Quarterly Returns – Q2 2022

Quarterly return posts supplement my monthly Financial Dashboard, covering investments in detail and looking at my yearly targets. Here I track purchases and sales, document progress against my (in progress) investment strategy, and discuss re-balancing and changes over time.

TL:DR Another quarter on tickover whilst we function as a household on just one income.

Q2 2022 Net Worth

Q2 Returns:

  • Cash Accounts £10,400 (-£6,200)
  • Investments £11,800 (-£900)
  • Property £59,500 (+£3,400)
  • Cars £8000 (+£4,000)

My net worth at the end of Q2 2022 has nudged up about £1,500, having wobbled all over the place. Most of the increase is down to mortgage repayments, as everywhere else I’ve been in the negative. I also replaced my trusty, crusty, rusty old daily with something more executive and suitable for ferrying the infantShrink. #Lifestyleinflation. Cash reserves were raided, and have not been topped up as we run the household on just my income while MrsShrink is off work on maternity leave. The markets have been bearish, with some moderate impact on me.

Investments:

Core/ Satellite Passive/ Active Split

My 2022 Financial Year ISA is in Vanguard, however I again didn’t pay in anything this quarter.  There was also no activity in my Freetrade account, as that slowly accrues dividends. I have further separated out my investment portfolio tracking to identify funds/ETFs and stocks/equities as individual sections of the pies. I’m heavily overweight active funds and stock at the moment, a combination hangover of putting some money into crowdfunding rounds and then a couple of companies massively outperforming the rest of the market. Time to be boring for a while in Q3/4.

Ratio of satellite active holdings to core passive trackers
Asset allocation ratios

Goals

In terms of goals for 2022:

  • Save 35% of my income – 40% prediction

Q2 continues Q1s poor run, as life events get in the way of a decent savings rate. I’m still hovering around the 20% mark, and it’s going to need some extra income (possible) or a fall in outgoings (in this economy?) to pull me up to the 35%.

  • Save £8k towards a new car – 40% prediction

Completed it mate.

  • Finish the house renovations – 75% prediction

Further progress, though not as quickly as I would like. Finished painting the exterior of the house on a hot week of annual leave, but there remains some flashing/ pointing/ rendering to be repaired. I have half an idea to book another week and lay a patio/ build a logshed to fill ahead of the winter. MrsShrink is busy painting the inside of the house in her time off, and the list of to-do jobs is gradually diminishing. We’re 90% sure we’re going to try and move at the tail end of 2023. The aim would be to get more space, but timing will depend on what’s for sale and the wider market. Our friend is still making noises about buying our house from us, which aids in flexibility – they’re a first time buyer with a deposit ready living in rented accommodation. Going with the flow a bit on that one, but getting damn itchy feet.

Happy, autumn all,

The Shrink

July 2022 – The tiniest violin for Buy-To-Let YouTubers

Do you get blasted with adverts or recommendations on YouTube for ‘creators’ discussing their buy-to-let (BTL) property empire? Usually swiftly followed by a time-limited invite to their course on how to become a BTL magnate yourself? The course which costs >£50, and covers easily google-able things. Yeah those chaps/chapesses. Well they are my new canary in the economic coalmine. They still seem to be tweeting (hawking?) but for how much longer?

How do I distill this view?

Right now things are economically bleak. Here’s a thread from Prof Richard Murphy, who is far more dour on this than me:

Misery and doom (1)

Also available through thread reader (if you don’t have Twitter) here (2).

It’s a fairly erudite consideration of where we are headed. To summarise the summary, inflation is going up due to food, fuel and shipping price rises. Supply-side inflation. This is pushing up the cost of everything due to knock-on effects, at a rate currently ~10%, with an expected peak next year of 18% (3). A lot of people are cutting back on discretionary expenditure (stuff and ting) as they are worried about affording their essential bills like food and heating. This will trigger a recession, if we’re not already in one (4). The due energy price cap increase only protects residential bills, not commercial (see tweet below) (5). Leisure, hospitality and retail companies are likely to fail, triggering unemployment, in turn triggering further poverty. People default on rent and mortgages, worsened by increased mortgage interest rates. The cycle of debt, unemployment, lower spending and higher interest continues until interest rates are higher than inflation and people begin to believe positively in the economy (6).

What’s interesting here is the media optics. Inflation means that people’s wages don’t go as far, so their ‘real pay’ falls. It’s fallen like a stone over the last decade (7, 8). As a doctor I earn about 30% less, accounting for inflation, than I did in 2008 (9). There’s open talk amongst colleagues of striking, which would see us on the picket lines alongside the RMT, barristers, port workers, Royal Mail staff, council bin men, and many others. The focus from the government is on preventing pay rises ‘to stop inflation’.

Man of the people, or Wolfie Smith? (10)

This is a classical tactic of changing the Overton window. If enough media sources tell the people a wage increase will cause them pain through inflation they will believe it. It categorically ignores the fact this is not demand-side inflation caused by lots of people spending lots of money from high wages. It’s supply-side inflation caused by increased costs from… well… let’s start with the pandemic, shipping/ just-in-time supply chain changes, easy fiscal policy, the Ukraine-Russia war, our old friend Brexit, the list goes on. Repeatedly talking about demand-side inflation keeps supply-side inflation out of the public consciousness. It sounds like things politicians can do something about, and plays nicely into the conservative ideological agendas. It avoids the painful fact most of what’s causing this inflation is down to past (sometimes poor) choices, or just shit chance.

What could fix supply-side inflation? Increasing interest rates, decreasing taxes, increasing wages or capping essential costs at much lower levels (1, 11, 12). Basically putting more money in people’s pockets so they can spend, whilst simultaneously trying to sort the supply side issues so that you don’t get demand-side inflation.

There’s an interesting possibilities fork that lies in the ongoing Tory leadership election. Wonderful that it’s happening at a time we need clarity of vision and leadership. Truss and Sunak are talking a big game of anti-wage inflation and anti-union legislation. There’s the suggestion of banning strikes (13, 14). Laws have been implemented over the last decade which make it harder to strike, and easier to break strikes through the use of agency staff – see P&O events (15). Liz Truss, who looks likely to win the vote and be the next PM, has outlined further laws to limit unions (16). This may be posturing for the Tory internal vote. It plays well into the party ideology. It will win her blue votes, and Liz swings with the wind more than a weather-vane.

I worry that she will carry through though. Does she envision herself as a new Thatcher? An economy for economies sake government may argue that the removal of barely profitable zombie companies, just about hanging on with low interest debts serviced, is a good thing. A big ole recession will sort the economic wheat from the chaff. A more open market, with plenty of economic opportunities and less pension/ debt/ commitments to meet. Sod the employees. Sod the unions. My mate wants to buy those assets at 3 pence on the pound, so burn it all down. Build back better. Northern Powerhouse waffle. Further nonsense slogans. For two years until another general election.

You can only cause people so much pain before they revolt. In the 1970s this played out as strikes and the Winter of Discontent, which ironically led to Thatcher’s rise to power (17). Trade union membership has been falling for years, and they are now limited by the laws passed by Thatcher and BoJo (17, 18). There’s an interesting balance here, as with the fall of the red wall and the general shift of political alignment across traditional class boundaries, traditionally unionist working-class individuals have been voting Tory recently. BoJo’s 2019 majority was former labour voters who are those likely to be hit hardest by the ongoing recession, and most likely to unionise (18). Unions are again pushing for higher wages, and we may see a resurgence of membership ahead of protests against government policy (19).

But still, how do people hawking their BTL courses on YouTube figure into this?

First, a final bit of background. Over the last few years the Government have introduced a load of new laws and rules on buy-to-let landlords ostensibly designed to ensure financial stability and protect renters, but practically designed to make it more expensive to be a BTL landlord, get more for the treasury, and drive properties back into private ownership or bigger commercial rental firms (20). This is causing some landlords to raise rents, and forcing other smaller mum-and-dad type set-ups to either inadvertently break the law, or just plain sell up (20, 21). This in turn is driving down the number of properties available to rent (as a lot are selling to residential buyers), and when combined with an increasing population and very limited housebuilding, means the rental market has gone bananas. We’re talking bidding wars, massive rent hikes, queues to view, etc (22).

Now step in our future interest rate hikes. Our current 1.75% (already!) BoE base rate is predicted to hit 3.75% over the next 6-9 months (3). BoE gotta do what it gotta do to deal with that inflation, natch. Some economists are estimating the base rate will need to hit 7% to beat down this inflation round (3). Practically it’s just a reversion to the mean, but it’s a shock for millennials like me who entered the job market in the last couple of decades. The FireShrink household stress-tested our mortgage interest rate in my budgeting spreadsheet up to a theoretical 12%, and then locked in 5 years at 1.65% with a big bank 12 months ago. Excessive maybe, but we were budgeting going from dual income to single whilst still meeting all bills, and various other financial rearguard actions. Monevator advocates a similar stress-testing policy (23). How many did that, especially on BTL mortgages, heavily leveraged or interest-only?

UK interest rates since 1800, courtesy Wikimedia Commons (24)

I am much more cynical on the inflation/ interest rate outlook than Monevator or BoE, probably due to my plan-for-the-worst, aim-for-the-best attitude. I don’t think they’re pricing in just how many people are living paycheque to paycheque, or just how many properties were bought at large salary multipliers on 2 year fixed deals during the pandemic. There’s a lot of people out there who were encouraged to max out their borrowing (Location Location Location). What proportion checked their mortgage repayments at a theoretical 5%?

Which brings us back to BTL. The hawkers tell us that returns from BTL are (a) steady rent, and (b) capital appreciation (the house value rises). Your sums shouldn’t just be about (a), because (b) can bail you out, and house prices always rise, right? So don’t worry that people won’t be able to pay their rent in the recession, you can sell your house for more than you bought it for, and get your capital that way. Except if you can’t, because people can’t pay their mortgages at an unexpected 5+% interest and default/ sell up, and house prices fall.

One of the old adages about investing is you know you’re near the top or in a bubble when your barber or taxi-driver is telling you about the asset. You’ve missed the most profitable climb when you see it advertised on the tube. You’re near the bottom when all of that goes away, and media stories are predominantly negative.

The property market is still rampant, though with signs of exhaustion. The BTL Youtube content creators are still producing, and selling their product. When they stop advertising, it will be a sign of BTL investment capitulation. Beyond that, there be dragons.

July Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved 14% of my salary in July, as I was repaid some owed cash. Still not great, but starting to return to form. My net worth actually sank as I paid out on credit card for some work expenses which will (unusually for medical work) be expensed in the next few months. For now I’m down about 0.5% and hovering around the £90k market (excluding NHS pension).

Budgets:

As compared to my four year back-calculated mean monthly spend:

  • Groceries: June £270, July £186, budget £220
  • Eating out & Takeaway: June £3, July £60, budget £50
  • Transport: June £711, July £210, budget £330 – Much improved
  • Holiday: Jun £0, July £0, budget £40
  • Personal: Jun £10, July £0, budget £120
  • Health: Jun £50, July £52, budget £150
  • Misc: Jun £141, July £67, budget £215
  • Work fees: Jun £150, July £323, budget £265 – Sigh, this is stuff that won’t get paid as expenses or re-reimbursed. Do other professions spend >10% of their monthly salary to be able to work?

In the garden:

It’s been hot, most things are dried up, but at least my tomatoes, squashes and potatoes are surviving.

Cheers,

The Shrink

References:

  1. https://twitter.com/RichardJMurphy/status/1554735116764827648
  2. https://threadreaderapp.com/thread/1554735116764827648.html
  3. https://www.thisismoney.co.uk/money/markets/article-11134163/UK-inflation-set-peak-18-early-2023-warns-Citi.html
  4. https://www.theguardian.com/money/2022/aug/26/energy-cap-leap-looks-to-be-moment-when-recession-fears-for-uk-turn-into-reality
  5. https://twitter.com/RoseAndCrownBeb/status/1563451257376763908
  6. https://www.thetimes.co.uk/money-mentor/article/inflation-interest-rates/
  7. https://www.bbc.co.uk/news/business-62550069
  8. https://www.ft.com/content/28f2b344-e2a6-4e10-bf4a-c924660eded0
  9. https://www.independent.co.uk/news/health/nhs-doctor-pay-strike-bma-b2110717.html
  10. https://twitter.com/PeterStefanovi2/status/1556367454720462849
  11. https://www.investopedia.com/articles/05/012005.asp
  12. https://www.cnbc.com/2022/07/05/hiking-interest-rates-the-wrong-solution-to-inflation-problem-analyst.html
  13. https://inews.co.uk/news/politics/tory-law-minimum-staffing-strikes-desperate-nonsense-unions-1644221
  14. https://www.independent.co.uk/news/uk/politics/unions-general-strike-industrial-action-ban-b2132802.html
  15. https://www.theguardian.com/business/2022/jun/23/rail-strikes-tories-agency-workers-rights
  16. https://www.ft.com/content/deab4e48-b22d-4278-b31c-f018a534ddbc
  17. https://en.wikipedia.org/wiki/Winter_of_Discontent
  18. https://www.bloomberg.com/opinion/articles/2022-08-02/uk-rail-strikes-tories-can-fight-the-unions-but-they-might-not-win
  19. https://www.bbc.co.uk/news/business-62656500
  20. https://www.telegraph.co.uk/property/buy-to-let/buy-to-let-crackdown-will-force-landlords-raise-rents/
  21. https://www.dailymail.co.uk/property/article-10547227/Buy-let-landlords-struggle-new-regulations.html
  22. https://www.theguardian.com/money/2022/aug/28/bidding-wars-cash-up-front-and-auditions-inside-britains-broken-renting-market
  23. https://monevator.com/higher-interest-rates-havent-yet-derailed-my-mortgage-strategy/
  24. https://commons.wikimedia.org/wiki/File:UK_interest_rate_since_1800.png

June 2022 – Hibernating, through bear markets and trolls

I am dimly aware that there has been a bear market ongoing. New(ish) child means that the amount of time I have available to read or care about the markets is limited. The news and media are awash with people trying to get your attention to tell you the bear market is over (1), trading tips for the moment (2, 3), or that the worst is yet to come (4). It all flies over my head. Funds are currently siphoned to childcare and supporting the household on one income, rather than getting plowed into discounted/ now correctly priced stocks. Not entirely providing thrust towards FIRE goals, but evidence that deliberate decisions about finances have paid off. We had always planned to live within one salary, so that the rest could either be saved or used as situations changed.

My investments prior to BabyShrink were mostly boring. I followed an 80/20 rule. The 80% passive is still up from where it was purchased, as the benefit of time in the market has outweighed picking or timing the market. The 20% is more of a mixed bag. My crypto is down 75%. The choices there were always very long term plays, not get rich quick schemes. That was definitely not the case for many, with stories of people losing their life savings (5).

I have some sympathy for those who have lost serious moulah in crypto. There is the line that crypto was essentially gambling, and therefore these individuals have just run out of luck. I don’t think that captures everything. Most gamblers go into classical gambling environments knowing that it’s a game of chance, whether that be betting on sport, roulette, cards, the lottery, whatever. The process is what gets them hooked, the dopamine reinforcement, the just-one-more flushed along with the occasional win. Crypto ain’t that.

Others say crypto is just one big lesser fools pile-on, buying and hoping the person behind you buys for more. An exceptional froth, worthy successor to the South Sea Bubble (6). The ongoing Wikipedia page on the Cryptocurrency bubble is quite the read, with daily updates as more funds go under and exchanges close (7). (Incidentally that also links to the “Everything bubble”, but that’s for my next post (8)).

I think the bubble/ lesser fools argument is fair. A high tide lifts all boats, and big funds have set up as the tide continued to rise. Herd mentality. This doesn’t explain it all though. We have a guy locally known as “the crypto king”. Kid who invested in his teens in BTC, and now as a twenty-something drives around his council estate ends in a Lamborghini. He’s not your typical financial investment early adopter. Lots of those who have made (and literally lost in landfill (9)) fortunes aren’t city bankers. They might be IT programmers and engineers, who realised early potential or simply had a punt that paid off in a sector of industry they understood.

Finally there’s the dank forum dwellers. The 4chan denizens. The r/CryptoCurrency bros. There’s a bit of herd mentality there, but it’s also driven by a counter-cultural urge. The belief that cryptocurrencies like bitcoin will succeed by de-centralising and democratising finance. It will unseat money from the banks, seceding currency from institutional control. I think the big banks are smart enough to get in on the act (set up funds, make their own cryptocurrency economy), but that doesn’t stop the belief, and if you go delving in these forums you’ll find anti-establishment sentiment and a drive to disrupt the system.

I think it’s these crypto investors I feel most sorry for. They have invested as part of a belief that they will make money AND they’re sticking it to the man. The psychology of this approach shares it’s basis in the reasons individuals believe in conspiracy theories. People believe these things because they want agency, understanding and control. The world got big and scary. People choose ideas that appeal as they can understand them as part of their environment (epistemic), allow them to enact control over their situation or environment and make them feel sale (existential), and fit in with the friends or peers (social) (10). Individuals, sometimes due to cognitive deficit or social exclusion, cannot integrate real world happenings into their internal schema and system of worldview. This self-reinforces, as individuals aggregate with groups with similar views, who then share a belief that they are right and everyone else is wrong, serving to improve their own self-worth (11). You’re more likely to end up here if you don’t have much agency or control in your life otherwise (unstable job, unstable friends/family relationships), and are either unwilling or unable to integrate complex reasoning behind events. A simpler answer, with your friends around you supporting you, is much more pleasant to the ego than accepting you don’t understand why something is happening and it’s out of your control.

Which I think is where we come back to the crypto bros. Does your average poster in these places understand how to write the code to make a blockchain. Questionable. Have they been sold a message that they can regain control of their finances by doing something the establishment don’t want? It’s a nice answer if you have little other prospect of reaching financial dreams. And when it all falls down you scream into the darkness and wonder how (5). A little reminder not to take financial advice from people claiming to know a great secret. And don’t feed the trolls.

Credit: (12)/ MemeCenter

June Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved 8% of my salary in June, however that was almost all payments into my NHS pension. If you ignore my NHS pension I actually dipped 2% into my savings. Only a few more months of SICK (single income costly kid) living, paying nursery fees and mortgage out of just my salary. Counting down the days to growth.

Budgets:

As compared to my four year back-calculated mean monthly spend:

  • Groceries: May £315, June £270, budget £220 – (recalculating this a bit, as it looked off)
  • Eating out & Takeaway: May £54, June £3, budget £50
  • Transport: May £1000, June £711, budget £330 – Fixing flaws in the new car
  • Holiday: May £180, Jun £0, budget £40
  • Personal: May £20, Jun £10, budget £120
  • Health: May £50, Jun £50, budget £150
  • Misc: May £7500, Jun £141, budget £215
  • Work fees: May £125, Jun £150, budget £265

In the garden:

Due to harvest potatoes soon, and tomatoes and squashes are growing nicely. Still enjoying this blog in the Guardian (6).

Cheers,

The Shrink

References:

  1. https://markets.businessinsider.com/news/stocks/stock-market-outlook-bear-market-over-new-sp500-highs-fundstrat-2022-7
  2. https://lifehacker.com/how-to-tell-when-a-bear-market-is-over-1849340869
  3. https://www.businessinsider.com/stock-market-book-recommendations-recession-investing-wall-street-big-short-2022-7?r=US&IR=T
  4. https://www.businessinsider.com/stock-market-crash-expert-warns-further-downside-ahead-bear-market-2022-7?r=US&IR=T
  5. https://www.theguardian.com/technology/2022/jul/12/they-couldnt-even-scream-any-more-they-were-just-sobbing-the-amateur-investors-ruined-by-the-crypto-crash
  6. https://en.wikipedia.org/wiki/South_Sea_Company
  7. https://en.wikipedia.org/wiki/Cryptocurrency_bubble
  8. https://en.wikipedia.org/wiki/Everything_bubble
  9. https://www.bbc.co.uk/news/uk-wales-62381682
  10. Douglas, Sutton and Cichocka, Current Directions in Psychological Science, https://journals.sagepub.com/doi/full/10.1177/0963721417718261
  11. https://www.nationalgeographic.com/science/article/why-people-latch-on-to-conspiracy-theories-according-to-science
  12. https://theconversation.com/dont-feed-the-trolls-really-is-good-advice-heres-the-evidence-63657
  13. https://www.theguardian.com/lifeandstyle/2022/jul/03/allan-jenkins-on-gardening-with-july-comes-a-whole-new-gardening-agenda

May 2022 – Calculating my personal inflation rate

Yes, I know I’m late again. June’s one following up soon.

I really enjoyed this animation from r/dataisbeautiful, which elegantly shows (US) inflation. Think the UK is fairly similar, at least according to my wallet (1).

In response to this, I thought it worthwhile to follow up on a good Monevator post, and calculate my personal inflation rate (2). I’ve been systematically tracking my household expenses using broadly the same spreadsheet since 2018. All our household bills go through our joint account, which I’ve used for this. It doesn’t take into account personal spending, where there is likely some inflation matching my work overheads (increased seniority = increased GMC/ indemnity/ royal college fees). I also excluded the costs for our wedding, and paying off our old joint credit card which is now empty – i.e. one-offs that are not repeating. Since 2018 our household expenditure was:

  • 2018 – £34,828
  • 2019 – £25,895
  • 2020 – £25,405
  • 2021 – £26,005
  • 2022 – £29,118 – projected based on spending to May replicated across the year

Can you tell when I started paying attention to the money-out category?

If we treat 2018 as an outlier this suggests my inflationary change from 2019 to 2020 was -1.89%, 2020 to 2021 was 2.36%, and 2021 to 2022’s projected spend is 11.97%. A little above the reported UK figure, but not crazy especially given we’ve added a new family member. Plug this into the geometric average return calculator (3) suggested by Monevator and I get a return of 3.99% per year. This seems properly realistic, so I’ll use this figure for future household predictions, and continue to update as we go. A nice little maths exercise which I would recommend to those with a finance interest.

May Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved 2% of my salary in May. A new car was bought draining some savings, and I’m holding my usually saved/ invested cash to pay for some childcare, so it’s not really saving. Helpfully my net worth actually increased slightly (1%), due to mortgage payments and market movements.

Budgets:

As compared to my four year back-calculated mean monthly spend:

  • Groceries: April £220, May £150, budget £220
  • Eating out & Takeaway: April £50, May £54, budget £50
  • Transport: April £158, May £1000, budget £330 – Insurance mostly
  • Holiday: Apr £0, May £180, budget £40
  • Personal: Apr £60, May £20, budget £120
  • Health: Apr £92, May £50, budget £150
  • Misc: Apr £92, May £7500, budget £215 – And the new car
  • Work fees: Apr £344, May £125, budget £265

In the garden:

Low maintenance growth this year, as all my time is taken up by the Shrink infant. Beans, potatoes and squash will have to do. I’m enjoying this blog from Allan Jenkins about general gardening stuff (4).

Cheers,

The Shrink

References:

  1. https://www.reddit.com/r/dataisbeautiful/comments/vhciop/oc_inflation_and_the_cost_of_every_day_items/
  2. https://monevator.com/personal-inflation-rate/
  3. https://goodcalculators.com/geometric-average-return-calculator/
  4. https://www.theguardian.com/lifeandstyle/2022/jun/05/the-growing-season-gets-into-full-swing

Quarterly Returns – Q1 2022

Quarterly return posts supplement my monthly Financial Dashboard, covering investments in detail and looking at my yearly targets. Here I track purchases and sales, document progress against my (in progress) investment strategy, and discuss re-balancing and changes over time.

Permanently chasing my tail on these, but it’s partly because I don’t have much interesting to share at the moment…

Q1 Returns:

  • Cash Accounts £17,600 (+£1,850)
  • Investments £12,700 (-£580)
  • Property £56,150 (+£1,100)
  • Cars £2000 (no changes)

My net worth has essentially tracked sideways, as money squirreled away in cash savings accounts gets offset by losses on the markets. The fact I can maintain my net worth at time when we’re running mortgage, nursery fees and all household bills on just my income is satisfying. I won’t say we’re lucky, hard work and budgeting have equal shares, but it was intentional that we could ‘manage’ in this sort of situation. Q2 will likely continue this vein, as MrsShrink doesn’t go back to work until Q3, and the baby is gradually upping her hours at nursery.

Investments:

Core/ Satellite Passive/ Active Split

My 2021 Financial Year ISA is in Vanguard, however I again didn’t pay in anything this quarter.  Activity in my Freetrade account was just topping up an existing holding in Unilever. (fancy a free share? Sign up to Freetrade using this link, and we both get one). I’ve got round to adding my crowdfunding account to my investment portfolio spreadsheet. This, combined with some good returns on my active stock selections and a fall on the trackers, means I’m now overweight on my active UK satellite portfolio. Any spare cash I do have hanging around once I’ve topped off emergency funds is therefore likely to go into dull ole trackers.

Ratio of satellite active holdings to core passive trackers
Asset allocation ratios

Goals

In terms of goals for 2022:

  • Save 35% of my income – 40% prediction

I will be amazed if I achieve this to be honest. Q1 saw a savings rate of 25%, all in cash. Given what my financial year is looking at I’m going to aim to keep it at that, and hope that a big return to saving can be achieved towards the end of the year.

  • Save £8k towards a new car – 40% prediction

This steadily ticks upward, with my cash accounts at their healthiest level ever. Should be ready to pull the trigger soon.

  • Finish the house renovations – 75% prediction

Some good progress made here, doing the sort of jobs that add little value but make a big difference to the state of the property. I painted a load of the stone and woodwork on the outside of the house, so it’s got a bit of kerb appeal, and we’ve started on re-rendering some other sections, along with painting the last few rooms. A friend recently commented that she would be willing to buy the house from us when we move, which would save a lot of hassle and fees, so we’ll see how that pans out.

Happy, wait is this supposed to be summer?

The Shrink

April 2022 – Lifestyle creep in the face of inflation

The news is full of horror stories about the ‘cost of living crisis’ (1, 2, 3). People choosing between heating and eating. It’s getting bad for those at the financial margin, and the theory goes once that punished margin hits a tipping point, to a recession we shall head. The prospect of rocketing inflation isn’t a surprise if you’ve had your ear to the ground, it was kind of evident at least a year ago, when Monevator was already talking about it (4).

Fearing such things I locked in a 1.65% mortgage for five years twelve months ago. Should see us through the worst, or at least until we’re ready to move and capitalise on a distressed market. Elsewhere inflation is pushing up our monthly budgets. It has made me realise how much each month was spent on discretionary items, eating out, etc. I thought we were pretty good, but now the amount we’re spending on essentials has gone up, I’m suddenly seeing where we need to, and could have, reined in spending.

I think this was a strong case of insidious lifestyle creep. In the past couple of years we’ve added a baby with associated costs to the family, but we’ve also as a couple had many conversations about how we’re living. For a long time we’ve continued our fairly student lifestyles, not unlike Monevator in his 30s (5). Yes we had a house, but we bought a wreck when we were young, bought tools and did it up, turning a bit of a profit. We lived in cheap parts of the UK, where our mortgage was comparable to rent. Furniture was hand-me-downs, flea market or charity shop bought (BHF FTW). Clothes were bought on sale or from charity shops, from good brands in fairly timeless styles. We avoided most standard lifestyle inflation traps, but at same time we had a habit of buying things that “will do”. So in the last year we started to buy some things which were more than “that’ll do”, to be things we truly liked no matter the cost. Not major stuff, a few bits of furniture, some clothes here, some shoes there.

It’s culminated in a major purchase this month. My daily driver up until now has been a tatty but reliable 20-year old estate. It brought the baby home, it’s helped me move house about eight times, as I’ve shuttled around the country during training. I bought it eight years ago for £2,000. It’s cost me a further £5,700 in repairs over the time I’ve owned it. I’ll do a full run-down of costs in a separate post. In the last six months it’s started generating bills every month of around £150, as various things have gone wrong. So I made a decision to sell it.

It’s been replaced by something very new, very safe and hopefully reliable. I’ve been looking for around six months, and I’m cursing not replacing it sooner. What was £7,000 two years ago is now £10,000. The sort of car we wanted to replace my daily, a family car which can ferry us all in comfort and safety, has dramatically shot up in price.

And this is where the lifestyle inflation comes in (6). We’ve decided to use some of my (overly cautious) emergency fund alongside savings to get a more modern car than we planned from a luxury marque. It’s a lot of car, for a lot of money, that we will hopefully keep for a long time. It’s more than we need. It’s got luxuries, and feeds our sense of entitlement (we deserve it, we work hard), and our sense of status (we’re important people with important jobs) (7, 8). The sensible choice would be another ten year old work-horse, not a four year old show-pony.

I then ran through a list of places where I might have already made subtle inflationary changes (some taken from here and here) (9, 10):

  • New furniture (as described above; new coffee tables, sideboards, bed and mattress, wardrobes…)
  • Gym memberships (gone from the council to a fancy gym – this did help with my motivation, but back to the council one I go)
  • Eating out or takeaway in (went up for a long time, we’re now cutting down)
  • Holidays (we had a really nice one recently to a resort, but maybe we can go back to cheap AirBnBs with friends)
  • Brand name foods – we don’t do this
  • Clothing – yep, as above
  • Organic foods – we do a lot of this.

We’ve made a lot of changes from needs to wants. And I guess that’s lifestyle inflation. So maybe we’ll do a bit of substitution for a while, and pause our discretionary spend (11). More money to chuck in the markets that way…

April Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved just 5% of my salary in April, as many got moved about and prepared for an impending car purchase. My net worth fell by half a percent thanks to the markets trending down.

Budgets:

As compared to my four year back-calculated mean monthly spend:

  • Groceries: March £225, April £220, budget £220
  • Eating out & Takeaway: March £79.62, April £50, budget £50
  • Transport: March £432, April £158, budget £330
  • Holiday: Mar £125, Apr £0, budget £40
  • Personal: Mar £85, Apr £60, budget £120
  • Health: Mar £47.95, Apr £92, budget £150
  • Misc: Mar £96.56, Apr £92, budget £215
  • Work fees: Mar £189, Apr £344, budget £265 (splitting the difference of this lumpy spend)

In the garden:

Grass mown and re-seeded, potatoes sown, lettuces, beans, celery and tomatoes potting on. A bit more time means a bit more growth.

Cheers,

The Shrink

References:

  1. https://www.instituteforgovernment.org.uk/explainers/cost-living-crisis
  2. https://www.theguardian.com/business/cost-of-living-crisis
  3. https://www.ft.com/content/e6bd22e1-088f-492d-802a-1a7aecdc7fe7
  4. https://monevator.com/beating-inflation/
  5. https://monevator.com/live-like-a-graduate-student-and-save/
  6. https://www.ramseysolutions.com/budgeting/lifestyle-inflation
  7. https://medium.com/swlh/lifestyle-inflation-more-money-more-problems-93a2090d7f41
  8. https://www.investopedia.com/terms/l/lifestyle-inflation.asp
  9. https://www.forbes.com/sites/kristinmckenna/2020/06/22/the-true-cost-of-lifestyle-inflation/?sh=35c978b52423
  10. https://www.frugalconfessions.com/spend-less/examples-of-lifestyle-inflation/
  11. https://monevator.com/rising-cost-of-living/

March 2022 spending – quick update

I’ve had a fairly mad couple of months, working what could be conservatively put at 90 hour weeks, with a toddler to care for and sleep to somehow find. Therefore there will follow a flurry of posts covering various financial thoughts and my sitrep.

March Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved another 30.1% of my salary in March, which was all funneled into cash savings ahead of new car purchase and BabyShrink nursery fees. My net worth rose 0.4% (sad reacts only please), as the markets continued to trade sideways and down, and I didn’t add anything further to them.

Budgets:

Budgets based on updated figures using my four year back-calculated monthly average from last month.

  • Groceries: last month £351, March £260, budget £220 (still work to do)
  • Eating out & Takeaway: February £34, March £79.62, budget £50
  • Transport: Feb £573, March £432, budget £330 (my daily driver is increasingly costly)
  • Holiday: Feb £0, Mar £125, budget £40 (booking things ahead of a trip)
  • Personal: Feb £91, Mar £85, budget £120
  • Health: Feb £250, £47.95, budget £150
  • Misc: Feb £250, £96.56, budget £215
  • Work fees: Feb £101, £189, budget £265

In the garden:

Sadly neglected due to work commitments.

Watch out for the next update soon…

The Shrink

January & February 2022 – Reviewing 2021’s investing mistakes

I saw an interesting FT article some time in the Christmas/ New Year period (literally the last point I had free time to think), where the author went over the mistakes they made in their portfolio in 2021. It seemed like a good exercise in humility, and running counter to all the Youtube/ Instagram ‘I made hundreds of thousands on crypto, you should too’ type wafflebollocks. Therefore, in that vein, here are my investing mistakes from 2021. If other bloggers are also willing to be humbled before the masses I’ll link to them here. In no particular order…

LON: IQE

Bought in February at 80p/share. This had been going on a bit of a bull run. They’re a semiconductor manufacturer local to me in South Wales. I figured it was a reasonable play on the ongoing semiconductor shortages, and tried a bit of momentum investing. I invested literally at the top. They promptly slumped down, and I sold out in October at 45p/share. They then fell further, and are now about 38p. Luckily it was a small holding, so only lost ~£100, at -43%.

NYSE: NEE

Bought in April at $77/share. Again after a bit of a bull run. This is a US energy company, with a mix of fossil fuels and renewables. Again, they slumped and I lost my nerve, selling out in June at $72/share. They then went on a massive bull run up to the end of January, topping out at ~$94, before falling back $72, then rising to ~$80. Total loss to me -7%.

NYSE: GME

You’ve heard of it. After making a decent return (160%) on the first r/WSB run, I came back for a second bigger bite of the cherry in August. I bought back in at $214/share, right near the peak of a sustained wave. The price then drifted down and I ended up sitting on it for months, hoping for the price to go back up. Classic loss aversion. Eventually it did in November, and I sold at $217. Not bad given it’s now $97, but I consider this a loss due to the opportunity cost. There was a whole bunch of stuff I wanted to buy but didn’t have liquid cash for in the intervening months, so it was a waste. After FX costs, total loss to me -0.5%, and a whole lot of time.

NYSE: UMWC

A US mortgage company. Had reasonable fundamentals, and I bought on hype. I bought in June at $9.52, and then as it drifted down at $7.36 in August. It continued to drift down, and is now at $4.37/share. I still hold it, although I’m not sure if that’s down to loss aversion (can’t call it a loss if it’s not crystallised), or actual belief in the company (PE currently of 6.6). Either way, total loss to me -46%.

Most of the rest of my active stocks are up, or at least trading sideways. We’ll ignore what’s going on with passive stocks given the general state of the world. I think my losses suggest I suffer strongly from loss aversion, alongside a tendency to get caught up in hype. Some lessons for 2022.

January & February Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I haven’t managed to save much over these months, as I have done little locum work and I’m building a small nursery war chest to cover the gap between BabyShrink starting nursery and MrsShrink returning to full time paid employment. I saved 33% in January, and a paltry 10% in February, with my net worth essentially flatlining for those months. All savings were in cash in a Starling pot, so no fun in investments or crypto.

Budgets:

A focus for the last month has been updating my spreadsheet and budget to better reflect my spending patterns. For the last three years I’ve checked my budgets against the same headings, and this has enabled me to view patterns:

Patterns of spending within budget categories 2019-2021

Standout points for me are:

  • Groceries have got more expensive particularly in the last year, although this may partially relate to the arrival of BabyShrink
  • Spending on transport has reduced, mostly driven by working-from-home more, and other COVID effects
  • My personal spending (clothes, haircuts, toys, gifts) has gradually increased
  • Spending on miscellaneous stuff (usually household furniture and random bits from Amazon) has also doubled – however this also includes things like baby travel systems
  • My fees to work have shot up in line with seniority. Deep joy.

Average monthly spends were £220/month for groceries per person, £265/month on work fees, £120/month on personal items, £330/month on transport, and £110/month on entertainment and going out.

Based on this, and also trying to see things which are more useful to me, I’ve updated my budget headings. So here are January and February 2022:

  • Groceries: January £273, February £351, budget £220 (Overspend)
  • Eating out & Takeaway: January £40, February £34, budget not previously calculated, aim £50/pp (underspend)
  • Transport: Jan £186, Feb £573, budget £330 (lumpy!)
  • Holiday: Jan £0, Feb £0, budget £40 (this will also be lumpy)
  • Personal: Jan £41, Feb £91, budget £120 (underspend)
  • Health: Jan £151, Feb £250, budget not previously calculated, no aim
  • Misc: Jan £15, Feb £250, budget £215 (baby items)
  • Work fees: Jan £322, Feb £101, budget £265 (this will be about £700/quarter)

In the garden:

General tidy-up ahead of new planting next month.

The Shrink

Q4 and 2021 Review

Quarterly return posts supplement my monthly Financial Dashboard, covering investments in detail and looking at my yearly targets. Here I track purchases and sales, document progress against my (in progress) investment strategy, and discuss re-balancing and changes over time.

It has taken me many weeks to properly unpack 2021. A year in which a lot happened, and also a lot of nothing. I remain in the same job, earning slightly more as I increase in seniority, watching the NHS continue to fall to a death by a thousand cuts. We live in the same house, with only minor repainting and renovations undertaken this year. We had no proper holidays away, and made no major (four figure) purchases. We started 2021 with the roll-out of a vaccine for COVID and we end with the Omicron variant seemingly left to run it’s milder course through the population.

Our year was punctuated by the arrival of our baby. We have gone from a DINK household to a one income and kid (so an OIK?) household. We are a happy family, but by god nothing prepares you for it. I thought I was prepared – I’ve worked abysmal rotas in my time, I’m a friend to sleep deprivation, how hard can it be? Seven 13 hour night shifts in a row at 60% staffing… done it. Living a life reminiscent of the scenes from ‘This is Going to Hurt’. Compared to that?

It was a totally different beast. The snatched sleep, the emotionally draining, energy sapping, unrelating nature of it, the quiet resignation to endurance. Yet, somehow, the positives of a tiny, happy, giggling face outweighs it. Evolution’s a hell of a drug.

In my 2020 review I set some goals for 2021, alongside a prediction of whether I could achieve them. These were:

  • Finalise emergency fund structure and pay off credit card – 80%Success
  • Save 35% of my income – 40%Failure
  • Make goalless time every month for hobbies – 60%Success

I made the final payment to my credit card on the 23rd of December, meaning over the course of the year I cleared a balance of £3,680. I also sorted out my emergency fund and the cascading system I use for immediate/<24 hours/ 24-72 hour financial requirements. I’ve a couple of legacy accounts yet to close, but we’re otherwise now at fighting weight. I missed my 35% savings goal by 0.86%, managing to somehow save 34% of my salary over the year (that’s not including the credit card). This will roll over to next year. I did organise my time to be able to spend an afternoon a fortnight on my hobbies. Past tense here, as infants are sleep and time thieves, and some hobbies have had to be sacrificed.

In an effort to test my forecasting abilities, I also began running a new SSC/ Astral Codex Ten-esque prediction experiment with conviction, where incorrect predictions will be struck through:

  1. UK vaccination will be completed before the July – 75% – A difficult one to assess, but based vaccination delivery rates for first jabs plateaued after July, and for second jabs after September. I did not account for vaccine hesitancy or government logistics nonsense. Stats taken from wiki (1).
  2. Greater than 200,000 UK COVID deaths – 30% – Happy to see that the cumulative death figure at the end of December was 148,624. Still staggering.
  3. UK has worst death rate as percentage of the population in the world – 60% – This was very flippant and pessimistic, as various countries in Eastern Europe and South America have been absolutely battered.
  4. Under-reporting in developing nations hides significant pandemic effects – 90% – I’m going to call this as correct, because from what I’ve read and heard it is, but the actual chances of proving it are very slim. An error of prediction writing.
  5. The UK tier system is still in use in December 2021 – 60% – I underestimated just how driven by political and economic pressure BoJo would be (2). I also assumed that he was aiming for clear messaging. I was wrong.
  6. The UK experiences another ‘lockdown’ in winter 2021/2 – 75% – This was mostly wrong. England’s Plan B rules were definitely not a lockdown, and while Wales’ and Scotland’s rules were stricter, I don’t think they can be called a lockdown.
  7. COVID-19 mutates into a form immune to the current vaccine – 40% – My estimate was <50%, therefore I thought this unlikely. It hasn’t and I hope it doesn’t.
  8. I am personally working in office >80% of the time again at some point in 2021 – 10% – Also never happened.
  9. Someone I am close to will die of COVID-19 – 25% – Didn’t happen, though that is dependent on the close clause.
  10. Endemic COVID-19 circulates in the population with lockdown easing and shops re-opening – 80% – I think this is pretty much where we’re at now. Government continues to publish figures, but we’re not far off back to ‘normal’, and I can see people using vaccine passports, testing and masks for years to come.
  11. … and self-isolation becomes normalised – 80% – Yes? Again error of writing predictions I think. I know the government has shortened the self-isolation rules, but I don’t know anyone not treating it as standard practice.
  12. … and higher death rates tolerated among the over 50s with consistent effect on life expectancy by end 2021 – 75% – I think we’re heading this way, but too early to call. Certainly life expectancy in the UK is falling slightly (3), but I’ve not read anything suggesting or attributing this to COVID. It seems more linked to poverty.
  13. Boris resigns – 60% – Wishful thinking, he’s a stubborn old gibbon.
  14. Keir Starmer above BoJo in the opinion polls – 80% – As per Britain Elect’s weight average tracker, BoJo had a 32.9% voting choice compared to Starmer’s 32.1% on the 3rd of Jan 2022 (4). They actually crossed over at the end of Jan 2022, but that doesn’t count. Again evidence I am not in tune with Joe Public.
  15. Inflation above 2% – 75% – CPI at a stunning 5+% (5).
  16. … due to Brexit-resultant shipping and food cost rises – 60% – Eh, I’m going to call this correct. Food, fuel, household bills and tech have all pushed it up, but you look at the reported cost of living crisis and it seems that way.
  17. There are resultant food shortages – 10% – So there are and have been some food shortages, but not to the point of seriously empty shelves, so I think this is correct.
  18. Homeless rate rises – 95% – Actually down 4% from 2020 (data for September to September) (6).
  19. Foodbank usage rises – 95% – Interestingly, though up from 2019, looking at the Trussell Trust figures for Apr-Sept it appears to be down from 2020 (7).
  20. House prices continue to increase – 75% – Yes (8).
  21. FTSE100 above 7,000 – 60% – Yes…
  22. FTSE100 remains above 6,500 – 80% – Yes…
  23. FTSE100 hits 7,500 – 20% – Yes… Closing at 7,358 on the 31st of December 2021. Ticked over to 7,500 the next day though. More positive than I expected.
  24. FTSE250 hits 22,000 – 60% – Yes, actually closing at 23,480 at the end of the year. Again more positive than I expected.
  25. S&P500 hits 4,000 – 75% – Yes, storming to 4,766.
  26. S&P500 hits 2,500 – 30% – Yes
  27. £ hits $1.40 – 50% – Nope. $1.35. I think the US did better than I expected.
  28. We have £100k in equity – 95% – We do.
  29. We start to overpay our mortgage – 30% – We didn’t. Baby swallowed spare cash (not literally).
  30. I have £15k invested – 30% – I do not.
  31. I am saving £1k/month – 30% – Quite unbelievably to me, my mean average monthly savings over the year were £1.3k.
  32. We have [redacted] – 90% – We did.
  33. MrsShrink [redacted] – 75% – She is.
  34. We replace one of our cars – 50% – Went to look at a few. Still looking.
  35. The project car gets repainted – 25% – I did not get time.
  36. The project car gets sold – 10% – I wavered, and then put it on axle stands.
  37. We have a holiday – 80% – I was pretty shocked when I sat down and worked out we hadn’t had a holiday away at all in 2021. Staycations yes, but nowhere actually away. A few coming in 2022.
  38. Outside of the UK – 20% – We didn’t.
  39. I learn another language – 30% – I didn’t.
  40. I continue to exercise at least three times/ week for the whole year – 75% – I did.
  41. I can do a pull-up again – 40% – I can’t.
  42. I can do a hand-stand press up again – 20% – I can’t.
  43. I return to [redacted] – 10% – I didn’t.
  44. I complete [redacted] – 25% – I didn’t.
  45. My ongoing work has not conformed to anticipated plans – 90% – It did not.
  46. I publish [redacted] – 90% – I did.
  47. I publish [redacted] – 25% – I did not, although it is under review.
  48. I publish on average four posts/ month – 40% – I did not.
  49. Most page views ever this year – 30% – My page views halved with my decreased posting frequency. I’m ok with that.
  50. This blog gets abandoned – 10% – Still here.

Calculations

In my predictions 50% is equivalent to sitting on the fence. Greater than 50% is a positive prediction, less than 50% is a prediction of negative likelihood; i.e. I do (former) or don’t (latter) think the predicted thing will happen. The variance from 50% is then summed, with correct predictions positive, incorrect predictions negative, before dividing by the total to produce a mean. The result was +0.141, suggesting that within a range of -0.5 to +0.5, my predictions are slightly positively predictive. I have predictions for 2022 in a little black book, and I’ll post them here in the weeks to come.

Goals

In terms of goals for 2022:

  • Save 35% of my income – 40% – Rolling over from 2021.
  • Save £8k towards a new car – 40% – My current car is… fine… but it is increasingly decrepit, and we could do with something safer and more comfortable for long journeys as a family. Maybe this counts as lifestyle inflation. Car prices are absolutely nuts at the moment, as you may have heard, with things I was looking at in 2019 for £3k now more like £5k. What I’m after sits around the £7-9k mark, so I’m aiming to save across the year so that I don’t need credit to purchase. At the moment, on one salary and with nursery fees looming this seems impossible, but it’s about what I put away across regular cash savers and paying off credit cards last year, so we will see.
  • Finish the house renovations – 75% – We have put a lot of time and effort into making our current house the way we want it. We have one room left to redo, plus some external maintenance and beautifying. Once this is done we can sit back a little, relax, and then inevitably sell and move as itchy feet and my Rightmove habit kick in.

Q4 Returns:

  • Cash Accounts £15,750 (+£2,230)
  • Investments £13,280 11,920 (+£1,360)
  • Property £58,960 52,900 (+£6,060)
  • Cars £2000 (no changes)

Bit of a bumper quarter. I was paid a fairly decent lump for some locum work, most of which went into cash savings accounts to prepare for potential future tax bills – hence the big bump there. Continued to add a bit to my regular savings account as well. On the investment front the growth this quarter came from the markets. As our household income has fallen my salary has been paying more of the bills, and I prioritised reducing debt over further ISA investments. The property jump comes from principal repayment (smaller proportion) and a revaluation of our property worth. A house on our street sold off the market at £290k in the summer, and another of a similar finish to ours recently sold (in less than a week) for £300k, so we have estimated that as it’s worth.

Investments:

Core/ Satellite Passive/ Active Split

My 2021 ISA is in Vanguard, however I didn’t pay in anything this quarter. All activity in my Freetrade has been active attempts at stock picking by selling holdings to buy new (fancy a free share? Sign up to Freetrade using this link, and we both get one). So what did I actually do?

Ratio of satellite active holdings to core passive trackers

In mid-October, while still trying to decide what to do proper, I bought Lucid (NASDAQ:LCID) as a conviction play after seeing a series of excellent reviews of their upcoming car. I bought at ~$25/share, and held as it jumped over the following weeks. After it crossed the $35/share mark I sold out, only to then watch it hit $55/share over the following month. I’m happy I took my gains, as it’s now back down to the $22 mark. Then when GME hit about what I paid for it, I sold out of that too.

I used that released cash to purchase Cornish Metals at 14p/share. Cornish Metals holds the mining rights to South Crofty, a very old, very big, tin, zinc, tungsten and copper mine that closed up in 1998 following the collapse of the global tin price (9). Since it started up in the 16th century it has absorbed a vast number of surrounding mines, to extend 2 and a half miles and 900m down. After closure the site was considered for redevelopment (as the surface mine workings sit in the middle of the town of Pool, between Camborne and Redruth), before going through a series of owners. I started following it in 2011 when Celeste Copper Corp assessed there to be £1.5 billion of tin left in the ground, before UNESCO got involved and it went into administration in 2013. Strongbow Exploration bought it out of administration, and since then have gradually been working through permits to restart the mine, along with changing their name to Cornish Metals (10). They’ve done further exploration which has extended the mineral resource estimate at South Crofty. The South Crofty rights also came bundled with a load of other mineral rights across Cornwall, including United Downs, last mined by Rio Tinto Zinc in 1991 (11). This whole area has been historically mined, and Cornish Metals went looking between some of the old mines. In 2020 they found virgin high-grade copper-tin, which they’re now applying for further permits to assess. As a final kicker, Cornish Metals have a tie-in with Cornish Lithium, who I have some shares in through crowdfunding. The share price of Cornish Metals rose in Nov/Dec, and has been bouncing in a range between 20p and 28p/share since. I’m planning to hold them long, as I think they have the potential for decent profitability based on future tin price estimates. To be nice and boring I then balanced my active purchase with some more Vanguard FTSE All World, just in time for the 2022 correction.

Happy winter everyone,

The Shrink

References:

  1. https://en.wikipedia.org/wiki/Timeline_of_the_COVID-19_pandemic_in_the_United_Kingdom_(July%E2%80%93December_2021)
  2. https://www.instituteforgovernment.org.uk/charts/uk-government-coronavirus-lockdowns
  3. https://www.onhttps://www.britainelects.com/s.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2018to2020
  4. https://www.britainelects.com/
  5. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2021
  6. https://www.gov.uk/government/statistics/statutory-homelessness-in-england-july-to-september-2021
  7. https://www.trusselltrust.org/news-and-blog/latest-stats/mid-year-stats/
  8. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/november
  9. https://en.wikipedia.org/wiki/South_Crofty
  10. https://www.cornishmetals.com/projects/uk/south-crofty/
  11. https://www.cornishmetals.com/projects/uk/united-downs/

December 2021 – Future inflation thoughts

Last month I noticed what I think is the beginning of inflation telling on my monthly budget. A gradual creep over the year in the amount we spend each month on food, energy and general household goods. This has been in the news as well, with inflation apparently running at a decade-high 5.1% in November (1, 2, 3). The BoE don’t think this will change in the short term, with forecasts of >5% for 2022, before dropping off into 2023 and beyond (2, 4).

The comment pieces on this news are all over the place. On one hand you get people like Chris Dillow of the Investors Chronicle (5). He reckons the BoE are overstating the risk; the inflation is due to higher gas prices, and gilts and commodities prices do not suggest there is much fear of ongoing inflation, whilst increased price pressure will weaken pressure from spending, and there really is no wage-price spiral as a shortage of decent staff pushes up salaries (5). At the other side of the argument are people like Merryn Somerset Webb (6). She argues surveys (I hesitate to call this data) from the British Chambers of Commerce showed most (66%) of businesses are worried about inflation, and while 30% say this is due to wage growth, 94% blame raw material price increase (6). This is reportedly due to increases in oil and gas prices, and they aren’t going down any time sooner because everyone is going renewable too quickly (6). Hogwash.

While I don’t agree with Merryn Somerset Webb’s “all aboard the coal train” bandwagon, I do agree that inflation isn’t going away. In my naturally bearish state I am concerned that the BoE is under-weighting long-term inflationary causes. Two points on this. First, all the CPI inflation graphs people refer to seem to go back to the late 80s/ early 90s. Inflation isn’t a modern thing, we’re just measuring it with the CPI now. The fairly fun in2013dollars.com reckons since 1920 the pound has had an average inflation rate of 3.86% (7). Actual proper peer-reviewed papers peg inflation since the mid-1950s at median average 4.3% and mean 5.90% (8, 9). So our current 5% looks like a reversion to mean. Five percent inflation (and theoretically associated interest rates) is not something the BoE wants, but might be good for national debt. For the rest of us debtors, 5% mortgage rates could pinch a lot of those stretched salary-multiplier high LTV mortgages, and rid us of some of the zombie companies floating about.

Point two. What is in the CPI. Have you ever looked at the basket of goods the ONS uses? It can be bloody weird, but seems like a fairly decent mix of households (10). Wholemeal loaf and dehydrated noodles, fair enough. Liver and canned meats, not round here. Rent costs for housing, materials for maintenance like MDF, bedroom furniture, and a new smartphone. That feels fairly normal. There’s a lot of items, but I’d encourage you to have a look.

The important point here is it’s not just about gas prices or wage growth. This is all the bits of stuff people buy or spend on. The price of laptops, the latest Apple watch, the latest Samsung smartphone, etc have all gone up because of chip shortages. That doesn’t seem to be easing. Same problem applies to new cars, and has driven up the price of second hand cars. Rail prices are going up faster than inflation. Air fares have gone up. Rent prices have gone up – have you spoken to anyone trying to rent recently? In our local area it seems to be almost impossible. One of my junior colleagues has been looking for nine months for somewhere suitable, staying with a friend in the interim. Brexit and COVID has meant fewer people available for hospitality, services and transport work, driving up wages (3). The headlines might be lawyers and lorry drivers, but everyone I’ve spoken to seems to be struggling to get staff.

And add-on the sustainability element. Fast fashion is in for a certain portion of the population, but for many it’s firmly on it’s way out. See the rise of Depop and Vinted, the fashion amongst the generation below me of reuse and recycle. On/re-shoring and difficulties with international shipping (COVID, Suez, Brexit, general fuel cost) means that it’s much more expensive to get stuff to the UK now. People can’t get raw materials or finished goods in. Food prices have continuously fallen over the last decade, meaning even as wages have stagnated many families have not noticed inflation on their food bill (11). It’s got cheaper thanks to cheap labour from abroad for UK farms, and cheap food imported from abroad. Farmers have been squeezed to the point of barely breaking even – watch Clarkson’s Farm. Both of these drivers are disappearing. This affects the poorest in the population most, as food makes up a greater proportion of their total spending (11). Food prices are going to start increasing, because the only way they can get cheaper is if farms become even more commercialized as agri-businesses, with lower welfare standards and quality in the face of fairly paltry Government replacements for EU subsidies (12, 13, 14). The alternative is importing more food, which is harder and more expensive due to Brexit. Or people pay more for better quality, more sustainable produce, the way that some public opinion is blowing.

So that’s my long-winded rant about why I’m adding £50 to my weekly food budget and monthly energy spend rather than a future eating soylent green and ChickieNobs in the dark. We can afford it. I’m going to account for 4% annual inflation in my future calculations. After a decade of low inflation and low interest rates, times they are a-changing.

December Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved (a surprising) 34% of my salary, bolstered by some locum work. I have also finally managed to clear my credit card. I’m not quite unsecured debt free, there’s about £1000 of 0% credit for a kitchen, but not too shabby. Savings this month were in cash and cryptocurrency – more on this in my Q4 review. If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

  • Groceries – Budget £200, spent £297.80, last month £348.68
  • Entertainment – Budget £100, spent £31.93, last month £206
  • Transport – Budget £250, spent £258, last month £349
  • Holiday – £150, spent £0, last month £0
  • Personal – £100/ £272/ £199 – Christmas gifts
  • Loans/ Credit – £50/ £512/ £445
  • Misc – £50/ £207/ £153
  • Fees – £300 /£233/ £494

In the garden:

Found an old paraffin greenhouse heater in the garage. Played with it. Need more paraffin.

Happy 2022!

The Shrink

References:

  1. https://www.ftadviser.com/your-industry/2021/12/15/uk-inflation-hits-highest-level-in-decade-at-5-1/
  2. https://www.forbes.com/uk/advisor/personal-finance/2021/12/15/inflation-rate-update/
  3. https://www.bbc.co.uk/news/business-12196322
  4. https://www.theguardian.com/business/2022/jan/02/what-does-2022-hold-for-the-uk-economy-and-its-households
  5. https://www.investorschronicle.co.uk/news/2022/01/04/a-year-of-falling-inflation/
  6. https://www.ft.com/content/fce4a625-aa74-46fa-9a62-7a0cb72993d6
  7. https://www.in2013dollars.com/uk/inflation/1920
  8. https://www.sciencedirect.com/science/article/pii/S1042443110000429?casa_token=tOEF5yB9oWcAAAAA:ljC2hDbKPqIFpHynk8cOmzfcPgaBO_gER06hI5LJa93VBxCmO5-PS7zDTW9M0RYi3X7INx0
  9. https://www.tandfonline.com/doi/full/10.1080/1350485042000200169?casa_token=fCJsOkOUJbEAAAAA%3A76hVL-P5ZqSKjbTP4HVDFsK16aC8Q1Geyv_69prSYdeNhzpJRqPYi5w4qx0LlRIQVFzJPipNEw
  10. https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceinflationbasketofgoodsandservices
  11. https://www.gov.uk/government/statistics/united-kingdom-food-security-report-2021/united-kingdom-food-security-report-2021-theme-4-food-security-at-household-level
  12. https://www.theguardian.com/business/2022/jan/05/grocery-inflation-adds-15-to-britains-christmas-bills
  13. https://www.theguardian.com/environment/2022/jan/06/farmers-should-stand-their-ground-with-supermarkets-on-fair-prices-minister-says
  14. https://www.theguardian.com/environment/2022/jan/09/farm-subsidy-plan-risks-increasing-the-uks-reliance-on-food-imports