Once upon a time ZeroHedge was a cooky libertarian finance blog with a weird fetish for precious metals. It was my guilty pleasure which I indulged in from time to time.
I used to have a conspiracy theory about ZeroHedge’s perma-hardon for the shiny-shiny and it went something like this. One night in December 2011 Tyler Durden got blind drunk and invested all his savings in EKWAX. Tyler thought he was buying into Emanuel Kalisto’s new male waxing studio. He was certain this was going to be the Next Big Thing.
In retrospect, Tyler was onto something with the male waxing, I guess, in a way. Alas, EKWAX turned out to have nothing to do with either Kalisto or follicle removal. And thus it came to pass that poor Tyler had to try his utmost to drum up the price of gold and silver on his blog, hoping it would get just high enough for him to offload his dud fund with a 1.2% expense ratio, to free up the money for an anal bleaching venture with Johnny Depp.
Or maybe ZeroHedge’s appreciation for shiny metals was merely a factor of their permabear bias? If the stock market collapse is imminent, physical gold and silver might be the only way to save some of your wealth from the forthcoming? I guess we’ll never know which of these two theories is closest to the truth. There are good people on both sides.
But that was then, and those were altogether gentler times. For a few years now – at least two, but probably more like four – it appears ZeroHedge has been taken over by nutcases. Their permabear outlook has morphed from stock-market-is-overpriced-and-is-about-to-blow to stock-market-is-rigged-by-The-Man-and-they’re-about-to-blow-it-on-purpose-in-order-to-defraud-you.
I wouldn’t call this difference subtle. Also, they have branched out into politics. The sort of politics where people endorse and develop conspiracy theories and speak in strange code calling a former US president Grey Wizard and shit like that.
It’s scary. Because: now I can’t tell whether the nutcases have indeed come and taken over, or if the place had always been run by nut jobs, conspiracy theorists and neo-nazis and I just hadn’t noticed. I don’t know which is worse.
Remember when I did the No New Stuff Year? Well, that particular year lasted 8 months. Whatever.
This year I’ll try something that – I hope – is going to be more achievable. The rule is quite simple: whenever I buy or allow someone to gift me any physical object, I must throw another physical object away. It doesn’t have to be in the same category, or of similar size, or anything like that. Simply whenever an item enters my house, another must leave my house at the same time.
Leave means leave, as opposed to being taken to the loft or the shed.
Sets count as the number of individual items in the set.
Consumables such as food and toothpaste are excluded.
To celebrate this new resolution I have just bought a set of 24 acrylic paint brushes, and am now scrambling for 24 pieces of random junk to throw away 😳.
I don’t expect this will help me declutter, but hope it’ll halt the steady accumulation of clutter, help bring the need vs want into focus and reduce impulse buying… which should benefit both my soul and my wallet.
Overall progress to financial independence stands at 56%. Not great, and I can’t even blame COVID for it.
I failed on Savings Rate and Mortgage goals (again), but managed to use up all my pension and ISA allowances. The emergency fund is where it should be. All things considered, financially this year has been nothing to write home about.
Having said this, my overall investment return was better than for most people. Because: I was lucky enough to have a bit of cash when the market was crashing in March, and I happened to invest most of that cash in VWRL. Luck more than skill, methinks.
But money is not everything. Despite me not making much progress towards financial independence this year, I think 2020 was awesome! We got engaged, sorted out some building work that was in need of sorting, and even managed to have three foreign holidays in between lockdowns. I have a lot to be grateful for, and grateful I am indeed.
2020 is finally over and the long-awaited 2021 has arrived. Let’s begin the countdown to disappointment. Here are my predictions for this year.
COVID is here to stay
Rich countries will vaccinate their populations; there will be delays and fuckups along the way, but it will get done, give or take a few anti-vaccer fruitcakes. Poor countries will not. The virus will find a permanent home in Africa, parts of Asia and South America where it will carry on mutating. We will eventually find a sort of equilibrium with COVID, like we did with the flu, where vaccines just manage to stay half a step ahead of the virus. The term flu season will have to be extended to include various strains of the coronavirus.
Global economy will recover
But it will take more than one year to get back to pre-COVID levels. Whatever fiscal firepower the G20 still had, and I didn’t think there was much to begin with, that is now all gone. The monetary policy is close to its limit, and I don’t think we will invent the permanent household-grade fusion reactor this year. So it looks like we’ll have to dig ourselves out of this shithole the old fashioned way.
The routing of the middle class will accelerate
This working from home in our pants thing that we have come to appreciate so much is teaching our employers what else can be outsourced to India, Nigeria, Bulgaria and such. And – surprise, surprise! – it’s pretty much every fucking desk job there is. It will start slow, with multinationals “rationalising geographically” new job creation without embarking on expensive redundancy programmes, business to business and professional services will follow suit shifting more of their junior roles to lower paid areas… We’re not totally screwed just yet, but a snowball it is, and roll down the hill it does.
Interest rates will stay low for a few years yet
Rich western economies are in debt up to their teeth and can only afford to service their debt if interest rates remain low until inflation erodes the principal to a manageable level. No central bank will risk causing a downgrade of their country’s sovereign rating by hiking interest rates too soon. When you take this into account, shares no longer look all that expensive.
Low inflation is no longer a priority
In an economic recovery scenario, inflation will be allowed to run above target, yet investment grade bond yields will remain low. Because: insurance companies and defined benefit pension schemes have nothing else to invest in.
The Chancellor will have to find new and creative sneaky ways to raise revenue. I don’t expect any news in the spring 2021 budget statement, but come autumn I’ll be watching for warning signs. The annual pension allowance, ISA allowance and capital gains allowance are obvious candidates. Not moving the tax bands in tandem with inflation is an old Tory favourite. Also, something will have to be done about the taxation of the self-employed, hence further restrictions on single-director companies might be on the cards.
This is a public service announcement to the 10 people who visit this blog rather than a regular blog post. Just in time for the 31 January deadline.
If your office closed in mid-March due to COVID, you can claim £4 per week as a WFH tax relief for the 2019/20 tax year without having to supply proof of additional costs. For me that comes to 12 English pounds! Yes, it’s peanuts, but having seen the sheer scale of the economic mismanagement, bullshit and waste that this government is trying to pass for a fiscal response to the pandemic, I’ll be damned if I pay a single pound more in tax than they can legally extort from me under a threat of prison and pillory.
If you can be bothered coming up with evidence (e.g. comparative electric and gas bills) to justify the additional cost incurred due to working from home, you could potentially claim more than £4 per week.
Additional costs include things like heating, metered water bills, home contents insurance, business calls or a new broadband connection. They do not include costs that would stay the same whether you were working at home or in an office, such as mortgage interest, rent or council tax.
You can also claim tax relief for any work equipment you have bought that has not been reimbursed by your employer. The full set of HMRC rules can be found here.
For the 2020/21 tax year the WFH tax relief will increase to £6 per week. So that’s a total of £312 for 52 weeks of working from home. If your marginal tax rate is 60%, this means £187.20 in your pocket and not the Tax Man’s.
Good luck, and don’t miss the 31 January deadline, lest they fine you £100 for being a day late! 🖖
In early 1953 Thames breached flood defences and swept across the marshes of Belvedere and Erith (now London’s Thamesmead and Woolwich), also flooding houses and roads in Bexley, West Ham, and even Richmond. Plans for a flood barrier began soon after. The Thames Barrier opened in the 1980s, and since then it has been raised 180 times to stop tidal surges.
This is an excellent example of good risk management. London lies on a floodplain, and about forty five square miles of it, populated by more than a million people, are below the highest recorded water level. The area includes tens of tube stations, many miles of underground track, hospitals, power stations, as well as the Palace of Westminster, Tate Modern and the National Gallery. The cost of the barrier (£1.6bn in today’s money) is commensurate with the wealth it protects.
A sense proportion
The principle of proportionality is central to risk management. That’s why black swan events are such a pain in the arse: when the likelihood of occurrence is negligible and the impact both enormous and hard to quantify, how is one to come up with a proportionate cost-effective response? But I digress.
For risk management in personal finance two key principles apply:
The risk you take as an investor has to be within your risk appetite; and
Investment return has to adequately compensate you for that risk.
What constitutes a fair risk-adjusted return, and which asset classes offer such a return at any given time is subject to debate. People smarter than me are paid a shedload of money for their well publicised opinions on this matter, so I’ll be taking my tuppence elsewhere.
What’s my risk appetite?
That’s a good question, and the answer varies depending on how much money my portfolio happens to have lost recently. Or gained. Seeing red numbers on the screen tends to curb one’s enthusiasm for risk.
This is what my FinaMetrica risk score was at a time when my portfolio was less than £100,000 and included about £20,000 of unrealised gains. The result doesn’t seem unreasonable, and is comparable to the risk appetite score I was given by the IFA risk capacity survey at around the same time.
I don’t know this for a fact, but my guess is that, had I taken the same test with a portfolio of £500,000 that had just lost 30% of its value, my score might have been somewhat lower. Unless you’re a seasoned investor and can speak from experience, it’s hard to tell how well those test result will hold up under stress.
Bottom line: online testicles (is that what we call a test equivalent of a listicle, btw?) are fun to take, but a much better approach for beginners is to match the duration, set up a regular investment instruction by direct debit, and then never look at your investment account balance. Vanguard’s LifeStrategy funds are good for that sort of thing, they do the rebalancing for you.
… for shits and giggles…
According to risk appetite questionnaires, my capacity for taking on investment risk is decided by:
How soon I’ll be needing the money. The longer the investment horizon, the longer I can afford to wait for any short-term losses to reverse, and hence the more risk I can take. I agree.
Whether I enjoy a gamble. The larger my cojones, the less likely I am to panic and sell at the bottom of the market. That applies to volatile investments but not ones subject to a turkey distribution.
My financial IQ. Presumably, when the urge to sell at the bottom of the market hits me, I can use my understanding of how markets and volatility work to talk myself out of it. I’m not sure about this one, doesn’t this (wrongly) imply that volatility is the only measure of risk?
My income. The risk scoring people appear to suggest that the higher and more stable my income, the more risk I should be able to take. Sorry, but I have to call bullshit here. Because: buffering the day-to-day spending is the job for the Emergency Fund, not the long-term investment portfolio.
My current net worth. And again, I fail to agree. It is my humble opinion that someone with a net worth of £600,000 who’s just lost £300,000 to a risky venture does not feel any better about the loss than someone with £60,000 who’s just lost £30,000.
And that’s why I’ve stopped wasting time on online risk appetite tests. This time, I feel, is better spent watching cat videos on YouTube;)
Experian and I go way back. The relationship is complicated.
Nine years ago my property purchase was almost derailed because of something Experian’s computer system did to my credit history. That was the gist of Experian’s explanation, anyway. My explanation: as an organisation, Experian are a bunch of dipshits entirely unfit to be the custodians of records. Equifax are no different.
I hate owing anything to anyone, and I hate being hassled, which is why I avoid debt where I can, and I never miss credit payments. So why oh why did my Experian credit score take a sharp dive for no apparent reason, before recovering back to where it had been, also for no apparent reason?
I moved house.
Following the move, I, being a slightly obsessive and a very paranoid individual, notified all relevant banks, insurance companies, investment brokers, pension providers and electoral registration offices of this happy occasion. The following month my Eperian credit score went from the excellent 999 to 977, and then to 955 in the month after, before returning back to 999 thirty days later.
ClearScore, who use Equifax data, were also far from clear. Their credit score went from 533 to 424 to 545 over the period of three months. The only change in the real world was the postcode.
So here it is: credit rating agencies and their methods of raking people in the order of creditworthiness make no effing sense whatsoever. But we already knew that, didn’t we?
A dog. A bad financial decision whichever way you look at it, but worth it 😉
2019 has been quite good, albeit I would’ve quite liked the late 2018 mini-bear market to have lasted for a bit longer.
Savings rate: 50%
The actual year to date average is 53%. Pass…
… without flying colours.
I think I need to get on top of my spending again. I kind of broadly know what I’m doing, still, the savings rate is all over the place, and the spending rate is quite dreadful, for an aspiring FIRE’er that is 😉 .
Property wealth: reduce mortgage by £45k
Didn’t happen; I only managed £30k this year. I think I’ll still try to kill the mortgage ASAP, and I think it should be manageable over the next 3 to 4 years.
I recon a recession is coming, if not in 2020 then in 2021, and share prices are high at the moment. I know I’ve said no market timing, so I’ll still invest my ISA and pension allowance in tracker funds as and when these allowances roll over in the next tax year. However, any cash I have on top of that will go towards overpaying the mortgage as opposed to being invested in taxable stocks and shares accounts.
Even if I’m wrong and there’s no recession in the next couple of years, I think I’ll find it difficult to regret being mortgage free when it does eventually arrive.
Pension wealth: use up all available pension allowance
Pension is on track. Pass.
Financial wealth: Emergency Fund & Freedom Fund
The Emergency Fund is full. Pass.
Remaining ISA allowance for the current tax year £ nil. Pass.
Overall, I think my progress to financial independence is satisfactory. The freedom fund is a little light, but I don’t think I’ll manage to retire before the next bear market arrives, and so I might just as well fill my boots with cheap shares as and when it happens (see my ramblings in the Mortgage section above 😉 ).
Total net worth has increased quite a bit thanks to the financial markets. The poor returns in 2018 have reversed in 2019 … I did chuck what I could into VWRL in November and December 2018 though 🙂 .
Tax: pay no more than £47k of income tax in 2018/19 tax year
This summer flew by, and I don’t even know what happened with the autumn. It’s almost Christmas, people, Christmas! Which I’m looking forward to spending in my underpants, seeing as we’re not going to entertain this year (thanked be the gods!).
I need a holiday. Yes, another one.
See, that’s why I’m certain I’d make an excellent early retiree. There’d be none of that what-shall-I-do-with-myself-slash-work-experiment bullshit. Are you bored staying at home? Get a dog. Take up scrapbooking. It beats the commute. I hate the commute. There, I said it. I love living in Surrey – the fresh air, the green wide open spaces – I only wish Surrey was in central London.
Enough moaning though. Let’s get on with taking stock of the third quarter.
Savings rate: 50%
I went off the rails with spending this summer. The occurrence itself isn’t unique, but the sheer magnitude of it is. Not good.
In case anyone wondered why I reduced my savings rate target to 50% this year (from 60% the year before), it’s because I’m overpaying the mortgage a little more than usual.
The tracker deal I got late last year has been working out alright so far with the Brexit uncertainty keeping the BoE rate low, and I’ve been making hay in this sunshine by utilising the unlimited overpayment feature. There isn’t much to invest in anyway at present, with the markets at record highs and the pound not that far off record lows.
Anyhow, the year to date savings rate is still 57%, so Pass.
Property wealth: reduce the mortgage by £45k
In progress. Might not happen, but we’ll see…
Pension wealth: use up all available allowance
Financial wealth: Emergency Fund & Freedom Fund
The Emergency Fund is full, and the ISA allowance is now fully utilised and invested.
My portfolio distribution is beginning to resemble what I’d like it to be…
… and my Freedom Fund is slowly catching up with the overall progress to financial independence. I’ll need this pot of money to live on before I’m old enough to draw my pension, so it’s kinda important 🙃.
The Freedom Fund is 60% world equity, 20% government bonds, 10% property securities and 10% gold. It’s not very adventurous, I know, but if I’m going to retire in 5 to 6 years, then the investment profile of this interim stash needs to be pretty tame. It’s different with my pension. I won’t be able to access it for a while still, and so I can afford to take more risk there.
Tax: pay no more than £47k of income tax in 2018/19 tax year