Quarterly Returns – Q4 and 2019 in 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.

Year two of tracking down, time for another review. After the tumult of 2018, 2019 has been a year of consolidation. There were no house moves, no big projects or events, and only one foreign holiday. It’s been a year focusing on finances and career, steadying and preparing for some big bills and life changes in 2020. But how did I get on for my 2019 goals?

Q4 Returns:

Net Worth

  • Cash Savings Accounts £7,600 (+3,200)
  • Investments £2,990 (+£1,440)
  • Property £40,500 (+£6,100)
  • Cars £2500 (£0)

My net worth now sits at £~49,700, a significant increase of £20k over the course of the year. I set a goal as part of my yearly targets to save 25% of my income in 2019. I narrowly missed out when you look at raw saved cash and investments, saving only 23.53% (15.59% pre-pension).

Yearly Targets:

Goal 1: Build an emergency fund

My first 2019 goal was to build an emergency fund, as per the r/UKpersonalfinance flow chart (1). My goal emergency fund is three months total household expenses (£6k) in my name, plus a further three months (£6k) held jointly.

I now currently hold £6,700 in my name, and £1,800 held jointly. I reached the £6k figure as I’d hoped, but I’m not going to rest on my laurels. I currently hold over half of my emergency fund in high interest current accounts, and I’ve found it irritating to meet the requirements of my FlexDirect account (certain amount of transactions, certain amount in/out). The FlexDirect bonus rate is up fairly soon, and most of the high interest current accounts have dried up with rates falling back to those matching regular savings accounts (2, 3). When the interest period is up I’ll move it over to somewhere like Marcus. I also have £1.5k in my Starling account. Some of that is saved for a new car rather than a simple emergency fund, and in anticipation of that expense I’m going to be paying into my 3% Monmouthshire Regular Saver for the next ten months. Our joint account also pays into a regular saver, and I need to have a think about how I’m going to increase our joint emergency fund alongside paying for some property renovation work in the next few months. This will therefore remain a goal for 2020.

Goal 2: Pay off short-term debts

Debt

This was achieved in Q3, but I may yet make a dip into short-term borrowing to buy a replacement car or to pay for building costs. Some of you may be screeching ‘lifestyle inflation’, and I take the criticism. My reasoning is this: as described in the Bangernomics 2019 post, my current car is due some a serious amount of repair work and pro-active maintenance. This will cost more than it is worth. Rather than spending this money for no gain, the temptation is to trade in for the next cheap and cheerful daily. I am as yet undecided, and while I am deciding I accrue further savings to purchase outright. As for the property matter, we have renovated six of the eight rooms in our house. One of the final two needs some structural work, and is generally vile. The work is going to cost maximum £8-10k. With that done we will have a finished home in a sought-after area, which will be readily marketable if we ever had to sell quickly. Getting the work done ASAP will give us a generally nicer life, and increase our liquidity. We’ll use a combination of savings, 0% interest credit cards and possibly borrow again from family. Not ideal, but it fits our joint choices.

Goal 3: Save 25% of my earnings

Savings Rate

I calculate my savings rate using this formula:

Savings rate as % = ((Income – spend) + Cash savings + Investments + Pension contributions) / (Income + Pension contributions)

So I sort of missed this goal. Remember how I said my raw saved cash and investments, for 2019 was only 23.53% (15.59% pre-pension). It’s always bugged me that my savings rate doesn’t include my mortgage payments. The increase in equity from the principle payment is a form of savings, right? So I changed my formula…

Savings rate as % = ((Income – spend) + Cash savings + Investments + Pension contributions + (half of principle mortgage payment)) / (Income + Pension contributions)

This makes more sense to me, as it means my savings rate comes closer to my absolute increase in net worth. Based on those numbers, my average savings rate for 2019 was 29.61%. My net worth saw a tasty 69% increase over the year, helped in part by increased equity as our property value went up. With this new formula, and a plan for incremental improvements, I aim to save 30% of my income in 2020.

Goal 4: Live more sustainably

Way back in January I took the WWF Carbon Footprint calculator, and we had a whopping 169% of our target footprint. At the end of the year, the calculator estimates we’re now down to 108% of the UK Average.

Carbon Footprint

Percentages

The main improvement has been from reducing my travel footprint through fewer flights. Our diet is more healthy, more local and seasonal. We lose points for the new furniture we’ve bought, our meat consumption (I have many thoughts challenging this, but for another time), and my work car commute. I refuse to damage my cavity walls with insulation. I think the loose top line goal has helped with all the simple changes we can make, so now it’s time to look in a little more in depth way. First, I want to know how much I’m saving by growing my own. Second, I want to look at changes I can make to reduce my carbon footprint.

Goal 5: Commence investing

As a yearly goal, this is a win. I’ve gone from nought to £2,990 in investment accounts and seen a healthy return on my invested capital. I’m aware this is pretty small potatoes for most FIRE bloggers, but this is not a pension or a SIPP. The NHS pension provides me with (theoretically) something better (supposedly) than either. This is me breaking the psychological initiation barrier on a good old ISA. The next step will be to reduce cognitive drag, and automate.

Diversification

My investments remain solely in Crowdfunding and my Vanguard ISA. I have a small amount in my FreeTrade account, mainly there to be available for the free share offer. If you want a free share for joining FreeTrade, drop me an email.

Global

In the passive core of my investments, I paid irregular sums into my existing holdings (Developed World ex-UK and FTSE Global All Cap). Automating my investments should regulate the amounts, and following my incremental plan, I’m going to increase the amount I try to put in every month by £50. Looking at the graphs would suggest I’m US-heavy, as the market would expect. This visual representation bothers me, because although it’s true of my ‘portfolio’, it’s not true of my net worth. The vast majority of my that is in the UK housing market. I find myself talking across purposes, with goals and targets that differ depending on whether I’m talking about the ‘portfolio’ or total net worth. This is something I’ll be looking at in 2020, as I try to build my investments to diversify away from UK savings and property equity.

All this talk leaves me with the following 2020 Goals:

  • Goal 1: Build an emergency fund
  • Goal 2: Save 30% of my income
  • Goal 3: Calculate savings made by growing my own food
  • Goal 4: Make changes to reduce carbon footprint
  • Goal 5: Automate investments and savings

Good luck to everyone with their own 2020 targets,

The Shrink

References:

  1. https://www.reddit.com/r/UKPersonalFinance/
  2. https://www.bankaccountsavings.co.uk/calculator
  3. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
  4. https://footprint.wwf.org.uk/#/

The Financial Dashboard – November 2019

The goals for November were:

  • Exercise at least 4x a week
  • Automate investments
  • Repair pushbike
  • Look at new emergency fund accounts

Checking the assets and liabilities:

November AssetsNovember Liabilities

These are taken, as always, from my Beast Budget spreadsheet. This month my net worth grew by 3.46%, as my good run came to an end. My savings rate was also a paltry 21.86%, dragging my yearly average down to 23.64%. My payroll is still incorrect, so I’m paying PAYE tax, pension and student loan contributions incorrectly. Despite hounding the payroll departments they continue to get it wrong every month. We also bought some furniture for the house which dragged the savings down.

Goals:

Goal achieved: Exercise at least 4x a week

I actually managed this, surprisingly myself. Self-motivation must be improving; like a muscle the more you exercise it the stronger it gets. I’ve yet to decide if paying for the extra local gym is worth the added cost for the convenience, but it has meant I can squeeze in early morning workouts with ease. Need to focus on diet now to achieve some of my goals.

Goal achieved: Automate investments

Going back to the investing basics, I decided I needed to make my investments automatic and also use the paying myself first approach (1. 2, 3). As such I’ve set up a standing order to my regular investment platform, and another to my new emergency fund account. These will go out on the day I get paid, and I can use the spare cash for discretionary spending.

Goal achieved(ish): Repair pushbike

Took it to the local charity workshop for a quote, likely to be £150+, may get it fixed, may buy a crappy skip bike to replace it. Most importantly it’s no longer sat in my garage.

Goal achieved: Look at new emergency fund accounts

After a few months of poor cash savings, I decided to set up a new emergency fund account. I had been using a savings pot as an emergency fund in the Starling bank account I use for my day to day spending. This returns 0.5% and is generally a bit naff. I also found myself dipping into it for discretionary spending. I have a high interest current account with a further £2.5k sitting returning 5%, but I find moving money every month to satisfy the requirements of the account a bit of a faff. Therefore the new plan was to set up another regular saver. The local Monmouthshire Building Society offers a 3% regular saver, so I popped down to the local store to set one up. This was like stepping back in time thirty years, and I take some re-assurance from their old-fashioned safety procedures. This is how my income savings structure now looks:

Savings breakdown.JPG

Budgets

  • Groceries – Budget £200, spent £157.76, last month £176.39 – We ate out more and spent less thanks to weekly meal planning
  • Entertainment – Budget £100, spent £119, last month £101
  • Transport – Budget £460, spent £394.05, last month £301.82 – Daily car passed it’s MOT with only minor work. Not bad for an old snotter.
  • Holiday – £150, spent £0, last month £336.40
  • Personal – £100/ £102.90/ £46.56 – Black Friday wardrobe updates
  • Loans/ Credit – £0/ £0/ £140
  • Misc – £50/ £100/ £215.15 – Christmas gifts now!
  • Fees – £70 /£135.40/ £177.91

In the garden:

Everything quiet now apart from some overwintering veg settled in the ground

Goals for next month:

  • Continue to exercise 4x a week
  • Keep a record of all dietary intake (what gets measured gets managed)
  • Sell 5 items (need to get back on my de-clutter)
  • Save 30% of my salary

Happy December everyone,

The Shrink

References:

  1. https://monevator.com/the-investing-basics/
  2. https://monevator.com/no-time-to-invest/
  3. https://www.investopedia.com/terms/p/payyourselffirst.asp

Q3 2019 – Exposing myself

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.

I apologies for the title of this post. I am, at best, an overgrown manchild.

Q3 Returns:

Q3 Net Worth

  • Cash Savings Accounts £4200 (+£1000)
  • Investments £1550 (+£675)
  • Property £34,450 (+£1150)
  • Cars £2500 (-£500)

My net worth now sits at £40,350, an increase of £4.8k over the past three months, which is a pretty damn stonking (I’ll come onto this a bit more in Goal 3). This makes my rolling twelve month increase £18,000. Remaining strong. I’ve written down the worth of one of my cars for depreciation.
Yearly Targets:

Goal 1: Build an emergency fund

My first 2019 goal was to build an emergency fund, as per the r/UKpersonalfinance flow chart (1). My goal emergency fund is three months total household expenses (£6k) in my name, plus a further three months (£6k) held jointly. I now currently hold £3100 in my name, and £900 held jointly. I need to double down on this over the next few months to try and achieve the £6k figure by the end of the year.

Goal 2: Pay off short-term debts

Short Term Debt Q3

This goal has been achieved. Done. Sorted. I dip into my credit card now only for purchases where I want the security of the Consumer Credit Act 1974. Moving on…

Goal 3: Save 25% of my earnings

Savings Rate Q3

I calculate my savings rate using this formula:

Savings rate as % = ((Income – spend) + Cash savings + Investments + Pension contributions) / (Income + Pension contributions)

Having paid off all my unsecured debt, I’ve been able to channel money into savings a bit better. My current mean savings rate for 2019 is 21.48%, still short of my goal but closing in.

The interesting aside here is my three month net worth gain does not marry up with my savings rate. Gaining £4.8k would suggest a £1.6k/month increase, and at a 35% savings rate (average over the last three months), I’d have to be earning £4.6k take home! I am not earning £4.6k take home. I am not earning £4.6k gross. Try half that.

So where’s it coming from? My investments have (aside from new holdings) mainly tread water, and the local house prices are holding firm. As ever I think this is a demonstration of how you can get numbers to show you anything you want. Here, the rise is due to my decreased student loan, increased property equity and increased joint holdings. It’s all noise.

Goal 4: Live more sustainably

Our drive to weekly healthy dinners has meant less packaging and more local or home grown food. We’ve also been enjoying the harvest glut, which means less imported food. An area to focus on next quarter.

Goal 5: Commence investing

I’ve been better at investing this quarter, but still not at the automated stage yet. Some subconscious barrier is preventing me, by telling myself that I need to hold it out for other positions not on my ISA platform. For the next three months I intend to invest in an automatic way each month into one of my current holdings. Because it’s now not just one.

Q3 Types

In the past three months I did the bad thing, first by opening a couple of CrowdCube investments. I put a small amount of money into the second of the two Freetrade raises, having missed out on the first round due to the CrowdCube glitch. I like what Freetrade are doing, I think they have a good model which has worked previously overseas (RobinHood in the US for example), and I don’t think they’re particularly overvalued (2). I have gone into the psychology of crowdfunding platforms, but suffice to say I don’t think FreeTrade were there to exploit the psychological ploys. It’s also a company I would, and will, use.

If you’re interested in trying Freetrade and want a free share to boot, drop me an email.

The other crowdfunding investment I made was in a small mining company called Cornish Lithium ltd (3). They were exploiting the psychological ploys, and this investment was pure, emotional, domestic-market-biased speculation. Laugh if you choose, it was the cost of a fancy dinner out and it’s sitting as a leaden, illiquid lump in my active satellite picks. I’m hoping it was a better bet than Sirius Minerals (or Wolf for that matter) are turning out to be (I hold neither).

Global Exposure.JPG

In the passive core of my investments, I opened an investment in Vanguards FTSE Global All Cap Index Fund (4). This supplements my current Developed World ex-UK holding, adding some emerging markets exposure and small cap. Is it worth bothering with? The Accumulator over at Monevator reflected last week on the 10 year returns across the market, and the little difference emerging market holdings have made (5). I was also torn between this and the Vanguard FTSE All-World UCITS ETF (6). Ultimately I decided to be a purist for the passive global argument; the All Cap is slightly cheaper (OCF 0.24% vs 0.25% for VWRL), and the concept is to capture the whole of the market. The All Cap Index Fund does just that, whereas the All-World lacks the small cap. The small cap gains probably won’t beat the dividend gains available through VWRL, making this a principled rather than pragmatic choice, but we’ll have to let history decide.

Until next time,

The Shrink

  1. https://www.reddit.com/r/UKPersonalFinance/
  2. https://www.crowdcube.com/companies/freetrade
  3. https://www.crowdcube.com/companies/cornish-lithium-ltd
  4. https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-accumulation-shares
  5. https://monevator.com/10-year-retrospective-what-a-decade-of-returns-tells-us-about-passive-investing/
  6. https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing/overview

The Full English Accompaniment – Cognitive biases in crowdfunding

Continuing my current theme looking at crowdfunding, and in advance of some behavioural finance pieces I’m putting together, this week I’m pointing out some of the ways crowdfunding websites use cognitive biases to convince you to invest. For examples, I’ve pulled two pitches from Seedrs and CrowdCube which were at the top of their lists (1, 2).

Seedrs

Crowdcube

Crowdcube rewards

In my opinion, some of the main cognitive methods that these sites use are:

  • Bandwagon effect/ Confirmation bias
  • Overconfidence effect
  • Illusion of scarcity
  • Denomination/ reciprocity effects/ present bias

Bandwagon effect/ Confirmation bias

Confirmation bias is the internal yes-man, that disregards data that contradicts your opinion and suggests that ambiguous information supports your opinion (3). Your search for, remember and interpret information subconsciously to prove you are right. The bandwagon effect refers to the tendency of people to follow others, regardless of whether it’s a good idea (4, 5). It stretches into and is allied with groupthink and herd behaviour. It’s common in politics and consumer economics, and was also seen in the Dotcom bubble. Here confirmation bias and the bandwagon effect work in tandem, people will invest along with others thinking that it is evidence that they are making the right choice.

Crowdcube Bandwagon

Seedrs Confirmation

In the two examples chosen, you can see (circled in orange) that the number of investors and their commitment to a theoretical goal valuation are given pride of place in the ‘pitch’. Both websites aim to convince you that it’s a good idea, as many others are doing the same. Others must have done the research (social loafing), and they’ve committed (sunk cost fallacy), so you should too.

Overconfidence effect

Tied into confirmation bias, the overconfidence effect is the subjective belief that a persons ability is greater than the objective results would suggest (6). This should be well known to anyone who has read Smarter Investing etc, and is the basis of the active investment mindset. It’s also the whole basis of the Crowdfunding system, offering a variety of ‘pitches’ which you then evaluate, thinking ‘I have the edge others do not’. It’s worth noting in this that. Adding to this, optimism bias makes you think you are less likely to have a negative outcome (like a company failing) than others.

To help you on your way in your overconfident selection, the websites use the framing effect (7). Information is presented in a positive manner. These are, after all, advertising pitches. Every page will play-up it’s ongoing good points. Causes of concern are never mentioned (except perhaps in the discussion section). To look at the company financials often requires an investment or access request, inhibiting due diligence.

Illusion of scarcity

Scarcity, in human psychology, boils down to the fact that we as humans place greater value on things which are rare than those which are common (8). The scarcity heuristic is the mental shortcut we do when we say, ‘this thing is rarely available, therefore it must be worth more’. Salespeople employ this to great effect as the basis for mark-down discounts, Black Friday, and the perpetual DFS sale. Scarcity can come from quantity, rarity or time. For quantity, our innate reaction to finding out there is a limited quantity of something is to believe our choice to have that something is threatened, and therefore we want it more. For rarity, we place value on items we perceive to be unique. In companies this is often played on with pro-innovation bias, where we will favour innovation over the status quo and ignore flaws in the innovation (9). Such a pitch could be ‘look at our innovative unique idea, set to change the world’. For time, the scarcity heuristic is simple; time is running out, you don’t have time to do the complex thinking, the short cut answer is to buy, buy, buy.

Crowdcube Scarcity

Seedrs Scarcity

Once again these methods are front and centre of our two chosen pitches. You have limited time left to choose (time scarcity). There’s a limited quantity of available investment (quantity scarcity), at odds with the over-funding concept. Ask yourself why the data is being presented in this way?

Denomination/ reciprocity effects/ present bias

Denomination effect is a cognitive bias in currency where people are more likely to spend an equivalent value in small denominations than in large denominations (10). I see this alot, as MrsShrink will actively avoid spending big sums, but £<10 in Tesco on tat twice a week is not an issue. You are more likely to buy multiple small crowdfunding investments than one large investment, which also fits with diversification bias, the tendency to opt for a selection which gives you options or variety in the future (11).

Crowdcube rewards

Crowdfunding sites pitch your investments in small amounts. They also offer rewards, which works on reciprocity effects and present bias. Reciprocity is responding to a positive action with a positive action, leading to positive regard from both sides (12). If the company rewards you for an investment, you are more likely to see it in a good light. You are also more likely to pick a company which rewards you for an investment due to present bias (13). This incorporates hyperbolic discounting, but essentially can be said that if we are offered £100 tomorrow or £100 in a month, we’re more likely to choose tomorrow. If we’re offered £100 tomorrow or £110 in a month, the choice will depend on the person and how much they discount the worth through time delay. As all crowdfunding investments are essential gambles set for an uncertain future, a present day reward sways our choices.

TL:DR

These are just a few of the methods that crowdfunding websites use to part us from our hard-earned. There are many, many more, and I encourage everyone to read up on behavioural finance and understand when cognitive biases may be at play. The post may come off as harsh, so know that I invested in the last month on one of these crowdfunding platforms. It’s all about doing your homework and looking beyond the sales pitch. If you can be bothered.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://www.seedrs.com/anna-money/sections/investors
  2. https://www.crowdcube.com/companies/justpark-1/pitches/bk7Aeb
  3. https://en.wikipedia.org/wiki/Confirmation_bias
  4. https://www.investopedia.com/terms/b/bandwagon-effect.asp
  5. https://en.wikipedia.org/wiki/Bandwagon_effect
  6. https://en.wikipedia.org/wiki/Overconfidence_effect
  7. https://en.wikipedia.org/wiki/Framing_effect_(psychology)
  8. https://en.wikipedia.org/wiki/Scarcity_(social_psychology)
  9. https://en.wikipedia.org/wiki/Pro-innovation_bias
  10. https://en.wikipedia.org/wiki/Denomination_effect
  11. https://humanhow.com/en/list-of-cognitive-biases-with-examples/
  12. https://en.wikipedia.org/wiki/Reciprocity_(social_psychology)
  13. https://en.wikipedia.org/wiki/Dynamic_inconsistency
  14. https://www.bbc.co.uk/news/business-49884247
  15. https://metro.co.uk/2019/09/30/chancellor-sajid-javid-raises-national-living-wage-10-50-10834020/
  16. https://www.bbc.co.uk/news/business-49849484
  17. https://www.bbc.co.uk/news/business-49891141
  18. https://www.bbc.co.uk/news/business-49919189
  19. https://www.thisismoney.co.uk/money/markets/article-7535061/Recession-fears-hang-global-economy.html
  20. https://www.thisismoney.co.uk/money/news/article-7541673/Cautious-Treasury-loses-Sirius-Minerals-millions-failing-company.html
  21. https://www.businessgreen.com/bg/news/3082227/new-gbp120m-low-carbon-greenhouse-project-set-to-deliver-one-in-10-uk-tomatoes
  22. https://www.getrichslowly.org/early-retirement-extreme/
  23. https://www.marketwatch.com/story/why-we-ditched-the-fire-movement-and-couldnt-be-happier-2019-09-30
  24. https://monevator.com/10-year-retrospective-what-a-decade-of-returns-tells-us-about-passive-investing/
  25. https://monevator.com/qa-thursday-with-lars-kroijer-session-1/
  26. https://gentlemansfamilyfinances.wordpress.com/2019/09/30/month-end-accounts-september-2019/
  27. https://drfire.co.uk/september-2019-report/
  28. http://www.thefrugalcottage.com/september-2019-a-month-in-review/
  29. http://www.thefrugalcottage.com/dividend-income-september-2019/
  30. http://eaglesfeartoperch.blogspot.com/2019/10/investment-review-september-2019.html
  31. https://asimplelifewithsam.com/2019/10/01/september-review/
  32. https://asimplelifewithsam.com/2019/10/04/saving-for-the-future/
  33. https://www.msziyou.com/net-worth-updates-september-2019/
  34. https://thesquirreler.com/2019/10/02/september-2019-update/
  35. https://thesavingninja.com/savings-report-15-getting-a-job-at-google/
  36. https://playingwithfire.uk/october-update/
  37. https://monethalia.com/monthly-savings-report-september-2019/
  38. https://awaytoless.com/monthly-spending-september-2019/
  39. https://firevlondon.com/2019/10/05/sep-2019-q3-review/
  40. https://gettingminted.com/reviewing-the-situation/
  41. https://grizgalonfire.com/do-i-need-a-personal-pension/
  42. https://indeedably.com/backwardation/
  43. https://thefifox.wordpress.com/2019/10/01/how-to-successfully-merge-finances-without-breaking-up-over-it/
  44. https://www.ukvalueinvestor.com/2019/10/the-hidden-debt-of-lease-obligations.html/
  45. http://diyinvestoruk.blogspot.com/2019/10/itm-power-finals-key-partnership.html
  46. http://www.retirementinvestingtoday.com/2019/10/human-being-and-2019-q3-review.html
  47. https://www.theguardian.com/food/2019/oct/03/always-cooking-the-same-thing-try-a-weekly-food-box

The Full English – The Crowdfunded Bubble

Calling economic bubbles is a no-lose situation for a blogger. If you’re correct, whoop-de-do, celebrate your foresight. If you’re wrong, you’re a grumpy pessimist but no worse off. With that caveat readers may recall a couple of weeks ago, in the last Full English, I mentioned that Curve had completed crowdfunding with a pre-money valuation of £201,000,000 (1). Yes, that is the correct number of decimal spaces. It left me asking, how the hell are people valuing these companies?

Turns out I’m not alone in wondering that (2). The hard data suggests that the price paid for a percentage of the company by the crowd is far higher than private equity pays (3). For your more expensive price you get B class shares and rarely see information about the valuation in the prospectus. How did we reach this point?

In a world of low interest rates investors are looking for returns. We’ve all read Smarter Investing, we know we should be avoiding active funds that would typically partake of Venture Capital. We exist in an economic climate that favours growth over value strategies. We see success stories like Facebook, Instagram, Monzo, Brewdog, Uber. We want a slice of that growth, and there are new and exciting ways to access it (4). So we apply some cognitive biases; illusion of control and confirmation bias. We can surely pick the winners.

We look to platforms like CrowdCube, Seedrs, etc to find a way in at the ground floor of the next unicorn. Because our purchase is fuelled by optimism (and a whole lot of sales psychology), we’re willing to pay over the odds for the ground floor. This drives competition for shares and increases the valuation of the company. Basic economics. When the company lists on the stock market you get off at the penthouse suite, suddenly a millionaire. The tech IPO procession continues (5).

But that competition for a slice of the pie ignores the companies bottom line. Crowdfunding platforms are slick presentations to consumers, not like the due diligence of a traditional capital firm. The position of power is with the listing company, not the lender. This again drives up the valuation of the market.

The companies, overvalued with optimism, get valued by the market fairly and fall from their listing price. The tech companies that have gone through the IPO process are losing money (6). And people are taking notice. IPOs are being shelved, most notably the recent WeWork delay (7, 8). Traditional institutions do not want an overvalued investment, because in the long run they won’t get a return. They don’t want to see their shares costing billions of dollars through the efficient market (9). While the stock is unlisted the return and gain/loss is not realised.

This isn’t stopping profitable and strong companies going public. AirBnB continues to voice that it will soon, now setting a timeline for next year (10). However as Crowdfunding grows it will continue to offer a window into murky investments, promising a lot but with little to report. It will continue to inflate prices with optimistic opinions of growth. At some point all the optimism becomes a little too sweet, and it’ll be interesting to see if we end up in a crowdfunded private-company rerun of the dot-com crash.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://www.crowdfundinsider.com/2019/09/151157-fastest-startup-to-ever-hit-4-million-crowdfunding-on-crowdcube-curve-kills-it-now-at-5-5-million/
  2. https://en.wikipedia.org/wiki/Unicorn_bubble
  3. https://www.forbes.com/sites/goncalodevasconcelos/2015/05/27/valuations-in-crowdfunding-are-we-all-barking-mad/
  4. https://monevator.com/venture-capital-investing/
  5. https://www.theguardian.com/technology/2019/mar/30/lyft-ipo-stock-market-unicorns-uber-airbnb-slack
  6. https://www.spiked-online.com/2019/09/13/uber-and-out-why-the-tech-unicorns-keep-losing-money/
  7. https://www.bbc.co.uk/news/business-49687338
  8. https://moneyweek.com/515081/proof-that-the-tech-company-unicorn-ipo-bubble-is-bursting/
  9. https://marketrealist.com/2019/09/wework-ipo-shelved-unicorn-stocks-lose-luster/
  10. https://www.bbc.co.uk/news/business-49761461
  11. https://www.thisismoney.co.uk/money/mortgageshome/article-7452637/Never-ending-Brexit-saga-continues-drag-UK-housing-market-RICS.html
  12. https://www.bbc.co.uk/news/business-49752883
  13. https://www.thisismoney.co.uk/money/saving/article-7468833/Almost-half-banks-cut-fixed-rate-savings-August.html
  14. https://www.theguardian.com/business/2019/sep/17/britons-are-still-worse-off-than-in-2008-new-research-claims
  15. https://www.bbc.co.uk/news/business-49738869
  16. https://www.bbc.co.uk/news/science-environment-49567197
  17. https://www.theguardian.com/business/2019/sep/16/more-than-1400-uk-restaurants-close-as-casual-dining-crunch-bites
  18. https://www.bbc.co.uk/news/business-49721436
  19. https://www.thisismoney.co.uk/money/markets/article-7472389/Sirius-Minerals-shares-crash-fails-secure-funding-mine.html
  20. https://www.bbc.co.uk/news/business-49766418
  21. https://www.bbc.co.uk/news/business-49720446
  22. https://www.cnbc.com/2019/09/20/you-may-have-more-time-than-you-think-to-achieve-financial-security.html
  23. https://www.mrmoneymustache.com/2019/09/12/michael-burry-index-funds/
  24. https://earlyretirementnow.com/2019/09/17/market-peak-upcoming-recession/
  25. https://monevator.com/weekend-reading-how-could-the-financial-services-sector-better-cater-for-the-likes-of-us/
  26. https://monevator.com/my-biggest-fi-demon-status-anxiety/
  27. https://monevator.com/what-is-a-master-trust-pension/
  28. https://www.ukvalueinvestor.com/2019/09/mitie-dividend.html/
  29. https://cashflowcop.com/csi-finance/
  30. https://theescapeartist.me/2019/09/18/translating-financial-independence-from-american-to-british/
  31. https://theescapeartist.me/2019/09/11/the-ice-sculpture-the-turkey-and-the-rollercoaster/
  32. http://diyinvestoruk.blogspot.com/2019/09/afc-energy-portfolio-addition.html
  33. http://diyinvestoruk.blogspot.com/2019/09/first-solar-new-addition.html
  34. http://diyinvestoruk.blogspot.com/2019/09/bluefield-solar-trust-full-year-results.html
  35. http://www.thefrugalcottage.com/aiming-for-fire/
  36. https://littlemissfire.com/erase-and-rewind/
  37. https://littlemissfire.com/why-im-the-fire-underdog-and-thats-ok/
  38. https://www.msziyou.com/money-is-political/
  39. https://www.msziyou.com/net-worth-updates-august-2019/
  40. http://thefirestarter.co.uk/random-update-aka-what-the-hell-have-i-been-up-to-over-the-last-3-months/
  41. https://thesavingninja.com/how-to-get-a-first-class-flight-for-free/
  42. https://thesavingninja.com/savings-report-14/
  43. https://asimplelifewithsam.com/2019/09/13/august-review/
  44. https://www.iretiredyoung.net/single-post/2019/09/13/Early-retirement-costs-targets—August-2019
  45. https://pursuefire.com/monthly-update-15-august/
  46. https://pursuefire.com/pursue-fire-updates/
  47. http://eaglesfeartoperch.blogspot.com/2019/09/tax-planning-for-retirement-savings.html
  48. https://thefifox.wordpress.com/2019/09/12/how-to-calculate-your-personal-investing-rate-the-usability-update-that-savings-rate-desperately-needs/
  49. https://simplelivingsomerset.wordpress.com/2019/09/12/db-pension-options/
  50. https://gentlemansfamilyfinances.wordpress.com/2019/09/13/the-importance-of-being-earning/
  51. https://gentlemansfamilyfinances.wordpress.com/2019/09/15/exit-strategy-update-is-it-best-to-quit-your-job-face-to-face/
  52. https://indeedably.com/telephone/
  53. https://indeedably.com/volte-face/
  54. https://indeedably.com/own-goal/
  55. http://quietlysaving.co.uk/2019/09/19/random-shares/
  56. https://lovelygreens.com/tips-for-starting-a-new-vegetable-garden/
  57. https://www.jackwallington.com/allotment-month-46-tomatoes-edamame-apples-raspberries-and-sunflowers/

The Full English Accompaniment – Crowdfunding maturing

What’s piqued my interest this week?

Over the past few years I’ve watched the crowdfunding field grow, with various platforms and companies gradually expanding into robust and trusted investment sources. I’ve thought about trying Crowdfunding investments before, the 2011 Brewdog prospectus still sits on my old laptop, but I’ve always been dubious about the liquidity. As a student I chose to spend my cash on beer in my hand, rather than beer in a portfolio. Other bloggers did invest, and have been stuck trying to reduce their exposure and sell up (1). Due to this liquidity risk I lump all crowdfunding and P2P investments together, including all of the stock, property and loans in one big, high risk, ‘invest and don’t expect to get it back’ bucket. They’re all basically junk bond grade investments. The percentage returns on these investments supposedly account for this risk of losing your money.

I think my concerns are largely justified. If you look past the odd moment a few months ago when Seedrs stopped it’s own investment round due to it’s own rules, there’s been plenty of warning signs (2). We’ve had Lendy’s collapse, and there could be more on the way (3, 4). In response the FCA is bringing in new rules to clamp down on poor practice and protect investors (5, 6). The P2P and Crowdfunding market is maturing, less wild west. P2P and Crowdfunding is going mainstream (7, 8).

So, if everyone’s doing it, I might as well too. I decided it was time to start dipping my toe, as part of my satellite active investments. But for me this wasn’t about attempting to increase my returns with a >10% P2P loan, like the one Monevator affiliated RateSetter offer (9). This was about getting in on the ground floor, like I coudla-shoulda-wounda with BrewDog, with a small amount of throwaway money. I was tempted by a number of options: MoneyDashboard (too many competitors, unclear valuation and monetisation strategy) (10, 11); Curve (not happened yet) (12); Tickr (too many competitors, unclear valuation) (13). I became aware of the gameification of crowdfunding investment, and the methods employed to prey on the ‘fear of missing out’.

My first Crowdfunding investment went on FreeTrade. I missed out on the earlier round after the glitches meant it was closed before I could complete (14). I got in with a small, test the waters, investment sum on the June round (15). This means, like Weenie, I have free stocks to share (16). I have concerns about FreeTrade, not least the proliferation of other free trading apps, and the recent move of Robinhood into the UK (17, 18). If it goes tits up, then I put in enough to be along for the ride. Invest, forget, and definitely don’t bank on the returns. (And if you want a free share, contact me or leave me a comment!)

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://gentlemansfamilyfinances.wordpress.com/2019/02/13/how-to-put-out-a-fire-use-liquidity/
  2. https://www.altfi.com/article/5635_seedrs-suspends-its-own-shares-after-entering-advanced-stages-of-a-new-funding-round
  3. https://www.telegraph.co.uk/business/2019/07/28/wake-lendys-collapse-britains-peer-to-peer-lending-bubble-go/
  4. https://www.altfi.com/article/5404_dont-panic-but-were-in-the-middle-of-a-peer-to-peer-lending-crunch
  5. https://www.fca.org.uk/news/press-releases/fca-confirms-new-rules-p2p-platforms
  6. https://www.independent.co.uk/money/spend-save/peer-to-peer-investing-maximum-limit-fca-regulation-a8947886.html
  7. https://www.moneyadviceservice.org.uk/en/articles/peer-to-peer-lending–what-you-need-to-know
  8. https://www.moneyadviceservice.org.uk/en/articles/crowdfunding–what-you-need-to-know
  9. https://monevator.com/ratesetter-high-interest-offer/
  10. https://www.insider.co.uk/news/money-dashboard-raises-46-million-18983490
  11. https://www.bbc.co.uk/news/uk-scotland-scotland-business-48349943
  12. https://www.finextra.com/newsarticle/34273/curve-set-to-embark-on-a-mighty-crowdfunding-campaign/retail
  13. https://www.altfi.com/article/5470_impact-investment-tickr-200-crowdfunding-target
  14. https://www.altfi.com/article/5290_freetrade-shutters-19m-crowdfunding-round-technical-difficulties-new-round-june
  15. https://www.cityam.com/freetrade-to-close-7m-in-second-crowdfunding-round/
  16. http://quietlysaving.co.uk/2018/05/25/wisdom-of-the-crowds/
  17. https://techcrunch.com/2019/08/07/robinhood-fca/
  18. https://qz.com/1684107/robinhood-is-heading-to-the-uk-where-it-will-compete-with-freetrade-revolut/
  19. https://www.bbc.co.uk/news/business-49356248
  20. https://www.theguardian.com/money/2019/aug/14/south-of-england-house-prices-fall-for-first-time-since-2009-brexit
  21. https://www.theguardian.com/business/2019/aug/08/house-prices-fall-unexpectedly-pre-brexit-caution-bites
  22. https://www.thisismoney.co.uk/money/mortgageshome/article-7382937/Britains-expensive-cities-including-London-Cambridge-affordable-buyers.html
  23. https://www.theguardian.com/world/2019/aug/09/chase-bank-cancels-all-credit-card-debt-for-canadian-customers
  24. https://www.thisismoney.co.uk/money/pensions/article-7333403/Government-comes-fix-doctors-pensions.html
  25. https://www.thisismoney.co.uk/money/news/article-7341053/Interest-rate-cut-cards-pound-takes-leg-down.html
  26. https://www.bbc.co.uk/news/business-49352760
  27. https://www.bbc.co.uk/news/business-49452366
  28. https://www.express.co.uk/news/uk/1164081/pensions-news-national-insurance-stamps
  29. https://www.thisismoney.co.uk/news/article-7385337/Investors-ploughed-cash-Kevin-McClouds-business-told-expect-lose-penny.html
  30. https://www.theguardian.com/commentisfree/2019/aug/14/the-guardian-view-on-brexit-and-the-economy-storm-clouds-on-the-horizon
  31. https://www.theguardian.com/money/2019/aug/18/meet-people-saving-retire-by-40-fire-movement
  32. https://www.mrsmummypenny.co.uk/financial-independence-why-i-think-it-is-unrealistic-and-unachievable/
  33. https://www.telegraph.co.uk/money/money-makeover/money-makeover-earn-36k-can-retire-15-years-age-47/
  34. https://thefifox.wordpress.com/2019/08/06/crunching-the-numbers-should-we-be-overpaying-our-mortgages-or-investing-instead/
  35. https://monevator.com/how-to-invest-as-an-expat/
  36. https://monevator.com/weekend-reading-75-not-out/
  37. https://www.mrmoneymustache.com/2019/08/22/1000-per-hour/
  38. https://www.ukvalueinvestor.com/2019/08/stagecoach-investors-bumpy-ride.html/
  39. https://theescapeartist.me/2019/08/06/milestones-on-the-path/
  40. https://theescapeartist.me/2019/08/14/heres-whats-in-it-for-you-right-now/
  41. https://theescapeartist.me/2019/08/21/getting-rich-with-property/
  42. https://cashflowcop.com/financial-independence-reality-check/
  43. http://diyinvestoruk.blogspot.com/2019/08/orsted-half-year-results.html
  44. http://diyinvestoruk.blogspot.com/2019/08/legal-general-revisited.html
  45. http://diyinvestoruk.blogspot.com/2019/08/scottish-mortgage-trust-portfolio-sale.html
  46. https://firevlondon.com/2019/08/16/how-to-become-a-millionaire-in-london-on-40k-p-a/
  47. http://quietlysaving.co.uk/2019/08/09/return-of-the-dogs/
  48. http://quietlysaving.co.uk/2019/08/19/manchester-fire-meet-up-in-sept/
  49. https://drfire.co.uk/uk-government-to-raise-the-state-pension-age-to-75/
  50. https://drfire.co.uk/my-newfound-appreciation-for-podcasts/
  51. https://www.msziyou.com/veggie/
  52. https://www.msziyou.com/intergenerational-unfairness-part-2/
  53. https://awaytoless.com/inheritance/
  54. https://www.iretiredyoung.net/single-post/2019/08/09/Early-retirement-numbers
  55. https://www.iretiredyoung.net/single-post/2019/08/23/Why-we-lie-about-being-retired
  56. https://asimplelifewithsam.com/2019/08/20/how-to-live-a-balanced-life/
  57. https://simplelivingsomerset.wordpress.com/2019/08/08/work-is-not-a-job-and-the-web-of-life/
  58. https://simplelivingsomerset.wordpress.com/2019/08/21/monzo-metal-cards-and-bullet-journals/
  59. https://gentlemansfamilyfinances.wordpress.com/2019/08/21/6-personal-finance-numbers-that-are-bullshit-2/
  60. https://pursuefire.com/pursue-fire-updates/
  61. https://indeedably.com/a-goldilocks-decision/
  62. https://indeedably.com/meltdown/
  63. https://indeedably.com/fools-errand/
  64. https://ditchthecave.com/perfect-day/
  65. https://thesavingninja.com/what-is-happiness-to-you/
  66. https://lovelygreens.com/vegetables-to-grow-for-autumn-harvests/
  67. https://agentsoffield.com/2019/08/11/its-all-systems-go-almost/

Q2 2019 – Green Credentials

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.

Q2 Returns:

Q2 Net Worth

  • Cash Savings Accounts £3200 (+£400)
  • Investments £1550 (+£1000)
  • Property £33,300 (-£1000)
  • Cars £3000

My net worth now sits at £~35,400, an increase of £2.2k over the past three months, which is a little less impressive than the previous quarter. This makes my rolling twelve month increase £14,900. Cannot complain.

Yearly Targets:

Goal 1: Build an emergency fund

My first 2019 goal was to build an emergency fund, as per the r/UKpersonalfinance flow chart (1). My goal emergency fund is three months total household expenses (£6k) in my name, plus a further three months (£6k) held jointly. I now currently hold £2650 in my name, and £300 held jointly. Some way to go.

My Santander 5% saver matured, so those funds were moved into a new high interest Nationwide current account. I used the excellent Bank Account Savings website plus Money Saving Expert to select another regular saver, opening a joint current account with First Direct for their switching bonus and then a linked 5% savings account (2, 3). I’ve also started squirreling cash into a Starling pot. The intention is to have liquid savings spread across three or four independent banks, with different card providers (MasterCard vs Visa). Protection against business and liquidity risk.

Goal 2: Pay off short-term debts

Short-Term Debt Q2

This has been the area of greatest progress. At the start of 2019 my short terms debts stood at £1.25k to family and £2.6k on 0% interest credit cards, then £250 and £2k respectively at the end of Q1. Those figures are now £0 and £650, and the credit card should be cleared this month. This will leave me free of unsecured debt for the first time in (I think) four years. Once the debt is clear, my money is free to be channelled into…

Goal 3: Save 25% of my earnings

Savings Rate Q2

I calculate my savings rate using this formula:

Savings rate as % = ((Income – spend) + Cash savings + Investments + Pension contributions) / (Income + Pension contributions)

My current mean savings rate for 2019 is 18.4%, short of my goal. I had a March outlier thanks to a tax refund, and in May my effective savings rate was close to zero due to work-related bills (exams, course fees etc). Worth noting in the NHS it’s expected you pay for your exams, courses and training yourself. You can claim it back through tax, but only certain elements. The rest you take on the chin.

Goal 4: Live more sustainably

I’ve been pretty crap at keeping track of what we’re using from the garden rather than purchasing. With summer in full swing we’re getting at least two dinners a week just from home-grown produce. We’ve also made lots of little changes around the house to move away from plastic. These have included:

  • Switching toilet roll

We looked into the brand ‘Who Gives A Crap’, but I was pretty pissed off to find out all their recycled/ bamboo eco loo-roll comes on a slow ship from China (4). Not exactly sustainable. Instead we used The Ethical Consumer, an amazing website that ranks consumer products by multiple ethical/ sustainable/ fairtrade measures, to find Ecoleaf by Suma (5). Suma are a co-operative in the UK who have been producing sustainable, fairtrade products since the 80s.

  • Shampoo bars

Again we tried to use The Ethical Consumer. We actually found the Lush ones are pretty good, and despite costing £8.50/each, they seem to last a couple of months (6).

  • Washing powder ball

The Ecozone Eco-balls we bought are supposed to last 1000 washes (7). A recent change, so we’ll wait to reserve judgement.

  • Switching cleaning products to Method

Nice and easy as they’re stocked in mainstream supermarkets.

There’s loads of guides and blogs out there with tips on how to live with less plastic. I’d recommend starting off with the 100 Steps to a Plastic-Free Life (8).

Goal 5: Commence investing

I’ve not been very disciplined investing this quarter. In April I topped up my existing holding, but in May I held cash back to open a crowdfunding investment (still pending). My cash savings are calculated towards my Personal Allowance, whilst my investments are held in my Vanguard ISA. I have managed to get my investment portfolio spreadsheet at a stage I’m happy with (for now), so here’s a few example graphs:

Tax Efficiency Q2

Region Allocation Q2Country Allocation

Because I’m contrary, I’ve decided to actually try to calculate my worldwide exposure on a country by country basis. I currently just hold Vanguards Developed World Ex-UK Fund. I’m far more exposed to the US than I’d like, and so I’ll be opening some new holdings to diversify over the next two quarters.

Until next time,

The Shrink

References:

  1. https://www.reddit.com/r/UKPersonalFinance/
  2. https://bankaccountsavings.co.uk/
  3. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
  4. https://myplasticfreelife.com/2017/09/who-gives-a-crap-recycled-or-bamboo-toilet-paper-without-plastic/
  5. https://www.ethicalconsumer.org/home-garden/shopping-guide/toilet-paper
  6. https://www.independent.co.uk/extras/indybest/christmasgifts/fashion-beauty/shampoo-hair-soap-plastic-free-green-beauty-environmentally-friendly-a8505026.html
  7. https://www.ethicalsuperstore.com/products/ecozone/eco-balls/
  8. https://myplasticfreelife.com/plasticfreeguide/