identifies as both Renaissance Man and dilettante :) This runs terribly against the way work is going, which is specialising, knowing more and more about less and less. This applies particularly to IT, which was the way The Firm was going.

    As they drove their way down the value chain they became much more prescriptive in structures and methodology. As a research facility it was a very wide-ranging operation for much of my career but as this was moved to become an outsourcing jobbing shop it narrowed. Specialisation is an aspect of the IT contract world too, it would be unfair to blame The Firm purely for this. For illustration, as a generalist since retiring I have programmed in assembler, JAL, Python, Perl, PHP, C and VB. I code in whatever suits the application and the platform. Raspberry Pi? That’ll be Python then. Arduino – C, Pic microcontrollers? MPASM or JAL. The Firm was trying to make everybody code in Java, and only Java. I am dilettante in seven languages and not master of one ;) In my last project for the London 2012 project I also didn’t focus in IT – CATV was from legacy electronics and system design. Indeed, at work the one thing I didn’t do much of was Java, that policy was instigated just before I got onto the 2012 Olympics project…

    When I retired I had thought that if I were to sell time or skills for money it would be in the field of engineering. But it isn’t likely, because I am running against the tide with that generalisation.

    After leaving work I built wooden shelters and fixed tractors, I’ve designed an irrigation system (the design part is being able to operate through winter, it’s not just going down to B&Q and buying up a load of hozelock connectors). I’ve produced and edited video. I have electronics design facilities, but this is at a fairly modest level. I have produced some IoT environmental sensors and the like. But only as part of a system design to do something else. This may point the way in future - don’t do stuff, do capabilities and services. I’m not going to be hidebound about it – a lot of the problem with Stuff is regulation; small fry can get away with a lot and if you get bigger you can afford the overhead. No small business became a big one by following all the rules…

    Where I’ve actually made money, is photography and sound recording.  I’ve managed to work a little bit harder than my ISA, though these guys will pay me in dollars so I have to wait until the exchange rate is better. Unfortunately this is impaired because the stress nearly wiped out any creativity I had.

    But without this playing with fantasy no creative work has ever yet come to birth (Carl Jung, the psychology of individuation)

    I actually see some of the recovery in the improved popularity and profitability of the photos I take…

    The fact that I can tell the agency to pay me when I’m good and ready means I am safe from the Internet Retirement Police – I haven’t done that for the money and it forms no part of my financial planning. But even as a cold-turkey retiree I haven’t totally avoided the four-letter w word. But I didn’t seek it out, indeed the problem I have with work is the whole bad power play of it. Perhaps I will have to reconsider this and view that I have achieved manumission through financial independence as opposed to retiring. It’s not really catchy though, is it?

    The thing that runs through these things is that there isn’t any single thread running through them, and if there is something running through them then it was only incidentally engineering, indeed much of it wasn’t even left-brain stuff.

    Google will save serious office space when they get to this stage

    Google will save serious office space when they get to this stage, though they’ll need to improve connectivity

    I am probably unemployable now because of this hopeless sprawling generalisation, it’s just not what the modern workplace wants. The reason for this is the concentration of power to capital and the improved communications. Companies can concentrate the work to hyper-specialists, the distribute the results to the proletariat virtually cost-free. Look at the setup at Google. These will eventually become brains in a jar with multiple redundant high capacity optical fibre data connections. You ain’t seen nothin’ yet with Google Glass. Google employees can’t cook for themselves or do their own washing, which is why Mama Google sees to it to fix their household requirements. Free food, free laundry, free haircuts. free cars. If you want to see where white collar work is going, look at the leading edge – it’ll be most places in 10-20 years. Hyper specialisation has a dark side. I am nowhere near bright enough to work for Google. Nor are many of my fellow Britons. Specialisation is where it’s at, but it will need fewer and fewer people and require more and more of those it does need.

    Generalists work well in a small scale – there are often opportunities to use knowledge across unrelated fields in small-company operations. They are more flexible, there isn’t a structure of existing practice to adapt, and they can get away with short-term fixes for temporary requirements as long as they trust their generalists of they have seen enough track record. But I have no desire to work full-time as a general fixer. The 21st century technical workplace is no place for a generalist Ermine, because of this culture shift towards specialisation and narrow but deep skillsets. But then that’s the whole point of becoming financially independent. I don’t have to give a damn.

    The distinction between work and not work is peculiar to the financially dependent

    because you’re financially dependent (usually on a job). So you have to do what The Man tells you, and that division is clear-cut and non-negotiable. Contractors and the self-employed soften this distinction a bit. It seems to easily end up with work taking over their life, however, because work is still not elective, it is when they work that is more elective than someone working for The Man. Not that they work.

    Philip Greenspun posted an interesting article on early retirement way back in 2006. I used to read his site as photo.net just before the the turn of the Millennium, the empty dreams of a cubicle slave dreaming of making shitloads of money on the stock market from the dotcom boom and then making pin money shooting picture and travelling, those heady days when Momentum was King.  And that’s when I really enjoyed work. Anyway, I came across his article, and the comments as he was seeking feedback on the article. Although I’m normally of the opinion comparisons are vexatious, part of the insight from the article does come from the differences and the similarities between two different journeys.

    I’m nowhere near as rich as Greenspun and I earned less. There’s at least one order of magnitude in it, probably two, possibly more. This is not something that particularly bothers me, I don’t have the desire for flying. However, I can see it gives you more options in the US, where distances are much greater and people disperse over a wider area; Greenspuns college pals are more important to him (Even for couples/people with kids they get a little more important to people after most have gone through the baby/children tunnel of 30s to early 50s)

    He is/was single and is about 10 years younger than me. He had to take special measures to address the social life issues that I just don’t have – he’s clearly given it some thought and does it well. He’s more outgoing that I am. In particular his angle on that being single has a very strong effect on where you choose to retire to have a decent chance of stimulating human interaction is quite an eye-opener. I didn’t appreciate there was this difference, but what he says makes sense. A single early retiree (~40) probably does need more money than someone who has a partner. However, since the single fellow probably doesn’t have kids he probably does have more money, so there’s some auto-compensation.

    Time management (pinched directly from Greenspun)

    How much work does the average college student get done? Almost none. Yet the same person, injected into a corporate bureaucracy, becomes a reasonably effective worker. Why? Most people have terrible time management skills. This limitation is of no consequence in public school. The school tells you where to sit and what to do and when, at least for six hours per day. This limitation is of no consequence at most jobs. The employer tells the workers where to sit and what to do and when, at least for eight hours per day.

    If you’re retired, however, nobody tells you how to organize your life. If you have goals that you’d like to accomplish and your time management skills are poor, you might end up disappointed in yourself.

    Now an ermine isn’t an enormous fan of the self-help industry, though I’m happy to accept it helps a lot of people and occasionally indulge. There’s a very heavy thread of self-discipline and virtual Calvinism in the personal-finance world, but it is nothing to the apotheosis achieved by some of the American writers – Steve Pavlina is over 1000 times more effective than I could ever be, and it’s not like I disagree with the efficacy of what he says. But to me seems me as a joyless way of living – life needs dynamic contrast and empty spaces for reflection and understanding. I didn’t stop work to reproduce the problem again in a different place. Each to their own.

    However, Greenspun has a point. I found it helpful to take the time out in the morning to centre and actually write down what I wanted to achieve that day. The idea is roughly pinched from a book The Artist’s Way at Work, which I bought way back as a cubicle slave looking for a way out. It didn’t work for me, I produced trash because I was trying to make money which shuts down the playful creative side. Presumably people who work in the creative arts don’t have this problem, or the fact they start off with a damn sight more talent makes up for it. It was in the box of to get rid of books until I read How to get Unstuck, and figured I should reread it from a point other than desperation.

    That rough orientation is generally enough for me. though I have used the basic tools of project management for longer projects, such as the open source Gantt Project, and of course Excel has its place in the finance area. It’s not mandatory to leave all the useful tools untouched when you stop work.

    Work, cold turkey, rentierism, aristocracy and the Ermine

    I went cold turkey, or so I thought, because the word work became associated with a traumatic experience. This made the transition easier. And unwittingly, I overlooked some of the positive aspects of making stuff happen in the world for pecuniary reward, because it was associated with having to suck up to stupid crap. The two aren’t inherently linked, provided you don’t need the money. The money has some value – it is an estimation and recognition of exchanged worth.

    And I’m left with a load of inconsistencies and conflicting attitudes because I have simply buried this subject and left it, so it is still linked with outdated psychological forms. To live intentionally I need to dig this out, untangle the knots and live my values.

    The trouble is I have spent 30 years being motivated to work for money because Bad Shit would happen if I didn’t. That’s a terrible way to motivate anybody – it’s the Bad Shit that puts the slave into cubicle slave 5.

    for a man is rich in proportion to the number of things which he can afford to let alone

    Thoreau, Walden, delivering a message for the 1% that they will not hear

    And now, curiously, I have the edge on a significant part of the 1% – who all earn far more than I did. But they spend more, whereas I am within spitting distance of becoming a rentier. Much of the secret, as Thoreau observed above, is to reduce spending. If that works for you, of course!

    So the whole reason I worked for money has gone. The empty space still speaks – I cannot relate to some of the ways the retired ‘work’. I don’t volunteer. I don’t understand it, and at some level I find the concept demeaning, of working for nothing . Maybe I am just a bad person, maybe I will chill on that in time, though I doubt it. There’s still the echo of work being a four-letter word, and ending up in a situation where other people tell me what to do still reminds me of that fateful February day in 2009 in a one to one where I realised that the Ermine was out of luck, out of time and out of options but needed to suck it up for long enough to buy freedom.  I have added value to other people’s projects without being paid, because of this

    Still, it’s hard to suddenly turn off an educated brain.

    Gail Buckner, Fox Business

    What I really want to avoid is an ongoing commitment. It’s far more satisfying to start in the morning, get some tools together and wrangle something into a more useful form and then get out.

    irrigation system under construction

    irrigation system under construction

    That favours Stuff and kind of runs counter to the Don’t. Do. Stuff  argument, but most of the objections are lifted when other people have the problem of buying the Stuff and storing it, and all I have to do is show up sometime and turn it into a working system.

    So there are loads of inconsistencies and conundrums in my approach to work. None of them are urgent, though resolving and drawing the sting from the psychological hangups is probably worth the investment of time. I want to live intentionally, and not shadowboxing the psychic wreckage of past injuries is part of that goal.

    Grow – or begin to die within

    You have more opportunity for self-development and individuation when you own your time, but you have to engage and work at it. Many people really hate that – they feel they are adults and have it all sorted, that was the whole point of the first 20 or 30 years of their life. Individuation involves being more reflective, writing about what you feel or even things like the Artist’s way journaling. There’s often not enough time to fit that sort of thing into a busy working life, so it easily gets put on hold. It takes time to unstick that.

    Your vision will become clear only when you look into your heart … Who looks outside, dreams. Who looks inside, awakens.

    Carl Jung

    I’d really like to say I had done well there, but progress is slower than I had expected. I have started, and of course the process of individuation does not have an explicit end target. Journey, not a destination etc. There’s no point in wasting too much time trying to describe this because it’s very different for different people. Just remember that

    the day you stop growing is the day you start to die.

    William S Burroughs, Junky

    Observation shows that one of the big ways people go wrong when they retire is they stop growing, because most of their challenge was at work. Too much TV and too little curiosity kills the cat…

    Luck plays a big part in the story

    More than I had realised, and while it’s easy to point at the things that went wrong far more went right. I had rotten luck in two big areas at the beginning and at the end of my career – I bought a house at a terrible time, and I lost the last eight years of earnings by retiring early. I’ve had good luck in other areas – joining a final salary pension and getting nearly 24 years out of the design 30 in it is a large stroke of luck as is never losing a job since getting my first one 6. And if I was going to bail out 8 years early, then being a higher-rate taxpayer and recognising the open goal of the stock market next to me and taking the opportunity was another piece of luck – if I started now my ISA and my AVC savings would both be a lot lower after five years, assuming we aren’t about to enter the mother of all bull markets ;)

    The tl;dr version

    Looking back after two years I have spent about half of what I expected, and largely got away with retiring early. I am still not drawing on my retirement savings. I have a decent measure of what running costs are in retirement, I am probably underspending and have space to adjust upwards. Cutting costs helps greatly – it helped me save more when working and reduces the drawdown when retired.

    I have learned that being a generalist is also very bad for the way work is going, particularly in big firms. And the recovery from getting knocked out of the workplace by stress has progressed but by no means finished – even after two years.

    Retiring early is good  -I can allow the generalised interests that were becoming toxic in the workplace free rein, and they help me live cheaper than would otherwise be the case because of the various reasons skecthed out by ERE

    Flexibility and openness to new ways of doing things seems key to retiring early successfully.

    Notes:

    1. a smartphone has no optical zoom, and is preset for a good first-person shot of a human-sized object about 2-5m away. Which is what most people want and makes great Facebook posts. Audio recording seems to be stuck in mono and doesn’t take external microphones. Again, great for facebook video. To make a smartphone into a good camera or audio recorder, you end up with a great big smartphone which is stupid as a smartphone
    2. which is obviously a linear interpolation of an exponential function, but it’s okay with such a short period and relatively modest inflation
    3. this isn’t strictly true, as the HYP ISA pays a shade under 5% dividend and there is some unknown amount of capital appreciation too. But I don’t spend this
    4. This is a peculiarity of the short timescale of my DC savings of less than a business cycle. If my savings were the result of a typical DC pension this concern would be softened because I would have entered the market over many decades, the 4-5% SWR would have greater validity because I would have a better idea of what the true value of my savings really was after saving across many business cycles
    5. I use the Americanism cubicle slave because it is common shorthand in the personal finance world. However, the enslavement is just as much for anyone who has to sell their time or skills for money to keep Bad Shit from happening in their life – whether they’re a office worker, a CEO, a coal miner or a Big Issue seller
    6. there is a year’s hole when I took time out to do an MSc but I was sharp and did that in an economic boom so it was easy to get a job afterwards
    10 Jun 2014, 7:18pm
    economy:
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  • families on the financial brink – this isn’t going to get easier

    The National debtline tells us that household bills are pushing people into debt. There’s a big picture here, and it’s ugly.

    source: Changing Household Budgets, National debtline https://www.nationaldebtline.org/EW/Documents/Changing%20household%20budgets.pdf

    source: Changing Household Budgets, National Debtline

    People are losing the fight with inflation

    “How did you go bankrupt?” Bill asked.

    “Two ways,” Mike said. “Gradually and then suddenly.”

    Hemingway, The Sun also Rises

    The reason for that is that people are short the cumulative difference between the yellow line and the dark one – they are losing the fight about 1% a year. That adds up.

    Up until 2007 it seems a lot of debt trouble was due to basically stupid spending on Stuff. It’s possible to fight that – buy less consumer shit and learn to say No to your kids in the way that these folk don’t.

    1406_shopaholic

    That sort of spending tends to show up in the form of revolving credit card debt and personal loans. While there are serious problems with that sort of spending, it is tractable, because nobody actually needs a new pair of heels, iPad or new mobile phone.

    The personal finance blogosphere has many sterling examples of people who have overcome the Beast of consumer spending. So much pre-2007 debt was basically a lack of self-control. That concept is terribly old-fashioned and of course it’s so unfair when you can’t afford the stuff that you’re entitled to, but even for one of these pampered princesses it’s not a matter of life and death. Because consumer spending is about wants, not needs.

    I haven’t seen the programme and I’m not sure I’d want to give it too much headspace. However, from the summary I have some sympathy for the children, who are growing up in a value-free desert without map or compass and being ill-prepared for the time when they will have to make their own money choices. By people who lack the self-awareness to know when to stop. It’s bad enough to do that to yourself, but to do that to a child’s plastic mind is a dreadful injustice.

    While I’m happy to say that I have managed to avoid stupid consumer spending with money I didn’t have, I managed enough stupid consumer spending with money I did have. That’s not so bad – I give the credit to competent parenting, introducing me to the Micawber doctrine.

    If you ain’t got it, don’t spend it, son

    Not that hard, eh? Unfortunately there were three exceptions to that rule 1, so I saved my stupid spending with money I didn’t have for the most toxic asset class Britain has to offer – housing. And got away with it – just.

    It’s always about families, 2 and the way the economy is going, an increasing number of people can’t afford to have children. Not because they won’t be able to afford to keep them in designer labels and smartphones. But because they can’t afford to keep them to a minimum standard of Maslow’s lower levels – warm enough and with enough to eat.

    The wants are a pain but it’s the needs that are a bastard, things like water and power. You can actually live in a bedsit without power – I’ve done so for the odd week as a student when I didn’t have any money for the meter or it wasn’t in 50ps and it’s no big deal. But there’s a story behind the trend

    More households are vulnerable to problem debt and are not benefiting from the economic upturn, research shows

    Debtline carries on

    “The gradual erosion of some families’ surplus income in the face of rising prices has led to a new generation of debt problems – one to which more people are vulnerable, one which is harder to resolve and one which has no definitive solution,”

    This shouldn’t come as too much of a surprise. We are designing an economy with

    A secular move towards winner-takes-all

    There are structural changes in the employment market that we never anticipated 3. The increasing mobility and virtual value-add of work is concentrating power towards smaller sectors of the workforce and towards capital. Because you can move information at a much lower cost than in the past, and a lot of added value to goods and services is in the form of Mind rather than Stuff, capital is responding. It makes sense where you need human input to pay rockstar wages to a smaller part of the workforce at the highest skill level, and try and automate everything else. Apple and Google take the #1 and #2 world slots by market capitalisation – and most of their product is Mind. Just how unusual this is can be seen by the fact that the massive oil firm ExxonMobil is beaten into third place – the first company that has Real People™ doing Real Stuff™.

    ExxonMobil - Real Men doing Real Stuff

    ExxonMobil – Real Men doing Real Stuff

    That money talks, and it’s paying more and more to a smaller part of the workforce. That’s because they can afford to chase up the high skill tail of the talent bell-curve, because the output of Mind is much more scalable than Stuff. If a skill is normally distributed then the really skilled 0.1% of individuals above the 3 sigma mark may well be worth paying 1000 times more than someone of average ability, if you end up selling more than 1000 times as many units because of the value they add. Real stuff doesn’t scale that well – if you’re mining coal then even a really, really skilled miner is probably not so Stakhanovite that they can get 1000 times the output of an average miner. Physical limitations on throughput often place extra bottlenecks with Real Stuff.

    If we look at pre-oil societies, each market town would have, say, their own blacksmith and carpenter, that meant even the moderately skilled could hold their own. Even if there were a 3σ artisan 100 miles away shifting all your horseshoes and wardrobes from him to you would jack up the cost. We have gradually eroded these transport and transmission costs. Even in real stuff Britain outsources a lot of ‘carpentry’ to Ikea – because we can shift goods cheaper, although I’m not sure that Ikea is a 3σ talent! We use robots to make our mechanically propelled horses these days so the blacksmith is neither here nor there. If we want tools we order ‘em up on the intertubes, the ‘smith is probably in China.

    London shows us where this is going – the south east is where the work is in the UK, particularly in the dematerialised area of finance and other industries requiring Mind like media. So pay goes up, and the price of accommodation goes up. It’s therefore not that surprising that poor families are being moved out of the city, because rents are being jacked up. A young Ermine saw the writing on the wall 25 years ago, came to the conclusion that despite the great lifestyle he was too poor to live in London where he grew up and went to university. So he moved out. Eventually London will become a city-state like Singapore. It will generate lots of GDP – even now in it’s non-city-state form it’s 22% of the UK GDP, with it’s 8.3 million people being only 13% of the UK population. I found it surprising that the South East including London generates 45% of the UK’s GDP. Those poor families can’t fight that. The edge the young Ermine had was I saw it coming and was prepared to take elective action to jump before I was pushed.

    that concentration is bad news for most people

    because there are more below the skills threshold than above it, and the line is drifting up. It’s great news if you’re on the talented side. Though beware the gradual shift to the right of that bell curve.

    Of work suitable for less stellar talents, much is being outsourced to lower-cost regions. This eroding of families income relative to the cost of essentials will continue, because they aren’t adding as much value as they were before. They may be able to afford the iPad, but not the roof containing it as the years go by. The Telegraph opined that London is becoming a workhouse for the young. Although they said it’s no place for old men, it’s no place for families either.

    They need to start consuming less. These problems were clear for the middle classes a couple of years ago. This seems to be a secular trend – Stuff is getting cheaper while services get dearer. Services that affect families are accommodation, power and childcare. Accommodation is already a dreadful mess in Britain, we seem to have a whole bunch of perverse incentives that started with Thatcher destroying social housing. Apologists for her policy say if a council tenant buys under Right to Buy they don’t take any accommodation out of service – they’re still living in the house they occupied as a council tenant. That is true, but, when you look at what has happened to housebuilding in the UK Thatcher pole-axed it because councils don’t build much any more and housing associations failed to take up the slack.

    post-war housebuilding

    post-war housebuilding

    So the price goes up. Energy is going up because there’s more competition for the finite resource, and in a peculiar twist of fate it is being loaded to pay for insulating the houses of the poor. Well, those that have houses, of course.

    Childcare is a service, so it is not very scalable, and regulation seems to be upping the cost. For many families there will come a point where the amount the lower-earning adult earns is going to be less than the amount paid out in childcare. On the upside the child gets to see more of its parents. On the downside I’ve it sets the adult back in their career. Life is full of choices I guess. If there is only one adult in the family then I guess they’re SOL unless they have a valuable skill and the gift of the gab. Every which way this is not easy, and it’s not going to get easier.

    For more ambitious families, child-related services include university, and private schooling. It’s all going up faster than inflation, because they need skilled labour, and there’s competition from  mobile aspirational third culture consumers. However, these guys are probably not the ones struggling to pay the ‘leccy bill.

    There’s serious incoming trouble on its way

    Interest rates are at historic lows, and may need to rise. Unless associated with remarkable house price falls, the only way to picture that is severe hurt. The British housing market is now a gun that fires on both ends. What is probably in the national interest is for massive falls in the real value of house prices, so that we don’t tie up so much of our national wealth in our homes. But that would shaft no end of people who have already massively overpaid for their homes – making my antics in ’89 look like driving a hard bargain.

    People are gonna get hurt, and all of this is against the background of those secular changes. It’s all very well for IDS to charge around saying work is the answer, but I’m not sure it’s as simple as that. At the moment all his designs, if he ever gets them to work, are either telling the unemployed how crap they are for not being up to getting one of the bountiful jobs that there are in the UK, or pushing them into poorly paying jobs. Maybe we need a change in the unemployment figures, from people in work to man-hours worked, and some way of tracking the median household takehome.

    I don’t think this is a moan for the good old days

    When I was at school I watched the punk Arthur Scargill tell us how hellish mining was, as he held the nation to ransom with his flying pickets and secondary action in the 1970s. They fought like hell to keep those jobs in the next decade, and yet Art was right. You only have to see the toll in China to see that this isn’t a safe place of work.

    That sort of revisionism is critiqued on the right by the likes of Tim Worstall and a little more gently in  in Why does Joe Public love sweatshops. I’ve tried to avoid that problem – if the New Economy produced work across the ability spectrum there wouldn’t be so much of a problem. My observation is more general, of the winner-takes-all and the trend towards capital and the exceptionally able. It is possible that we are going through a future shock – after all the 5 day work week wasn’t written in stone and previous generations had different patterns determined by the demands and structures of their economies – the trend has been downward. It’s possible the John Maynard Keynes’ Economic Possibilities for our Grandchildren may come to pass. But at the moment work is polarising, and we are telling a lot of people of average ability that they are worthless, while the likes of Duncan-Smith pretends that if only they get off their asses there would be loads of work for them. Perhaps the resurgent economy will fix this, but if it is fixing it, Natonal Debtline seem to be pointing to a deeper malaise.

    We need more honesty in this debate. On the one hand we could stay as we are. Old money will become more important as will high ability – either will give you enough to handle the system and become part of the 1%, both will give you an express ticket. There’s a cost to that, which will eventually look like razor wire, armed guards and watchtowers to keep the disaffected and disenfrachised 99% from doing some DIY redistribution. There is the alternative of Martin Ford’s The Lights in the Tunnel and the citizen’s wage. There are no doubt other alternatives. But it isn’t the 1950s and 1960s any more. There may be plenty of unfilled jobs and plenty of unemployed. It’s not necessarily true that the shape of the pegs match the shape of the holes.

    How did you go bankrupt?

    Slowly at first, then all of a sudden

    How I first heard Hemingway quoted

    postscript

    Bloomin’ heck, apparently the Ermine has company in Oxfam, which is charged with pumping out agitprop :)

    the Oxfam version of this

    the Oxfam version of this

    Seems a bit hard to be charged with being a commie bastard for making the observation that shit’s going down. Okay so I’m not necessarily with Oxfam on the benefit cuts and I view zero-hour contracts as part of un(der)employment.

     

    Notes:

    1. housing, which most people can’t do without borrowing and is not normally a wasting asset, investing in productive assets in a business context and education if it would make me richer or happier. These are particularly hard risk assessments to do for a twenty-something
    2. I am using family in the way the press use it, which is to imply one or more adults and one or more dependent children
    3. These are secular in the economic sense, as opposed to being irreligious
    3 Jun 2014, 2:12pm
    rant
    by

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  • Dear Amazon. Want more than 40%? Quite frankly, stick it

    The Ermine occasionally flogged off some spare CDs. In a previous life I used to wholesale some and occasionally I’d come across yet another bunch of these. It was an easy win – I get to clear out some space and somebody gets a new CD. But I’m down to the last box now. I had an Amazon Marketplace account. And today, having sent one of these and mailed it off yesterday, I get this peremptory message from His Jeffness.

    1406_amzon

    Dear Seller,

    We are contacting you today regarding your Amazon.co.uk seller account. Please be advised that we have made some structural changes to our EU Marketplace. As before, Amazon Services Europe S.à r.l. operates the Marketplace platform and provides the Selling on Amazon service. However, from now on, Amazon Payments Europe S.C.A. will provide the new payment component of the service.

    [translation: we have opened up yet another tax-beneficial scam joint who will no doubt start raking off more fees just like Paypal with Ebay]

    In this regard, EU regulations require Amazon Payments Europe to collect certain business and personal information from you and take steps to confirm your identity. To fulfil those requirements, we need your support to make some changes to your existing seller account with Amazon Services Europe:

    In addition to your current seller account you now need to open a Selling on Amazon payment account with Amazon Payments Europe. The proceeds of your transactions on Amazon EU Marketplaces will be disbursed from this account to your bank account.

    [translation: we will be salami-slicing you for fees upon fees, because we can]

    The Business Solutions Agreement has been amended to reflect this change, and you will need to agree separately to the Amazon Payments Europe User Agreement. Because these are new agreements and formats, we ask that you accept the new and amended agreements and provide the requested information in Seller Central.

    *** It is essential that you accept the new agreements and provide the requested information within the next 60 calendar days in order to continue to sell on Amazon. If you do not provide the required information within 60 days, you will not be able to open your Selling on Amazon payment account and you will not be able to continue to sell on Amazon. ***

    [translation: we hold all the cards and have you by the balls. You will do what we say because you're a sharecropper on our estate and we're bigger than you are]

    Err, no. Piss off. All items removed. If you aren’t prepared to pay me the less than a tenner for that last CD then I am absolutely fine with that – my customer will get his goods, presumably Jeff gets a few quid to take over more of the world(edit: 5/6/2014 in the interest of observing Queensbury Rules  Amazon will pay for that last CD in the old way I have now heard) and I don’t have to agree with yet another non negotiable shrink-wrap you do what we say or you suck it up demand. I had enough of that sort of stupidity at work, but at least they paid properly. Working for Amazon is already low-rent enough as it is, Amazon makes about 40% on the deal – more than the postage. Royal Mail actual do the work shifting goods from A to B, Amazon just pay the ‘leccy bill for their website. Well, okay, and make it easy for people to find stuff ;)

    As a retiree it isn’t always totally possible to avoid the issue of making money, but it’s the power-play I always want to avoid. I have done too many things for too long because I didn’t have options, and now I have the option it’s sweet. I don’t have a religious opposition to making use of skills, though curiously enough most of what I have done that’s made people money since leaving work has had nothing to do with engineering. Maybe I was too narrow in my engineering career, and lifting the daily grind has shifted the balance.

    This much I know, however – selling or giving mind and know-how is far preferable to wrangling Stuff. Cash-flow and storage is always such a pain with buying and selling stuff, you have to store this clobber, you have to look after it, even after you’ve turned a profit on the deal it feels bad to just throw stuff out that has sold well even if you have a more profitable/timely product. Compared to that shooting sound and video, editing it, or hacking code doesn’t consume anything other than a bit of power, you get to see new situations  and problems, and junk doesn’t build up in your garage or loft. Selling knowhow or ways of doing something has other subtle business benefits – there are often indirect lock-ins or costs of changing, whereas with mass-market products you’re just a rat on a wheel, particularly selling made goods on the internet.

    Every so often I’m tempted to make products, and even got a bunch of boards made for one design, but after I’ve used half of them on my own sensor network I think about all the EU crap like CE marking that didn’t exist the last time I produced devices and figure I need to remember the lesson from my multimedia company on the side relative to the CD operation run by DxGF.

    Don’t. Do. Stuff.

    Yes, if you’re starting out and want to make your fortune it’s not a bad way to go if you have the skills, but it’s a full time job. If you want to turn a little bit on the side it’s a hard row to hoe, because the margin on Stuff and the added value seems lower than adding Mind. And you need to warehouse Stuff and it moulders quietly if you keep it too long. So I’m going to toss the remains, get it out of my way and declutter. Jeff can get on his bike, and thank you very much sir for highlighting the low rent of that sort of work by being such a greedy bastard as to prep for extracting another slice of the action. The rake on Amazon Marketplace makes people like Hargreaves Lansdown look like public-spirited philanthropists -only 1.5% fees at HL compared to 38% at Amazon. And I’m no longer prepared to be a sharecropper for them and their bunch of Luxembourg umbrella companies.

    I’m starting to warm to the concept of Bitcoin, just to get shot of all this bollocks. Seriously, Amazon, there’s less than a ton left worth of goods here. I’m not validating my bank account and giving you shitloads of personal details, which you will use a) to scam me brainless with advertising crap to me that I don’t want and b) no doubt fail to secure your corporate network at some stage like your mates over at Ebay, spewing this information all over the internet so some bunch of ne’rdowells can cause me grief. No. And of course you’ll probably do like the fine fellows at Selftrade and ask for all sorts of extra useful marketing cobblers because, hell, the EU made you do it.

    30 May 2014, 3:18pm
    personal finance
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  • Why Compound Interest won’t help you retire early

    I’m always the bad guy when it comes to the compound interest myth, but really, it’s not powerful enough to help you retire early. I’ve picked up the challenge, but the tl;dr reasons why are

    1. the real-inflation adjusted return on equities is too low and
    2. you don’t live long enough and
    3. you don’t work long enough (sort of related to #2)

    None of these are within your control.

    Wealth warning – nothing in this should be construed as saying that you don’t need to save into a pension in your 20s. All I am saying is one of the common stories about early pension savings is overrated to mythical extremes. Saving enough money to stop working is a tough job and takes the whole of your working life. The sooner you start, the sooner you can check out, provided you balance pension savings with the rest of the calls on your finances.

    What is compound interest?

    There’s a much more positive account of it not written by a cynical old git available here, but the definition is easy:

    Paddington Bear takes his money to the bank, and deposits a nice five pound note. A year later he gets £5.10. That’s because he gets paid interest on his money, of 2%p.a. Next year he gets 2% on £5.10. And so on until he is rich beyond his wildest dreams, apparently. The mathematically astute will observe that the future value of his investment is basically

    Present value × (1.02) ^years in the bank

    where ^ means raised to the power of. Now I’m going to cheat and raise Paddington’s interest rate to 5% for reasons that’ll be clearer later on.

     

    The Magic of Compound Interest

    The Magic of Compound Interest – 45x gains after 40 years, Whoopee-do

    And show you this chart. You will observe that if Paddington puts in £1 in 1974 and becomes a Retired Bear this year then he’ll get 45 times as much out. Fantastic. People use that sort of thing to give you bullshit like “when saving for 10 years is better than saving for 40” along with the obligatory wacky picture of Einstein, who is supposed to have said compounding is the eighth wonder of the world

    Fabulous story. But it’s fiction. I’m not contesting the maths – after 30 years as an engineer I’ve learned you don’t fight the laws of maths or physics. It’s incontrovertible that if Paddington got a real interest rate of 10% every year, his first year’s saving will punch 45 times the weight of his last year’s saving. Note this graph shows only what happens to the value of his first £1, not the cumulative value of his pension!

    That’s the story, but the devil is in the detail

    Detail #1: Whoa, boy, you said 5%!

    The sharp-eyed will, of course, spot that I said 5% at the start, in which case lower your gaze from the lofty value of 45 to the pedestrian boost of 7 times.

    That’s the first problem. As I described in an earlier rant on this topic, Warren Buffett, the most successful investor the world has ever known , has managed 13% annual return in real terms. So he’s doing better than 10%.

    You aren’t going to do that. You’ll get about 5% provided you can avoid screwing up, which is challenge enough in itself. Follow these ideas on passive investing and you stand a decent chance.

    That’s the trouble – to make the compound interest story interesting you have to sex it up with unrealistic values of return. And it’s gotta be the real rate of return, ie subtract the long-run rate of inflation from your nominal investment return as well as any fees. The FCA regulator doesn’t even allow people to use 10% for their optimistic projection rates for equity based pension investments. Repeat after me – you are not Warren Buffet.

    Detail #2: Most people earn more as they get older

    at least compared to the start. If they save as a percentage of salary they will save more as they get older. I deliberately selected a chart that made a dramatic entrance, because it’s all about that first £1. You save to a pension across your entire working life. A lot of the UK PF community seem to work in finance, where this may not hold because burnout is rife in that industry; it’s a young man’s game. But most people pick up some knowledge, skills and contacts so they can command a higher salary in their 30s and 40s than in their 20s. It’s much harder to save 10% of your salary when it’s £25,000 than when it’s £50,000, because the fixed costs of living are a larger proportion of your income. There are other pressures on people in their 20s that I didn’t have in my 20s, so it’s even harder, but even I found the cost of rent, house deposits and all that stuff hard in my 20s and early 30s

    Cumulative chart of all years contributions to total, zero real value career progression

    Cumulative chart of all years contributions to total, zero real value career progression

     

    cumulative total, 3 times career progression

    cumulative total, 3 times career progression

    These charts show you the total as a sum of all the contributions, growing. You can track how each of the contributions grew if you have the patience and clarity of eyesight. In the top one there is no career progression at all, in the second one over 40 years  the Ermine achieves a 3× real times value career progression (this happened to me over 30 years, which would make the later contributions even more equal with the early ones :) In the first chart £1 is contributed each and every year, and compounds at 5%. In the second chart I start off contributing £1 and then each year  it is increased by linearly interpolating to a final salary of 3× initial salary (ie adding £3)

    You can see in the first example the early contributions punch way over their weight, but in the second this effect is deflated by the increase in salary. The favouring of later contributions is in fact much heavier due to tax breaks  benefiting the better off more because –

    Detail #2a: It’s easier for the rich to save and they get more bang for their buck in a pension

    because they are saving 40% tax instead of 20% tax. So to save £100 in his pension a rich saver only needs to go without £60, whereas a basic rate taxpayer needs to reduce his post-tax income by £80. The fixed costs of living are usually still a lower proportion of income, so they get a win from that too

    Detail #3: Can you stick working for 40 years?

    Look around your office. How many 60-65-year olds are there?  If people start in your company at 25 then one in 8 should be old gits between 60 and 65. If there aren’t that many it says something about the likelihood of you working there that long. Now generalise that to your industry. Note how all the compound interest action happens at the end of the chart… 1

    I’m perfectly capable of engineering, still. It was the stupid gamification of the workplace and nutty management that I tired of and made me want out. Yes, maybe I was more mentally unstable or weaker than the average Brit. I don’t think it’s that huge – in my last year at work I had to rugby tackle one dude in the office who had just hurled a laptop computer at the wall, over a few colleagues’ heads because he was pissed off by something it was or wasn’t doing.

    I took his car keys, drove him home, stuck him in a chair and told him to get on the horn to his doctor. ASAP. The official story was that he tripped and dropped his laptop on the stairs. Mental health wasn’t good at The Firm. There are a few cracked paving slabs under some of the stairwells. You can’t open the windows in those stairwells any more…

    And it’s not good in a lot of places. We have people talking cock like this

    You need Emotional Resilience.

    For many people the workplace is becoming a worse experience. Some of the problems are fundamental. There is a power-shift from labour to capital which is particularly noticeable in developed economies because globalisation and improved communications dramatically increases the global workforce that can be brought to bear on solving business needs.

    So about that 40 years you need to work for compound interest to give you a leg-up, well, it’s time to roll out Clint again

    I didn’t bloody well make it to the modest normal retirement age of The Firm at 60. Will you? And I was lucky – after I got a job I never lost it 2  until I took voluntary redundancy at the end of my working life.

    Detail #4: if your workplace is no place for old men, compound interest ain’t going to help you much

    ‘Cos early retirees are drawing down their savings earlier, and so they have less time in pure accumulation mode

    Compound interest is oversold

    I’m not saying compound interest does diddly-squat for you – in that previous rant I came to the conclusion that it would give you about a 50%-100% uplift on what you pay in over a typical working life, less if you experienced career progression and saved more towards the end, more if you very given a pension at birth by your parents. But don’t get the impression it’s going to do a lot for you, and the Telegraph article was absolute bollocks – the 10 year saving beating out 40 years only applies at unrealistic rates of return.

    You can test this out yourself on Monevator’s Compound Interest calculator. An Ermine saving £100 a year for ten years at 5%p.a. gets £1500 at the end of that 10 years. The lazy tyke then sits back for the next 30, ending up with £6500 after 30 years of 5%. The Johnny-come-lately variant steadily saves £100 a year for 30 years and ends up with £7000. Who knows – the Johnny-come-lately variant might have put the £100 a year for ten years into a house deposit or starting a business, in which case it would benefit his finances in other ways. In my case the Johnny-come lately fellow earned twice to three times in real terms as the young pup, so he probably ended up with £14,000. The old boy was a 40% taxpayer too, so each £100 saved cost him £60 rather than £80. It’s just not a fair fight.

    become a long-lived vampire to get the magic of compound interest working for you

    become a long-lived vampire to get the magic of compound interest working for you

    You ain’t gonna get the rates of return that the Telegraph used, and unless you’re a vampire you ain’t getting to live long enough to have compound interest do the heavy lifting for you. If you get an employer match in your 20s that will probably do as much for your early contributions than compound interest will. The Telegraph had you working for 50 years FFS – life is much too short to donate 50 years of it the The Man. Life is not all about work. My earnings, for what it’s worth, although respectable and well above the UK average were low compared to what I’d estimate to be the majority of the UK PF community – I never earned anywhere near £100,000

    There’s a converse part of the story. If you are an old git in your late 40s and you suddenly find all four engines flame out in the second half of your career for some reason then compound interest does not mean you are doomed automatically. I saved a quarter of the HMRC nominal capital of my final salary pension in the last three years of working and filled ISAs and saved cash with NS&I. I was lucky enough to be standing next to an open goal in the form of the stock market when I started. And I was fortunate enough to have enough mental capacity left to seize the day.

    Compound interest will do something for you. But it won’t be earth-shattering, and it’s not worth flogging yourself into the ground in your 20s for. Try and take the employer match, because it’s rude to leave part of your salary behind. But before you believe the stories about the 25-35 making more difference than the 35-65 years do the maths. With realistic, not fictional values for the rate of return.

    Compound interest is particularly not going to help early retirees. I am a normal early retiree (less than 10 years to normal retirement age for my company). Very early retirement (40s) or extreme early retirement (30s) means your money only has 10-20 years to grow. Compound interest at 5% just ain’t gonna cut it, you’re own your own, which is why ERE’s logic ignores it totally.

     

    Notes:

    1. this is in fact a property of any autoscaled charts of that sort plotted on linear scales. If I were to extend it to a thousand years all the action would look like it happened at the end
    2. I did switch jobs a few times. But without gaps – when I left the BBC in London on Friday I came to Suffolk and started at The Firm on Monday
    27 May 2014, 5:35pm
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  • Hello Mr Putin, fancy meeting you here?

    It’s not an experience you get that much in the UK with its short distances, but when air travel was dearer, in the 1970s, it was worth travelling by train in Europe. You’d get off the boat at Ostende, and after some interminable shuffling, end up at the railway station, where you had trains that went to different countries, which looked really exciting to a young ermine. Sometimes the train would have a destination of two countries, depending on which end of the train you boarded.

    Unlike air travel, the train stops at many places, and different people would embark and disembark at the waystations. As you approached your destination you’d get a sense of the place you were going to by your fellow-travellers.

    1505_putin

    So in my ISA I found myself waking up next to this fellow with hard gimlet eyes. You get the feeling he’s not a chap who is unused to seeing a dead body that was alive not so long ago. It’s not a friendly face, eh? And you get the feeling the old boy’s known some troubled times. Here’s a fantastic album of Vlad doing all sorts of derring-do –  not bad pecs for a geezer who’s getting on a bit.

    Vlad, a word in your shell-like. If you don't like what's on TV you can switch the darn thing off. Chill, bro'.

    Vlad, a word in your shell-like. If you don’t like what’s on TV you can switch the darn thing off, particularly if you’re Prez, they ain’t gonna stop you. Chill, bro’.

    Exactly why he’s so bothered by the existence of Conchita Wurst is presumably something that’s between Vlad and his shrink, if they indulge is such effete decadence in between all the huntin’ and fishin’.

    However, it’s not so much Vlad himself but Russia in general I’m interested in.

    A lot of people have lost a shitload of money in Russia. It’s a different country – they do things differently there. The term ‘ownership’ and the general rule of law has a more fluid meaning, as the odd oligarch has found out to their cost. Smarter people than me indeed have had Russia cost them dear – the rocket scientists of Long Term Capital Management who believe that risk could be abstractly quanitified discovered to their cost that

    In times of stress, the correlations rise. People in a panic sell stocks — all stocks. Lenders who are under pressure tighten credit to all

    Crikey. No shit, Sherlock? That’s the trouble with being a rocket scientist, you haven’t spent enough time with people to realise that scared humans (or dogs, or wildebeeste, or pretty much any living thing) do not scatter preserving their individual independent calm assessment of the situation. They run like hell. Mostly in the same direction as everyone else. Dunno what the maths of that are, but it buggers up your kurtosis and fattens your tails. And drains your wallet.

    So why do I want some of this? Well, I’m not going to go stockpicking in Russia. But I’ve been toying with the idea of getting some exposure to Vlad’s country despite his sabre-rattling and raising the uncomfortable topic formerly known as ‘living space’ in a previous context. After all, that nice man Tony Blair wasn’t averse to making other people live as he wanted them to live, though it’s still not an attractive characteristic in a world leader. Like it or not, Europe is going to have to cut deals with Russian companies, unless a large part of Europe would like to freeze its rocks off this coming winter. Even if they do, the Chinese might like some too.

    Unlike the traditional view of investing for retirement, where you liquidate on retirement to buy an annuity, I will use the income from my ISA over the coming years, and that terminal horizon is still several decades off possibly. I expect the financial and political power of the West to decline relative to other regions of the world for a range of macro reasons, as well as the Spenglerian thesis that cultures grow old and tired as they become more distant from the shared values that invigorated them. That isn’t to say that I believe Russia will stand towering above the early/mid 21st century like a Colossus. This long-range section of my ISA is small, and it includes a bit of  Asia, a little bit of Africa and now a little bit of Vlad’s domain in the form of HRUB 1 . I can take a long time over buying these areas, because the aim is to hold these for many years. So I try and pay as little as possible. The pound is relatively high at the moment, so it’s probably a year for looking for foreign assets, and Vlad’s been pissing a lot of people off which also seems to scare the horses a bit. The index is a funny old thing, too, being the MCSI Capped Russia index – basically Russia is about Gazprom, energy, oil, Sberbank, energy, more oil, mobile, commodities. And the chart looks fantastic – full of absolutely everything you don’t want in a stock chart – nose-dive-tastic, if this was an aircraft and you’d lost 30% heading for the ground hail Marys wouldn’t really be enough to give you hope.

    Crashing nosedive - all-time low. Time to buy?

    Crashing nosedive – all-time low. Time to buy?

    So I couldn’t resist – a P/E of about 5 and a yield of of a gnat’s under 3% I figured I’d have some of what my old mate Vlad is having. It was the devil’s own job to get data on HRUB – I had to sneak in to HSBC and pretend I was a professional and then look for HRUD and switch currency to GBP. I favoured it over the db-x trackers flavour of the same thing (XMRC) which seems much more popular (or heavily advertised) because that is a derivative with Deutsche Bank as counterparty, whereas HSBC was physical replication.  Physical replication isn’t all it says on the tin, though, because they still lend stuff out, turning physical into synthetic-lite.

    But to be honest, if you’re going to invest in Russia then you’re not of the most nervous disposition, and you gotta be prepared to let it all go. This isn’t a huge part of my ISA ;)

    Actually buying it on TD was no fun either. They swore blind they didn’t have any of it, I have to look up HSBC, page through pages of cruft, click on the HRUB link, upon which they still said they still didn’t do it, but a crafty Ermine observed that they could run a realtime quote 2 and were actually prepared to sell me some. Which they did.

    TD. We don't do this, but since you're a crafty bastard we do.

    TD. We don’t do this, but since you’re a crafty bastard we do.

    Now if a company was on a P/E of 5 and a yield of 3% I’d pass. but most of Russia’s stock market is companies doing real stuff with Real Men digging crap out of the ground. OTOH my mate Vlad could say he owns the lot and the Ermine is unlikely to launch ICBMs to get my stuff back. It’s gonna be a case of back away quietly from the hard man, eyes to the ground and then beat it ASAP. Indexes don’t usually go bust but the Russian stock market does have form on that, I hear 1917  was a pretty rough year on the St Petersburg stock exchange…

    But in the meantime, the Ermine will ride with Vlad, though still looking nervously at those gimlet eyes…

    Notes:

    1. HRUB is the GBP denominated version of HRUD, but it’s easier to find charts for HRUD (dollar flavour) so I’ve used HRUD, so there’s a forex shift
    2. when the market was open, it wasn’t when I went back to get a screenshot of the crappiness of their interface
    25 May 2014, 9:16pm
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  • Dear Mr Gove. Do not be such a parochial prat

    An Ermine notes with displeasure that a certain Mr Gove appears to have charged out of the stable with his blinkers on. To wit he has decreed English Literature will be dictated thusly

    Students taking the OCR exam from 2015 will be required to study a pre-20th century novel, Romantic poetry and a Shakespeare play.

    i.e. none of that damned American stuff like To Kill a Mockingbird. Or perhaps appositely, The Grapes of Wrath, maybe…

    Now unlike the NUT I’m not implacably against Mr Gove. I do agree that our children should leave primary school being able to read, write and do ‘rithmetic including tables. And that whatever today’s equivalent of maths O level should at least have acquainted the little dears with differential calculus. But hasn’t anybody told Mr Gove that the past is a different country?

    I had the bad luck to have to do Charles Dickens’ Great Expectations at O level. The prose is turgid, dense and repetitive. It’s like trying to read a newspaper with a 1″ loupe – you can’t stand back enough to get an overview. Let’s face it, here was a dude who was paid by the flippin’ word. Plus the gruesome detail is of an age that was a different country. I cite Exhibit A

    A now economically worthless document because my human capital is worth jack shit in the marketplace. One line stands out ;)

    An economically worthless document because my human capital is now worth jack shit in the marketplace. One line stands out for all the wrong reasons ;)

    Now I was to become an engineer, and had already done maths and physics early to get the suckers out of the way. You will already see the signs of weakness in the humanities in the History grade 1 . But I wasn’t so terrible at reading – but I just could not get enough overview of the tedious turgid tripe that is Great Expectations.

    Over thirty-five years have rolled by since I sat that exam and flunked Eng Lit because I hadn’t read enough of the the book, and what I had read had been routed to the trash dump of my brain, which had tried to parse it for meaning and had come up with a null pointer.

    The world has become more global since then. And around Europe the lamps are going out in the intellectual sphere as fearful citizens from Scotland to Greece  seek to make their world a smaller place and hold the tides of globalisation at bay because ‘dem furreners a comin’ fer ours jobs’. These citizens were happy when dem furreners were making their DVD players and their iPhones cheaper, and they are not being served well by the spineless political class that hasn’t got the balls to tell the electorate that the good times are gone for good – living standards will stagnate or decline because power is shifting East. GDP will no doubt increase, it’s the slice of it available to the 99% that will fall.

    This is no time for parochialism, Mr Gove. We need to light the lamps of Reason and of culture so that some pathfinders will be strong enough to navigate their way across the long Western Intercession of the next 30, 50, 100 years. I read Harper Lee’s To Kill a Mockingbird at the same time as Great Expectations – for interest, because the story captured my attention. It is not time now, Mr Gove, to pull up the shutters and look inwards at a little Britain of its Victorian heyday. If anything we need to read a wider pool of literature, so let’s not lop out our American novelists, eh?  Maybe das Glasperlenspiel in translation or Flaubert’s Mme Bovary. It is probably too big an ask to include non-western literature and teenagers are hardly well-read enough to put it into context, but the British canon is too old and too narrow now. The journey is longer to Dickensian London than to the American South of the early 20th century.

    Mr Gove, keep the windows to the world open. We aren’t little England now. The flame of the Enlightenment is flickering in the wind, now is not the time to drain the fuel supply. Spengler had it nailed in Der Untergang des Abendlandes

    [of a culture that has passed the high-water mark]

    And we find, too, that everywhere, at moments, the coming fulfilment suggested itself in such moments were created the head of Amenemhet III (the so-called ” Hyksos Sphinx ” of Tanis), the domes of Hagia Sophia, the paintings of Titian Still later, tender to the point of fragility, fragrant with the sweetness of late October days, come the Cnidian Aphrodite and the Hall of the Maidens in the Erechtheum, the arabesques on Saracen horseshoe-arches, the Zwinger of Dresden, Watteau, Mozart.

    At last, in the grey dawn of Civilization the fire in the Soul dies down. The dwindling powers rise to one more, half-successful, effort of creation, and produce the Classicism that is common to all dying Cultures. The soul thinks once again, and in Romanticism looks back piteously to its childhood; then finally, weary, reluctant, cold, it loses its desire to be, and, as in Imperial Rome, wishes itself out of the overlong daylight and back in the darkness of protomysticism in the womb of the mother in the grave. The spell of a “second religiousness” comes upon it, and Late-Classical man turns to the practice of the cults of Mithras, of Isis, of the Sun – those very cults into which a soul just born in the East has been pouring a new wine of dreams and fears and loneliness.

    That Intercession must come to pass, the West is tired and weak, it’s once shared values lost, and its energy washed out in dissipation, bread and circuses. The seed must lie dormant, perhaps for centuries, until it is ready and willing to serve humanity again, perhaps in a totally different form. Your hearkening back to the old, Mr Gove, is just as hubristic though perhaps less disastrous as the Project for the New American Century, but it’s born of the same refusal to see that death is the necessary counterbalance to birth, in human cultures as well as in Nature.

    Look outwards Mr Gove. You cannot forestall the Intercession, but maybe, if the seed is fed well in the dying of the Light, you can shorten the Interregnum. Somebody has to staff the Second Foundation 2of the West. That child may enter one of your schools, Mr Gove, and you are cutting him off  from the narrative of the recent West in favour of the small-Britain distant past. We don’t need to be reframing our cultural references for a smaller world. One of those kids may be charged with carrying the Staff of Knowledge across the rocky pass that leads future Europeans out of the darkness as the new wine begins to flow.

     

    Notes:

    1. note that these exams were norm-referenced and not the everyone’s a winner sort now. A B was still respectable and nowhere near as dreadful as it would be considered now. This is because norm referencing is autocalibrating. However an E was definitely  an incontrovertible fail, the pass mark was C I believe
    2. A reference to Isaac Asimov’s Foundation series, which held the  same Spenglerian concept that the Intercession cannot be avoided, but had the thesis that if some way can be found to preserve the essential values then it can be shortened.  Science Fiction was considered arrant trash and the lowest form of literature in my school-days, I still don’t know why it’s so reviled. Perhaps there was more reason why I got that E than failing to read Dickens, maybe the Ermine has really has no understanding of literature :) I really liked the Foundation trilogy
    23 May 2014, 12:43pm
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  • The subtle way Hargreaves Lansdown make their money

    One of the things I rather admire about Hargreaves Lansdown is the slickness of their operation. It’s a full-service shop, and the Ermine is nowhere near rich enough to fly First Class, use valet parking, or invest with Hargreaves Lansdown.

    Managing your income is an excellent way to stop feeding the Beast of HMRC – as a PAYE grunt paying the mortgage there were only limited ways I could do this, basically pension AVCs and employee Share Incentive Programmes though the latter were only good for sheltering about £1.5k from tax a year. However, it means an Ermine is now sitting in First Class of the investing platform world albeit with a cattle class ticket, and I get to see how HL works.

    One of the things you notice about First Class 1 is that paper is king. Ditto with HL, so the Ermine has this lot on the dining table –

    A single mailing from HL

    A single mailing from HL

    I recently read this article in the Grauiniad, which chimed in with the book Authenticity: what consumers really want I read from the library a while back, that we are increasingly being sold lifestyles rather than specific products. I’m still not sure whether the Grauniad article is really insightful or absolute bollocks, but anything that makes me think has been time well used IMO. A great quote is

    This is how capitalism, at the level of consumption, has integrated the legacy of 1968, the critique of alienated consumption: authentic experience matters.

    And I thought of that when I looked at this wodge of HL stuff. Clearly HL targets their advertising a people of a certain age, preferably people who have more money than I have and therefore can afford to not look a the price ticket too much :) One of the things that struck me is that it’s all about funds. For historical reasons I’ve never been that much about funds and the way the whole market is going I am going to get out of funds all together, because they induce platform fees whereas so far you can avoid platform fees on things like shares and ETFs. Not only that, but funds seem to offer the opportunity for all sorts of indirection and fees upon fees. This is clearly how HL operate. Their fundamental platform fee is 0.45% 2  – bearing in mind the long-term return form stocks is typically estimated at ~5% you’re paying a 10% income tax right off the bat, just for being there. The reason I have left my money there as cash is that this fee doesn’t exist for cash, though obviously you are paying the government about 3% inflation tax to manage the money supply for the benefit of mortgaged homeowners to depreciate the currency ;) However, since they are giving me back a load of tax I paid in previous years I can eat that.

    However, riffling through the HL paperwork, this is clearly a fund shop, and the fee loadings on the funds are usually over 0.5% so you’re looking at fees of over 1% just to be in the market. Annually. The Ermine is just not used to the concept of being rushed each and every year just to exist. But the words are warm, in the typical vapid style when talking about the unknowable future. Everything is good, and if it isn’t, it’s suffered a temporary setback and is an excellent buying opportunity. There was one chart that made me sit up and go WTF, which was the chart of the UK stock market by CAPE

    The UK stock market - good value right now

    The UK stock market – good value right now

    Now I look at that and think bloody hell, the reason I haven’t yet sorted out what I am doing this year is that the market looks on the upper side of the good value line to me. Better people have suggested that it isn’t so much the headline FTSE100 price level but that earnings are improving, but nevertheless I’ve still got some feeling for the WTF are we doing up here mate fellow, though it’s not as bad as it was maybe. That’s why I am looking at emerging markets, and Russia still draws me, with their PE of 5 nowadays, but I still can’t get my head round what exactly the meaning of the word ‘ownership’ is in a Russian context ;)

    Anyway, the UK stock market – good value by historical CAPE? There are three things wrong with that. The first is look at that great big spike from the mid-Nineties up. That, my friends, was called the dotcom boom. Everybody was charging around like blue-arsed flies buying anything with internet in it. Then anything with www. then any company with an e in the name. Seriously, it was a real case of the madness of crowds. Everybody’s brains fell out on the floor and some people are still looking for theirs fifteen years later. I was there. It really was that mad. I made about quarter of my gross salary in the run-up. And lost half in the bust ;) The training was excellent value, because I learned not to buy into momentum. You will run out of greater fools, because in general you are one of them.

    Just like Mark Twain said about the unique learning you get from carrying a cat by it’s tail 3there are some things you have to do to learn things in a way you can’t learn any other way.

    A man who carries a cat by the tail learns something he can learn in no other way

    Same with the madness of crowds, You gotta be in it to know it. The trick to success is to retain that knowledge  for future use. It’s always a fight…

    If we lop out that piece of irrational exuberance, the chart doesn’t look quite so wild, and there’s also a general downtrend, possibly because the power-shift from the West means the market may be prepared to pay less for any given earnings because it suspects that profitability is falling. After all, with the level of debt both personal and national, where’s the money going to come from to buy your stuff 10,20 years down the line? We can’t all keep borrowing from the Chinese ;)

    Standard Deviation? On Stock prices? Mr Gauss would not approve, m’lud

    The second thing wrong with this is that the trouble with using things like standard deviation on stock prices is that stock markets do not obey the central limit theorem. Mr Market is not a collection of independent random variables, and every so often everybody decides “Holy shit, the world is going to end”. On the flipside, we all sometimes decide that it’s all different now and we have reached a plateau of permanently increased productivity, which leads to irrational exuberance about stock prices. In priciple a government can row back against that by increasing interest rates, but on the other hand they can promise all sorts of Good Stuff to the electorate to get re-elected. Any resemblance to Help To Buy is of course purely coincidental. As a result, the distribution is fat-tailed and is not typical of a normal distribution, so using standard deviation of a normal distribution is iffy. Companies got into hot water with their value at risk calculations because they were seeing events that typically you’d only expect to see in longer than the age of the universe – in about ten years. It actually staggers me, that, in trying to substantiate this paragraph, I discovered people really did use the normal distribution as the model for financial markets.

    I am sure that once upon a time, the level of general and scientific knowledge in the West was widespread enough that it would have been obvious what was wrong with doing that to people in a professional organisation. We seem to search more and more for stupid metrics and valueless numbers rather than seeking knowledge. The world is complex, it’s messy, and one size rarely fits all. The abuse of the scientific heritage of the West that this represents is shocking. This is not new stuff – Carl Gauss died in 1855. Mind you, to my shame I only scored a lousy 5 on the Grauniad’s science quiz so clearly the rot is spreading. But I’m not in charge of shedloads of other people’s money.

    Have you ever seen what happens in a mass of humans when somebody yells Fire? They all lock into each other and start running the same way. That is not a canonical example of a set of mutually independent variables acting individually, so the central limit theorem breaks down. In crises – at the very time when you need your model to work to qualify the severity of the problem. Maths doesn’t help you in dealing with human emotion.

    The third thing wrong with that chart is the data source: internal, with the data set from Jan 1974 giving a veneer of respectability to something that, basically, HL could have made up entirely. And since they benefit from shifting your cash into their funds there’s always the temptation. You can’t validate that data against anything. HL might well have said “trust me, I’m a salesman”.

    I have nothing but admiration for HL

    HL did serve we well when the Chancellor decided to improve the usefulness of DC pension savings no end - just before the end of the tax year! So I needed a place to stash £2880 with a pension firm, pronto, and HL were the only people who managed to open an account and take the money, within a week. TD, my current ISA provider, demanded proof of identity through the post, because their system isn’t joined up presumably, and Cavendish were also after that.

    Now the ermine is not a million years away from getting my hands on that money back, and in a rare turn-up for the books, I can claim back 20% of the tax I paid on earning that money – by simply leaving it with HL and HMRC will add £720 to my £2880. That’s an effective interest rate on cash of about 12% (it’s amortised over two and a bit years) and I can do the same next year and the year after that, for an interest rate of about 20%. I don’t know about you, but I sure as hell don’t know anywhere you can turn that sort of interest rate on cash. Okay, so it is only the money stolen from historical pay packets being returned to me, but it’s worth shifting an Ermine paw and banking with the might of SIPP rather than the Nationwide. I stand to win about £2000 back from HMRC. The trick, of course, is to manage one’s income and make sure I don’t have any when I hook this cash back out – it’s about £10800 which is currently above the personal allowance, but you can get 25% of it tax-free. By living on this for a year I get to defer my main pension, too, which goes up by ~5% each year I defer. Although actually 4% since HMRC will be tapping me for tax- I’m tempted to save my taxable part of the pension into a SIPP to reduce the tax on my pension to 15% since I can manage the cash-flow. The main challenge is having enough cash reserves to keep loading my ISA allowance each year, which has suddenly got a bit harder with the increased allowance. I may consider taking out an cash loan for the last year, if anybody will lend me some money, simply to fill up that ISA allowance. 4

    The Ermine has been freeloading on the money that fund investors have been putting in for years when it comes to the costs of running a platform. I don’t need the lifestyle stuff, but I’m happy for it to pay for my seat on the boat. Most of HL’s customers have a lot more money than I have, so every so often they may see the flash of white fur and a small black tip to the tail scurrying about, but in the end it’s the rake of their wealth that is keeping this ship afloat and in good condition. I salute my well-heeled fellow passengers and raise a glass of proscetto to their choice of lifestyle, if not their quest for value for money. Perhaps the Guardian article was right. When you have enough, you don’t need to seek value for money. The quality of the ride may matter more. HL is selling an experience – giving you the warm feeling

    “You are a wealthy sort of chap, probably a chap, probably 50+. You are knowledgeable in the ways of the world, so here is a shitload of complexity and a teeny bit of salami-slicing of fees. Needless to say, an experienced individual of your calibre has the savvy to make shitloads of money from these fine opportunities despite the fees, so take it away from here. For those of you into shares, we now offer real time live share prices, so you can ride the markets like a pro. Come on in”

    And they do – HL is apparently one of the biggest retail investment platforms in the UK.It’s a slick operation, and probably a nice ride. just not the cheapest. Except for their okay 0% rate on cash, which will do me fine. I live in hope that the new NISA integrated accounts will actually pay you a return on cash, but it’ll never approach the HMRC rate on a SIPP.

    Notes:

    1. I’ve never flown First Class, though I flew Business class enough for work, and you got a lot more bumph there too compared to cattle. But it’s a long time since I have boarded an aircraft – not because I can’t afford it but the experience is so horrible and I get to hate my fellow humans so much for their screaming brats and inability to follow written instructions holding up the queues. So I really try not to do that to myself, or them.
    2. capped at £200, corresponding to an account value of £45k. Now my ISA is more than that, but I don’t currently pay £200 to TD to hold it. I checked last year’s statement and my platform fee was £2.31, so HL are 8600% dearer. In fairness, I made 9 purchases and zero disposals, and HL are 65p cheaper on share purchases, so the difference of £5.85 should be added to TD. So HL is only 2450% dearer than TD, a much more manageable difference for some chrome trim and a slicker operation, no?
    3. I suspect he didn’t say that directly, it is a paraphrase of  Tom Sawyer’sa person that started in to carry a cat home by the tail was getting knowledge that was always going to be useful to him, and warn’t ever going to grow dim or doubtful” but I’m damned if I’m going to surrender the thought picture on the altar of technical accuracy.
    4. You should never, ever, borrow money to invest in the stock market. However, I have a large AVC fund that is in cash and can come out when my main pension commences. So I am not borrowing money I don’t have, I am borrowing money that I can’t access yet. If you want to borrow money to invest then you may as well go into spread-betting.
    13 May 2014, 2:51pm
    rant
    by

    3 comments

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  • The sleep of Reason is producing monsters in the UK

    We recently received the postal ballot papers in the UK, and I was reminded of this classic drawing by Goya in 17th century Spain

    Goya's darwing from 1799

    “Fantasy abandoned by reason produces impossible monsters: united with her, she is the mother of the arts and the origin of their marvels.”

    We humans tread a thin line between rationality and unreason, and it feels like the trendline is pointing away from the direction of Reason and has been for the last three decades. I recently discovered that the proportion of GDP Britain spends on R&D has really fallen over the years I have been in work, which might explain why my experience of the world of work moved towards a tedious paint-by-numbers and away from the interesting stuff as time went on. But that’s all for another day, because this ballot paper showed me, at a glance, what is wrong. And it is frightening

    This ballot paper is either a triumph of the democratic process in giving an insight into the true feelings of my fellow countrymen. And giving them a way to vent their spleen in a way that really doesn’t matter one whit, because the European Parliament has no executive power. Don’t take my word for it, get it from the horse’s mouth

    To wit

    Under Article 289 of the Treaty on the Functioning of the European Union (TFEU), consultation is a special legislative procedure, whereby Parliament is asked for its opinion on proposed legislation before the Council adopts it.

    The European Parliament may approve or reject a legislative proposal, or propose amendments to it. The Council is not legally obliged to take account of Parliament’s opinion but in line with the case-law of the Court of Justice, it must not take a decision without having received it.

    In the beginning, the 1957 Treaty of Rome gave Parliament an advisory role in the legislative process; the Commission proposed and the Council adopted legislation.

    So it doesn’t really matter who becomes an MEP – I personally would be in favour of abolishing the whole shooting match and making the Council of Europe representative to the electorate in some population-related way. I don’t think the European Parliament performs any useful function and costs us shitloads of money, and gives a platform for some very strange people of which Nigel Farage is by no means an outlier – he’s positively square compared to some. It’s not gonna be changed in my lifetime. These European elections therefore give the opportunity it seems for a primal scream.

    Psychology tells us that the human mind has to deal with a lot of complexity, and the self-aware I is only partially self-aware/conscious. There is an unknown part of the mind that runs in the background, collecting and sifting data, forming opinions, holding grudges, simplifying the world around to make it digestible by the limited lens of consciousness, at it scans across the too big to read newspaper of our experiences.

    This unknown part of the mind is the back-seat driver to the conscious mind, and it guards the boundary well. It has to, because if the thin line fails under the load then you have a range of rotten experiences from bad dreams through a nervous breakdown to the a full blown breakdown of everything like the effects of LSD gone wrong. Huxley got away with it, Syd Barrett didn’t… That line is there for a purpose, mess with it at your peril. But you can see it indirectly. If you want to know what your worst character fault is, think of what all the people you instantly dislike have in common. The unconscious mind projects some of this upon the world it sees outside, and that gets read back through the lens of the conscious mind.

    Despite that fact that Britain is immensely richer than it was in 1973/5, this primal scream is taking the form of ‘There’s lots of stuff that I can’t have and it’s not fair. It’s all somebody else’s fault’. And this scream is getting voiced in this ballot paper.

     

    the sleep of reason

    the sleep of reason

     

     

    11 May 2014, 10:58am
    personal finance:
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  • The Scotland problem

    Something’s afoot later this year, and I can’t really get my head round the finance implications. Two things are afoot, indeed, and they are loosely related from an Ermine’s viewpoint.

    One is the increased ISA allowance to 15k, and so far I’ve chosen to ignore Under the Money Tree’s sage advice and get my capital in there ASAP. Unlike UTMT I have no income and need to be more cautious at this particular stage, but more to the point I am well over the FSCS limit in my existing ISA, because unlike my Cash ISA, which is busy going nowhere, and indeed backwards in real terms, S&S ISAs tend to grow a bit over the years, which whopping heart-rending retrenchments every few years. I was fortunate enough to start just after one of those.

    And there’s an event on the horizon that might make FSCS protection more important. It’s the threat (from my point of view) of Scottish independence.

    Tomnaverie stone circle in Aberdeenshire

    Tomnaverie stone circle in Aberdeenshire

    Fantastic place, Scotland – wide open spaces, loads and loads of marvellous megalithic sites, people with a great engineering tradition and wide open spaces. Okay, so it gets brass monkeys in winter and don’t even think about going near water in July ‘cos the midges will eat you alive.

    It’s all about to get a lot better, ‘cos that nice Mr Salmond has invited the Fairness Fairy to sprinkle a bit of magic pixie dust, and he’s written it all down in Scotland’s future – Your Guide to an Independent Scotland. Here are some of the things he will bring to the good citizens of that fair country

    • Scotland will continue to use the pound,
    • guarantee that the minimum wage rises – at the very least – in line with inflation
    • a commitment to increase the personal tax allowance, benefits and tax credits in line with inflation
    • single-tier State pension at the rate of £160 per week in 2016

    More spending and less tax, what on earth is his secret? I’m not quite sure what sort of crack he’s smoking, but he clearly has a good dealer. Now I am all for the Scottish people having the right to self-determination, and there are some obvious cultural differences with England that stretch beyond football. The country is much more left-wing than the UK as a whole. There’s nothing wrong with that and indeed we might all live a little happier if we cared a little bit less about money and more about people. I can see that it sticks in the craw to have a largely Tory government when Scotland returns no Tory MPs. If people in Scotland are that pissed off with being part of the UK then they will vote accordingly.

    Now independence comes with rights but also responsibilities, and I’m buggered if I understand the sort of independence that uses another country’s currency, never mind your ex’s currency. Managing the money supply to broadly track the amount of goods and services in your economy , your appetite for national debt and foreign goods is all something you can do when you run your own currency. It’s possible that the Calvinist roots of Scotland will mean it powers ahead of the rest of the UK despite the tendency of the Fairness Fairy to run out of other people’s money, in which case with the Pound Scotland will be Germany to the rUK equivalent of  Club Med. But without the power of Germany. In that case the spendthrift English will borrow against the hardworking Scots and spend all their money until they a) access the EU and b) join the Euro in which case the Germans will save them. Until the Germany runs out of young people in about 20 years time.

    Alternatively the Fairness Fairy might start to run out of other people’s money and the Bank of England will seek to cut the supply off. That will cause plenty pain for rUK because it probably means higher interest rates, but given the relative numbers it will cause ten times more pain for Scotland. So have some self-respect, guys, and create a currency (Salmond?) ASAP and start managing your own financial affairs. What part of independence do you not understand, exactly? It’s not like we are still under Bretton Woods and Scotland can do like Australia did in ’65 and switch to the AU$ and £1=2AU$ until the 1970s. Yes, the pound is convertible and available on the open market. But like all those Hungarians and Cypriots who took mortgages denominated in the Swissie and found out how that can turn into a world of hurt the fact that you can do something doesn’t mean you should. The whole point of being independent means that you want to run things differently from the UK. Lockstepping the currency for any longer than you have to is a strange way of going about that.

    Scottish independence and the Ermine

    My problem with Scottish independence isn’t about independence as such, but the damage and turmoil that could do the the economy of the rest of the UK. What the bloody hell are we going to call the rUK then – the disunited kingdom? The Shattered State? At the moment the pound is relatively high (compared to the last few years) and that makes a case for buying foreign assets, given my ISA has a heavy home bias. It’s what I have been doing of late, to lean against that – a bit of emerging markets, a bit of Africa. I’m almost tempted by some Russia, but only a small amount. It’s hard to work out what the meaning of ‘ownership’ is there…

    However, I don’t want to open an ISA until I can open a NISA because I need to use a different company that TD. Obviously I will make sure it’s not one domiciled in Scotland, in the end if I want to open an offshore account 1 then I’d want to choose somewhere in a country that is far away from the UK and not going through birth pangs as well.

    The Ermine is not a funds sort of person, which is nice because an awful lot of funds are run by Aberdeen Asset management, and I will look at the policy of some of my investment trusts too. And I don’t really fancy having a lot of money tied up in a company in a new-born state trying to work out a monetary policy. Capital controls can go along with that. I don’t like Alex Salmond, I think he will say anything to get his own way, and I bloody well don’t want to have any money exposed to him or his world view. After the dust settles, Scotland may well be a good place to  invest – the Scottish people will be able to straighten themselves out and get to work building a country that expresses their world-view. At least with Russia you know that buying a small stake in Mr Putin and that the rule of law is tenuous; this is what the risk premium is all about. With Scotland because of the policy vacuum it’s all about unqualified risk for anybody in the rUK because we get to eat the downside with no exposure to the upside of all that Free Stuff from the Fairness Fairy.

    On the plus side, it is at points of turmoil that opportunities show themselves. So having an ISA open by August with the higher available is an exciting opportunity – sort of like the summer of 2011 but hopefully without the rioting. Scottish independence, should it happen, should be a happy event for Scotland.

    Of course it may all be a damp squib or other events like the clanking of Russian armour rolling into Kiev may cause more widespread issues. But I’m surprised the prospective breakup of the UK is met with such equanimity in the(r) UK PF scene.

     

     

     

    Notes:

    1. I know there aren’t any offshore ISAs :)