The Full English Accompaniment – Not all advice is good advice

What’s piqued my interest this week?

Unpicking this is a good exercise in publication analysis. A team from the Institute of Nuclear Physics of the Polish Academy of Sciences, Krakow, are the ones making the forecast. Clear valid prior experience. They predict a massive worldwide financial meltdown “such as never before” in the mid-2020s. Helpful. They performed a “multi-fractal” analysis of financial markets, published in the journal Complexity. To be clear, I looked up the journal Complexity (2). Studies are appropriately archived, but the journals impact factor is a measly 1.829, and it’s a pay-to-publish open access format. This publishing model is not well-regarded, but increasingly common and predatory. The author, Prof Stanislaw Drozdz, at least has previous for a number of interesting fractal theory publications. This paper was published in September and can be read here (3).

To summarise very briefly, the team used an analysis to look for multi-fractal formulae across the S&P 500 and NASDAQ stock market indices. Their hypothesis was to prove that investor nervousness, measured by proxy through market volatility, followed fractal patterns. They looked at the Hurst exponent, which has assumed values from 0 to 1 reflecting the degree of susceptibility of a system to a change in trend. The Hurst exponent has continually stabilised after dropping during repeated ‘stock market crashes’ over the past 30 years, each time stabilising at a lower level. The time intervals decreases between falls, and never reaches it’s previous level. The eventual tipping point is somewhere in the mid 2020s (4).

So a functionally derived measure of an assumed value measure predicts terror at an vague point in the future. Interesting reading, but is it going to change my plans? Probably not. But it does prompt the thought experiment (Hi Savings Ninja) ‘what if we had another Great Depression’?

This would harpoon the latest MMM blogpost. In it MMM has many sweeping statements, including:

“If you start with $1.2 million chunk (a 3% withdrawal rate), it is overwhelmingly certain that you’ll have a growing surplus for life.”

“A fixed chunk of money is about as safe a retirement strategy as you’ll ever find.”

“Stock market crashes are never permanent. In the long run, the market always goes up. So all that happens during a crash is that those few shares that you do sell during those brief times when the market is down, will hurt your account balance just a bit more. Within a year or two, the market is back up and your remaining stocks are more valuable than ever. If you want even further reassurance, you could just choose to spend a bit less money during this time.”

Eggs and baskets spring to mind. MMM advocates holding your money in a Vanguard ETF, tax-sheltered via your chosen domiciles methodology. You’re diversified across markets. MMM does qualify his claims:

“Now, these statements do all depend on the continued existence of a productive human race which continues to innovate and trade and not destroy its own productive capacity.”

Which is fair enough, but I seriously disagree with his suggestion to go wholly equities. Diversification out of the market and into other avenues is far safer. MMM goes on to say:

“Heck, even if you are stuck with a $1 million house occupying a huge part of your net worth, you can convert that into livable money: sell the house, put the cash into index funds, and use the resulting cash stream to rent a spiffy but reasonably priced house or apartment in the lovely walkable area of your choice.”

Which to me is nuts. Worst case unimaginable scenario the stock market falls through the floor/ a global hacker collective wipes debt and investment records/ Brexit causes the collapse of British industry and ‘the city’ etc, what happens to you? It’s all gone. We mourned this week the passing of Harry Leslie Smith, one of the last vocal writers who lived through such a time, the Great Depression (6). I recommend reading his experiences. His eldest sister died of Tuberculosis in a workhouse when he was 3 because his family couldn’t afford a doctor. She was buried in an unmarked paupers’ grave because they couldn’t afford a funeral. He worked as a barrowboy from age 7, then delivered coal aged 10 to support his family. He lived in and remembered a world few of us can now imagine experiencing. Here’s his memory of the Christmas of 1930, during the Great Depression (7).

MMM is a fantastic advocate for financial independence, but putting all your financial eggs in one basket is a risk. We can calculate that risk is vanishingly small, but we can’t predict the future. Is Prof Drozdz’s prediction came true, how would you fare?Diversification reduces risk, at the cost of potential returns. Maybe this is a risk you’re willing to take?

Have a great weekend,

The Shrink

Side Orders

Other News

Brexit twists the blade on UK GDP. Helpfully my beautiful part of the UK is least affected (8)
And some ‘experts’ worry a no-deal Brexit will prompt an interest rate rise and housing market crash (9) N.B. I try to read widely for my news, generally the Guardian counterbalanced by the Telegraph with the FT thrown in. I’ve recently gone back to browsing the i and the Independent, but I’m still not entirely convinced of a) editorial quality and b) editorial independence.
However the housing market saw a slight rise in prices (0.3%) last month. Crack out the Moet! (10)
But it doesn’t matter anyway as based upon the Met Office’s latest predictions low lying areas (most cities) will be flooded anyway (11)
So the rest of the UK should follow Scotlands lead on de-carbonisation (12)
And most homeowners want solar panels (13)
Which will be helped by a deal between Tesco and VW to provide free electric charging points (14)
Just a shame that Network Rail continues to fail, and our aging trainstock are falling apart (15)
As ticket prices rise by 3.1% (16)
And in a study not really picked up by UK news outlets, Brexit is pushing more businesses to automate (17)

Opinion/ blogs:

The kitchen garden:

What I’m reading:

Fools and Mortals – Bernard Cornwell

Religio Medici and Urne-Buriall by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor.

Enchiridion by Epictetus – Bedside reading for a bad day

References:

Property Renovation Lessons I

Gather ye round students.

It’s a peculiarly British fascination that we own our homes. Your home is your castle.

The default setting for those with spare-cash in their middle-years appears to be adding to your castle, working up the property ladder or buy-to-let. Yet it’s a route full of pitfalls, and BTL is fast becoming a mug’s game. MrsShrink and I have been fortuitous in turning a £20k deposit in 2014 into a £52k deposit this year (~38% annual return). We did this by buying a fixer-upper and working our socks off in our spare time. MrsShrink comes from a family of serial renovators, and spent some time learning painting and decorating with a professional family member. I come from building trade stock, and have plied the hod and trowel. I know which end to hold a hammer. So here’s the lessons from along the way that we applied to our second house purchase and renovation.

Location Location Location

Buy the worst house on the best street in the best neighbourhood you can afford

Classic Sarah Beeny this one. Waiting for the rough looking house to come up can pay dividends, however there’s plenty of property developers also looking to do this who probably have cash on hand to swoop quickly (1). As an alternative look at what has been on the market a long time, work out why and knock them down for it if it’s overpriced. That unappealing quality avocado bathroom could be £15k off the asking price for a fed-up seller. The primary issue here is that due to Sarah Beeny, DIY SOS, The Renovation Game etc every man and his dog thinks they’re a property developer by ripping out a 30 year old fitted kitchen and banging in a Wickes’ budget MDF job (2). Shame that.

Check the location using Rightmove’s school checker, look for local shops and public services like bus stops, libraries, parks etc (3).

This again is partly straightforward. Even if you don’t have kids being in a good school catchment improves resale, although worth bearing in mind that schools can turn around quickly. Less thought about are bus stops; schoolkids yelling outside your house can pretty quickly turn a night shift worker potty. Likewise parks and outdoor sports areas.

Check the local streets on your councils planning portal and local area development plan

Is your neighbour about to be converted to an HMO? Is that spot of derelict land at the end of the road turning into a block of flats with no parking allocated. This is exactly what is happening a few streets over from us, and the next-door owner is currently selling up as their current uninterrupted view over the city is due to be replaced by six stories of students. Those planning applications may be the prompt for the sale. Also check your councils local area development plan (or equivalent). This may suggest (as for our current location) there are planned infrastructure, zoning or conservation changes which could dramatically impact the appeal of an area.

Check long term floodrisk maps

Published by the government, this shortcuts going through the purchase process only to find on your surveys that your new dream home floods any time we get fair-middling drizzle. For England see here, Wales here, Scotland here (4, 5, 6).

Google Streetview is your friend

Check the roof, neighbours gardens for a sense of upkeep of the local area, evidence of building work and other nearby extensions. Four doors up may have a single storey extension that makes getting your planning permission in five years time that much easier. What’s the rear access like? Does Streetview show the rear lane blocked by idle taxi drivers?

Check the street at rush hour and mid-evening.

This is a bit involved, hell some people buy houses without seeing them! However if you go to a house viewing at 2pm on a Saturday the quiet tree-lined street with great school access may be a different picture to the school-run mummy-chariot car park. Likewise mid-afternoon could get very different to mid-evening if your excellent local gastropub has less than polite clientele.

Kerb appeal

It’s not just about from this (1):

to this:

Though that first impression counts. If the house looks down at the heel then a clean and a coat of paint may do wonders. Here’s a short list of what else to look for:

Doors and windows – wood/ PVC/ aluminium?

Is the wood rotten? Is the PVC discoloured or warped? Is the aluminium corroded? Are the windows double glazed and if so what state are they in? If there is misting inside the windows, like below, it suggests the double glazing has ‘blown’, and is no longer sealed (7). This will still be warmer than single glazing, but lets less light in and obscures your view! Budget at least £500/window for decent replacements (8). Sash windows and wooden casements will cost more, but sash are more desirable and wood will last a lot longer if maintained. On older properties original sash windows can be retrofitted with double-glazing by specialist companies, and this can work out cheaper than having new units made (9). Finally, check the state of the external locks, as many insurance companies will give you better rates for a BS-standard 5 lever deadlock.

External walls – clad/ brickwork/ render/ pebble-dash/ stone/ other?

We’ll start with brickwork as in many ways it’s simplest, and most of it also applies to stone. Older and underburnt bricks can suffer from years of frost damage and degrade, a process called spalling, so check for evidence of failure like below (10). Stone will also erode over time (particularly limestone in acid rain, and sandstone mislaid with a vertical grain) (11)

Check for evidence of degradation of the mortar in joints which will require re-pointing (12).

Look for external cracking. In previous centuries lime mortar was used which allowed a degree of flex in the joints due to it’s softness, but as building has moved to stronger and easier concrete/ cement the joints have become inflexible and unyielding. Cracking can have multiple causes but it usually down to building settlement. A degree of settlement is normal over the course of a properties lifetime, and particularly after periods of heavy rain or prolonged drought when the soil underlying the foundations moves. Small cracks are nothing to worry about, but bigger ones may suggest faults with the foundations which can require costly underpinning work. When next to gable walls it may suggest the wall is pulling away from the rest of the house, requiring insertion of wall ties and structural work. If around windows/doors then it may suggest rotting, movement or inadequacy of the sill. If in doubt get a professional survey.

(13) (14)

Render can have similar issues with cracking as above, but is utilised to offer a layer of protection to the underlying stonework. This was traditionally used where unfinished structural stonework was rougher/ cosmetically poor, or in exposed areas – coastal etc. Breathable lime-based renders were used on older buildings, and replacement with concrete can cause damp issues. Newer buildings have concrete render, which will usually last about 20 years. Certain areas of the country (in my experience Cornwall particularly) have issues with render staining which requires cleaning (15). Budget a couple of thousand pounds, plus VAT and scaffolding costs for a re-render (16, 17).

Pebbledash and roughcast are essentially a different form of render where pebbles are sprayed on or added into the render. It came to be used during the Arts and Crafts Movement, but is often associated with ’20s and ’30s housing where it was used to cover cheap and quick brickwork (structurally sound but not aesthetically pleasing) (18). It offers a greater degree of weather protection than standard render. Don’t write off a pebbledash home. Removal is time-consuming (read expensive), but painting can make a huge difference (16)

Cladding is it’s whole other separate post. Replacing cladding is a good way to bring an out-of-fashion exterior bang up to date. Cladding may require planning permission under permitted development rules, or further consideration in conservation or national park areas (19).

Check for cavity wall injection points

Cavity walls, where there is an air gap between the inner and outer skins of the wall, became mainstream in the 1920s (20). The two skins are tied together either with bricks placed perpendicular across them, stones, or now with metal ties. The original usage was to prevent the passage of moisture into the building from outside. Insulation in the cavity became compulsory in the 1990s. In older houses is became common to use an injection method to insert insulation into the pre-existing cavity, leaving behind tell-tale holes where drilled (21). Cavity wall insulation divides opinion. The added insulation can in principal save a fair amount on heating. I dislike retro-fitted cavity wall insulation due to the potential for air and moisture-bridging, especially across damp courses lower down in the wall. This allows moisture to track across where there was previously an air gap, or through osmosis past the damp proof course. In modern houses the damp proof course sits below the insulation as it is inserted during construction, and with the use of modern backed insulation boarding it is less of an issue. Do your own research.

What lies above?

Check the roof

I won’t go into different roof materials, again it would be a whole other post. Stand on the other side of the street and look at as many elevations as you can see. Are there any slipped slates/ tiles? Any missing ridge tiles? These can all be sources of leaks if the roof lacks underlay (22). Most tile roofs can last 50 years if maintained, while slates can last a hundred (23). Budget £5000+ for new roof. This could escalate if the underlying joists and rafters are warped, damaged or rotten, indicated by a sagging area of roof. If the whole roof appears bowed under weight then it may be less of a worry; this is usually the result of replacement tiles being heavier than the originals, gradual settlement over time, or the effect of weight following a period of heavy snow (24).

Damaged or degraded flashing is a common cause of a leaky roof. I would bring binoculars to look at the roof when I was viewing a house. Lead is generally used and is very durable, but can fatigue or come loose. More rarely zinc, copper, aluminium or galvanised steel has been used. Budget £1000-1500 as a minimum for remedial work including labour, materials and scaffold (25, 26).

Chimneys… where to even start? Apply all of the brickwork damage section here, particularly spalling. The heat expansion and freeze/thaw effects combine to result in rapid degradation. Check for mortar breakdown around flashing at the base, a common source of ‘falling damp’ which is water leaking down the chimney breast. Check for vertical cracks in the chimney, vegetation, nesting animals, degraded cement caps and loose chimney pots or cowls. All can cause problems (27, 28). We’re currently trying to have our chimney repaired as preventative maintenance, with quotes between £1500-2500. Getting the agreement of our neighbour as it is a party wall has proved troublesome (rented property). We can’t go ahead until we have their agreement, but hopefully they’ll go half.

Check the gutters, soffits and fascias

Again a multitude of materials and a cause for ‘falling damp’. Traditionally gutters were cast iron and painted. These with maintenance can last many, many years. For a short period there were asbestos and fibre gutters, before moving over to PVC or plastic forms. These don’t last as long but don’t need the maintenance (and are cheaper).

Firstly, check for vegetation or any signs of blockages in the gutters themselves. This causes rainwater to overflow (a cause of damp), but is easily remedied with a ladder (or if you really fancy get a bloke with a pressure washer). Then check downpipes and ground-level drains (gullys). Are they securely attached and are they all connected. Again a common cause of internal damp is a leaking external downpipe (29). I hired an aluminium scaffold tower for a week for £120 this summer and had a great old time digging years of rotting vegetation and a few carcasses out of our blocked gutters, before rodding out the downpipe and running new ground-level pipes. I also took the opportunity to repaint our soffits and fascias. Cheap fixes and maintenance preventing future problems.

Your guttering will be attached to the fascia, with the soffit covering the underhang (30). These used to be made of wood, which would need to be periodically painted. In more recent years they’ve been replaced with PVC. Sometimes this covers and is fixed to a wood board, or is fixed to the older fascia or soffit. Watch out for where people have covered a rotting old fascia with PVC to hide it, as it will continue to rot and the guttering will fall out.

The hidden costs

Check utilities services

What do I mean by this? Check where the stopcock and meter are externally if it’s obvious. Check where phonelines enter the building. Both can be a pain to track down. More importantly – check the drains! Where does the external surface water drain to? Are there obvious access hatches to inspection chambers? Learn from my error, when I spent a wintry December week breaking up our concrete yard and digging down two feet to expose a broken salt-glaze pipe containing 12 foot of backed-up liquid faeces. If you’re planning to rework a property then knowing where the utilities is essential for plumbing planning.

Check the garden for Japanese Knotweed & other pests.

Look for the plant below, Japanese Knotweed. The effect on the value of the property is massive. It’s an invasive non-native species which is classed as hazardous waste, and any land containing it is counted as contaminated. It’s difficult to get rid of, spreads like wildfire and grows up to 10cm a day (28). A survey by YouGov and Environet UK estimates that 5% of UK homes have Japanese Knotweed (31). Finding Japanese Knotweed will knock 10% off that value of the property (31, 32, 33). Also take the opportunity to spot for evidence of wasps nests, bats, rats or mice.

Finalement

So that’s outdoors briefly covered. In part two I’ll cover indoors, reflecting on what to look for in your first and second viewings when considering a house, and the mistakes we did and didn’t make.

The Shrink

References:

The Full English Accompaniment – A pile of post(s)

What’s piqued my interest this ~~week~~ month?

I’m back. I’ve tried to keep abreast of most blogs, but there’s been so many over the last month I’m sure I’ve missed plenty. Maybe I’ve picked up something you haven’t.

One of the things that happened while I was away was a letter dropped through my door to tell me that from next year, the Welsh Government will begin to have a devolved say on where income tax goes (1). They’ll do this through also setting a proportion of the income tax rate. Practically this will be by cutting 10p across all rates, and then allowing the devolved Welsh parliament to decide their own rate, much like the Scots (2). Aside from providing me with an interesting talking point compared to my saesneg counterparts, this could form the basis for some interesting economic differences.

The current Welsh Gov has promised to “fight austerity” (3). Elections in Wales are consistently won by Labour (surprise, surprise) (4). It wouldn’t surprise me if the devolved government put up local taxes relative to England to fund the local NHS, social, public and teaching services (which is what the identified taxes are supposedly for). As an NHS worker who’s worked in both the England and Wales, I would argue that the Welsh NHS system, never the victim of attempts to privatise or introduce market systems, works better. Years of underfunding means it doesn’t meet targets just like the English NHS. The subtle differences aren’t in the figures. Cleaners, porters and other allied healthcare professionals remain in house rather than subcontracted. There remains a pride held by staff who have often worked in their secure jobs for years. With additional funding it could quickly rise above it’s English counterpart. This would cause disparity in those public services between the regions. I assume in the long run the Gov will be keen to avoid this, to avoid service tourism or bolt-holes. It’s not so great for those of us hoping for a top-rate tax salary somewhere down the line, but worth considering for those looking at early retirement and a change of scenery.

The other interesting element comes in Welsh Gov’s pretty progressive tax ideas (5). It looks likely a vacant land tax will be a priority in the short term. Welsh politicians, away from the decorum and roar of the Houses of Parliament, are pretty in touch with their grass-roots. There’s more of a focus on local development issues, and manufacturing and industry are prioritised, particularly green and tech sectors. See the targeted investments in the North Wales Growth Deal and specific industrial sectors (6, 7, 8). In general I’m a fan of more local taxation controls so I look forward to seeing how this will pan out with more cash in hand.

Have a great weekend, and I’ll leave you with this on Brexit,

The Shrink

Side Orders

Other News

Opinion/ blogs:

The kitchen garden:

I’m off for a lie-down

What I’m reading:

La Belle Sauvage: The Book of Dust Volume One – Philip Pullman – finished, pretty good but not His Dark Materials. Great characters as always. Now onto…

Fools and Mortals – Bernard Cornwell

Religio Medici and Urne-Buriall by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor.

Enchiridion by Epictetus – Bedside reading for a bad day

References:

Frugal Motoring – Should I buy a Petrol?

In Frugal Motoring I discuss how to cheaply purchase cars, the pros and cons for various purchasing methods (straight up cash, loan, PCP, lease), diesel vs petrol vs hybrid vs electric, ongoing political/ government motoring related machinations and how to keep your car running. Here we’ll look at the pros and cons of Petrol cars.

The efficiency question

Up until Diesel-gate and the associated NOx emissions concerns, diesels were considered the environmentally-friendly option, the motoring posterboy for efficiency. As I’ve previously discussed, this was highly politically motivated. In artificial testing conditions used for published measurements diesel engines get better MPG, but petrols were never that far behind, and they’ve closed the gap. The ’91 Honda Civic VTEC-E would see 59mpg (1). The lean-burn 4A/7A-FE 1.8 petrol engines in turn of the century Toyota’s, favorite of mini-cabbers, would realistically see 45mpg in daily use, and up to 60 on a run (2). And then turbos became a thing. Mmmm… boost.

Turbos not only increase power, but increase efficiency by increasing the stoichiometric ratio (the ratio of fuel/ air) so there is more oxygen available for complete combustion. Manufacturers moved away from 2+ litre engines, towards 1-1.8 litre forced induction (turbo-d and supercharged) engines in larger cars, and even dinkier 0.5-1.5 litre engines in small cars. With improved engine design and compound induction systems these engines produced the same power (bhp) as the older, bigger, dirtier engines (though commonly less torque). Manufacturers have also lopped off chambers and used harmonic balancers to return to the heady thrills of the 3-cylinder thrum. Fiat have even gone back to a 2-cylinder screamer (3). Marvellous. The most efficient petrol cars at the moment are 1l superminis, offering up to 80mpg (4).

There have been issues with this progression. As mentioned these small petrols lack torque, and as such probably aren’t as fuel efficient in the real-world as on a bench test. Revving required for that 1.2 engine to lug your six-up Peugeot 3008 soft-roader off to Asda for the weekly shop (5). These engines are more complex, lighter weight and with tighter tolerances. To keep the engine in the peak powerband manufacturers are using six, seven or eight-ratio semi-automatic gearboxes. These are necessarily more complex. There are concerns about durability of both engines and gearboxes (6).

A couple of conservative manufacturers (Mazda, Toyota) haven’t taken the turbo route. The lean-burn concept, where over-stoichiometric fuel/air ratios are used to ensure maximum combustion, has continued to be developed. Mazda (in the SkyActiv-G) pushing compression ratios up into the diesel cycle range to produce highly efficient engines (7). NOx is also kept to a minimum due to lower combustion temperatures (they say).

Ultimately, diesels remain more efficient than petrols. Diesel is about 15% more energy dense by volume than petrol, and can be up to 40% more efficient in application (8). Using a worked example; a Ford Focus the 1.5TDCi runs 74.3mpg, whilst the 1.0 petrol will see 60.1mpg (9). At current average fuel prices of 128.9p for petrol and 137.1p for diesel over an average 10,000 miles a diesel driver would spend £838.86/year on fuel (10). The petrol driver will spend £975.03. As always, do your own sums.

Headline figures

We’ve seen that you’ll save money filling up, but what about purchase cost, tax and servicing. Diesel cars are generally more expensive new than their petrol counterpart. The worked example table below taken from a Which? article demonstrates the maths (11):

Petrol

You’re paying more up front, and in some cases that front-loaded cost is not recouped over a five-year period. This is less of an issue for the frugal folks buying a car and running it for 20 years, or avoiding PCP, sticking to a bangernomics budget. Some of your initial outlay is also recouped at sale. Residuals for diesels have historically been higher, usually at least £500-£2500 more depending on the age of the vehicle (9, 12). This, in my opinion, is due to the increased fuel economy (offering a greater % saving at lower price points) and a perception of greater reliability (earned through very good historic reliability in the old direct injection, non common rail lumps). Modern common rail diesels fitted with dual-mass flywheels (DMFs), EGR valves and all manner of other devices may continue with the former, but will struggle with the latter. Watch out for rattly DMFs and leaky injectors. I wanted but didn’t buy a diesel version of my last car because it was £3000 for the diesel, and £2000 for the petrol. Once you get into super-bangernomics <£500 territory I would argue you will struggle to find a diesel that isn’t on it’s last legs.

Tax changes

One of the reasons I believe residuals are going to equalise is incoming tax changes. As of April 2018 new tax changes came into effect, complication the law, and penalising diesel ownership. The full implications of these tax changes are detailed elsewhere, but essentially VED (car tax) continues to be calculated based on g/CO2/km, however the cost has gone up for each class, and by more for diesels (13, 14). The tax changes also cut the tax break on hybrids. Much was made of what is essentially a tax on diesels being successful. The end result is fewer people are buying diesels, and more are opting for small petrol cars (15, 16, 17). Despite new car sales falling, registrations of new petrol cars is increasing. Petrols are more attractive at the moment.

Diesel cars continued to anchor the sector's performance, with year-on-year demand down by more than a fifth

The bell tolls

They’re all getting banned anyway (18).

Current targets are for no new diesel or petrol car sales by 2040. MPs are pushing for it to be 2032. You can bet the classic car community will push for there still to be a place on the UK’s roads for fuel-burners, but I’m sure the UK Gov will find a way to tax the daylights out of it and make it a pursuit for the wealthy.

TL:DR

The petrol cars available today are a far cry from 10 years ago. Tax-changes and engine developments have made them as attractive a financial proposition as diesels. Efficiency will depend on your type of driving; if you’re a red-light racer or a relaxed pootler; if you do more stop-start town driving (where little petrols come into their own) or long runs (better for bigger sloggers).

Broadly, petrols are better for:

smaller lighter cars
shorter journeys
stop-start city traffic
anyone doing <10,000 miles/year

As usual do your own sums, but in the wait for cheap electric cars a petrol is worth considering.

References:

Investment Strategy Statement – Part 2 – Goals

When I first started writing this blog I set out a very brief goal:

Financial independence for myself and MrsFireShrink.

But beyond that, the aim is to save a sufficient amount to create a self-sustaining portfolio. The dream goal being to create a portfolio sufficient to support my family in the future and continue to grow (1).

Which is all a bit wishy-washy. Over the course of the year I’ve realised that I need to firm up my yearly goals, and also articulate more clearly my long term dream. This was put into sharp focus by a few recent blog posts, including indeedably’s goals, strategy and tactics (2). Elsewhere in life I’m fairly SMART in my goals, with monthly and yearly targets.

“Sound tactics bring victory” – Shaxx

So here’s the current goals list with ~~steps already taken~~ and timescale for target/ dream (a-la indeedably) (3). (Last updated Jan 2020).

~~Complete medical degree.~~ ~~Achieve Royal College Membership.~~ Become a consultant (2028).
~~Find a girl.~~ ~~Get married.~~ Have kids (2028). Have good kids.
~~Publish a paper (2018). Get a fellowship (2019). Get another fellowship (2019).~~ Get a Phd. Get a lectureship. Make Prof.
~~Get a job.~~ ~~Get a job I enjoy.~~ Get a job which doesn’t feel like work (2020). Be in a position to retire in 15 years (2033).
~~Have an emergency fund of three months income (2019).~~ Save £1000/month (2020). Have a net worth of £100k.
~~Own a home.~~ Have £100k in equity (2023). Own our dream home in 10 years (2028). Own a self-sustaining estate.
~~Learn to drive.~~ ~~Own a car.~~ ~~Own a six-cylinder car.~~ Own an eight-cylinder car (2028).
~~Race in a motorsport.~~ Win a race (no timescale).
~~Start a martial art.~~ ~~Start ~~grad~~eing.~~ Get to sho dan (no timescale).
Learn to ride a motor bike.
Learn to fly a plane.
~~Do 50 press-ups.~~ Do a pull-up (again) (~~2019~~ 2020). Get back to 16 stone (~~2019~~ 2020). Do a hand-stand press-up (again). Do a ring muscle-up.
Re-learn languages I once knew. Become fluent in one of them. Learn a fourth language (no timescale).

The numbers

Most of the maths in this section is rough and dirty. I’m not going to make complex predictions or models. Life itself is too unpredictable (even if the money isn’t), and some recent health concerns have demonstrated the fallacy of trying to predict the future. I’ll review my household expenses more formally in a couple of years, and may come back and model timescales then.

Be in a position to retire in 15 years (2033).

A review of the 10 months I’ve tracked so far shows my personal yearly expenditure (minus credit card payments and one-offs for this year) to be around £10k. To this I’ll add £2.5k to cover lifestyle inflation. Our joint account also goes through around £10k a year in running costs for the house, groceries, energy etc. I conservatively therefore need around £22.5k a year to maintain our current lifestyle if I didn’t work. This fits nicely with what the fun Standard Life calculator reckons for our current lifestyle (~£23,000) (4).

Plugging that into a simple interest calculator suggests I need to have around £650,000 saved to be able to withdraw £22,752/year at a reasonable 3.5% interest rate with no erosion of capital. This presumes the savings will be tax-sheltered. This seems pretty unachievable from a standing start, but I love a moonshot (5). I’ve selected 3.5% as a conservative blend of cash interest rates (currently 1.5%) and the average annual return of the FTSE All-Share over the last 100 years (+7.0%) (6). It’s also conveniently the mythical Perpetual Withdrawal Rate (7, 8).

You say: “Why are you not interested in drawdown? You’d get to retirement a lot quicker.”

This seems to be a fundamental schism in the investing/ FI community. I think it’s highly personal, and relates among other things to your optimism for your life expectancy, number of dependents and general approach to lifestyle. The figure above would replace my current salary (9). I have a pipe dream goal relating to my families history and future inheritance, and therefore I’ve no interest in drawdown.

Have an emergency fund of three months income (2019). Save £1000/month (2020). Have a net worth of £100k.

These are all stepping stones on the route to the previous bullet point. Plugging that £650,000 into Money Advice Service’s savings calculator suggests I need to be saving £2300/month at 6% interest to achieve retirement by 2033 (10, 11). Yikes. 110% of my current take home. Thankfully my income should ramp up in the next few years, and while I’m quite a way from £2300/month now, it’s probable that I will reach that in the next 10 years. Just in time to miss my target.

Have £100k in equity (2023). Own our dream home in 10 years (2028). Own a self-sustaining estate.

Currently our dream homes cost around £500k. Difficult to say what that will be in 10 years time. Historically the yearly trend has been c2.9% (12). More recently it’s closer to 2%, comparable to the OECD 2.0% long-range inflation forecasts (13, 14). Inflating the £500k at 2% brings us to £610k in 2028. Our feet are on the ladder, which mean we also benefit from that inflation to an extent.

We envisage another move in 5 years time, and I’m not averse to value-adding property renovation. I’m therefore aiming for some stepping stones to a solid deposit for the move to a dream home in 10 years.

Summary:

Have an emergency fund of three months income (2019)
Save £1000/month (2020)
Be worth £100k (2022)
Have £100k in equity (2023)
Be in a position to retire in 15 years (2033)

In the next post I’ll cover my asset allocation.

Take care,

The Shrink

References: