The Financial Dashboard – October 2020

The goals for October were:

  • Fix the bits on the cars I’ve already bought parts for – I’m terrible at buying parts and then never fitting them
  • Sell five things
  • Read a book thee evenings a week

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. This was a tough month. My employer has finally remembered they overpaid me, and took the overpayment off this month’s salary. I’m going to dip into the money I set aside when I was overpaid to cover me for the month. We also had a large number of expenses relating to the renovations, some unexpected, which led us to dip into our emergency fund. Given all this my savings rate for this month was -18.14%. There’s more renovation costs to come, and some health issues might require a private medical expense, so it’s going to be a lean couple of months. The usual cash regular savers were topped up, and new money in the Freetrade S&S ISA went to increase previous holdings.

If you fancy a free share, sign up to Freetrade with this link (I also get one).

Goals:

Goal failed: Fix the bits on the cars I’ve already bought parts for

Goal failed: Sell five things

Goal failed: Read a book thee evenings a week

These were all write-offs. I’ve been doing a 90-hour work week, with renovation work on top. Roll on next month.

Budgets:

  • Groceries – Budget £200, spent £216.97, last month £181.42
  • Entertainment – Budget £100, spent £65, last month £97.16 – Still spending too much on takeaways, easy to do when the house is full of dust and chaos.
  • Transport – Budget £250, spent £129.54, last month £147.72
  • Holiday – £150, spent £17.63, last month £118.99 
  • Personal – £100/ £280.50/ £87.26
  • Loans/ Credit – £50/ £43.70/ £50
  • Misc – £50/ £705.75/ £604.72 – Further renovation costs
  • Fees – £300 /£629.75/ £268.60

In the garden:

Shut everything down for the winter, harvesting off the last of the squashes. I’ve got chinese cabbage, kale and winter lettuces on the go in the greenhouse.

Goals for next month:

  • Fix the bits on the cars I’ve already bought parts for – I’m terrible at buying parts and then never fitting them
  • Sell five things
  • Read a book thee evenings a week
  • Cut down on takeaway spend

Happy November everyone!

The Shrink

The Financial Dashboard – September 2020

The goals for September were:

  • Fix the bits on the cars I’ve already bought parts for – I’m terrible at buying parts and then never fitting them
  • Exercise four times a week
  • Sell five things

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. My pay appears to have levelled out, but yet to be asked to pay back the previous excess. After a couple of months of falling net worth as we spent on house renovations (new windows, some structural stuff, remodelling two rooms), my net worth increased by 5.23%. This was entirely due to an increase in the (paper) valuation of my home, which I take from Zoopla/ Nationwide data. My savings rate for this month was 21.93%, not too shabby considering the spending. The usual cash regular savers were topped up, and new money in the Freetrade S&S ISA went to increase previous holdings.

If you fancy a free share, sign up to Freetrade with this link (I also get one).

Goals:

Goal failed: Fix the bits on the cars I’ve already bought parts for

I continue to collect car parts, but work life has been busy and home renovations take up the majority of my spare time. Hopefully next month this will happen.

Goal achieved: Exercise four times a week

Regular exercise continues to have a huge impact on my general wellbeing. I’ve tried to get four sessions a week in exactly, but life is too unpredictable, so only an average has been possible. Now I’m in the habit hopefully it remains.

Goal failed: Sell five things

Again, too caught up in other things, but I did at least give some items away. Once renovation work is finished I should able to have a proper clear out.

Budgets:

  • Groceries – Budget £200, spent £181.42, last month £175.55
  • Entertainment – Budget £100, spent £97.16, last month £84.95 – Mainly takeaways and eating out with friends whilst we still could
  • Transport – Budget £250, spent £147.72, last month £144.72 – Minimal travel these days
  • Holiday – £150, spent £118.99, last month £78.44 – A little holiday
  • Personal – £100/ £87.26/ £123.76
  • Loans/ Credit – £50/ £50/ £50 – Repayments begin
  • Misc – £50/ £604.72/ £70.25
  • Fees – £300 /£268.60/ £129.97– Another month, another pound of flesh to work

In the garden:

Left to run wild. Marrows the size of your thigh. Time to get the scythe and spade out.

Goals for next month:

  • Fix the bits on the cars I’ve already bought parts for – I’m terrible at buying parts and then never fitting them
  • Sell five things
  • Read a book thee evenings a week

Happy October everyone!

The Shrink

The Full English Accompaniment – Negative interest rates

Life’s turning into a real tough place to earn a return. Lots of talk from the BoE over the last couple of weeks about the potential for negative interest rates in the UK (1, 2). I’m not fully sold on negative interest rates. Japan has been trying it for several years with minimal effect (3). Feels slightly like a last roll of the dice from desperate men. This video from The Plain Bagel has a good explanation of how and why they’re supposed to work (4):

Couple that with NS&I, the last bastion of inflation-beating/equalling interest rates on savings announcing a cut to it’s interest rates, and things aren’t so rosy (5). Premium bond rates are also getting a haircut (6). Can’t really blame NS&I. They were tasked by the government with raising money through national savings. They were so wildly successful their IT systems have failed to keep up (7, 8).

So savings interest is getting chopped, and the stock market is looking bubbly. Speculation and individual stock manias appear to be driving at least a proportion of portfolio returns (9). The sustainability of the current run is debatable. Taken together I have concerns about the viability of my FI plan. There was an interesting article in the Telegraph this week, discussing whether the 4% rule for pensions will stack up in the era of low interest rates and volatile returns (10). Plenty of FI-ers plan using the 4% rule, based upon those ‘long-run averages’, to return necessary FI goal numbers. If we’re heading into a further decade of 1% returns on bonds/ savings, people will have to take more ‘risk’, diversify into property or equities to try and maintain their required 4%. Will house price increases or BTL supply those returns, or will it all come down to bull markets? The future is looking murky, and we continue to live in interesting times.

Have a great week,

The Shrink

P.S. I appear to be particularly miserable/ morbid/ grumpy today, so sorry about that.

News:

Blogs/ Opinions:

References:

  1. https://www.theguardian.com/business/2020/sep/17/bank-of-england-keeps-interest-rates-at-01-but-warns-on-economic-outlook
  2. https://www.bbc.co.uk/news/business-54314971
  3. https://www.investopedia.com/articles/markets/080716/why-negative-interest-rates-are-still-not-working-japan.asp
  4. https://youtu.be/pX3_3NMZa0k
  5. https://www.theguardian.com/money/2020/sep/21/nsi-savings-rates-premium-bonds-prizes-direct-saver-investment-account-isas
  6. https://www.bbc.co.uk/news/business-54232018
  7. https://www.thisismoney.co.uk/money/saving/article-8775437/NS-plunges-meltdown-Delays-rates-tumble.html
  8. https://www.thetimes.co.uk/article/ns-amp-i-says-sorry-for-poor-customer-service-as-it-slashes-rates-2bmk7pvsl
  9. https://seekingalpha.com/article/4375276-macroview-newton-physics-and-market-bubble
  10. https://www.thetimes.co.uk/article/how-low-interest-rates-killed-magic-4-retirement-rule-vbbvvdt3c
  11. https://www.theguardian.com/us-news/2020/sep/20/leak-reveals-2tn-of-possibly-corrupt-us-financial-activity
  12. https://www.thisismoney.co.uk/money/markets/article-8750989/Nvidia-hits-bid-block-deal-tech-giant-Arm.html
  13. http://astrobiology.com/2020/09/phosphine-detected-in-the-atmosphere-of-venus—an-indicator-of-possible-life.html
  14. https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0237839
  15. https://www.airbnb.co.uk/rooms/44999445?_set_bev_on_new_domain=1600083186_IvH1VwA96IkDx8UK&source_impression_id=p3_1600083186_IFtPoKvH1zXUopRm
  16. https://www.winkworth.co.uk/properties/sales/goldhawk-road-shepherds-bush-w12/SHE121014
  17. https://www.rightmove.co.uk/property-for-sale/property-83955202.html
  18. http://quietlysaving.co.uk/2020/09/15/milestone-reached/
  19. https://www.firemusings.org/updated-cost-of-coffee-cake-cookies/
  20. https://pathtolife2.com/2020/09/17/financial-independence-update-august-2020/
  21. https://southwalesfi.co.uk/2020/09/18/why-dividend-stocks-arent-as-good-as-they-sound/
  22. https://moneygrower.co.uk/10000-in-cumulative-dividend-income/
  23. https://asimplelifewithsam.com/2020/09/18/ideas-for-meal-planning/
  24. https://www.moneymage.net/6-reasons-to-batch-cook/
  25. https://www.muchmorewithless.co.uk/ration-challenge-meal-plan/
  26. https://playingwithfire.uk/living-and-working-abroad-can-you-get-to-fire-sooner/
  27. https://www.onemillionjourney.com/millionaire-interview-series-6-educatorfi/
  28. http://thefijourney.co.uk/wp/2020/09/20/project-2235-september-2020-update-a-new-normal/
  29. https://indeedably.com/explain-money-to-me/
  30. https://sassenachsaving.home.blog/2020/09/26/musings-on-turning-fifty/
  31. http://diyinvestoruk.blogspot.com/2020/09/plug-power-portfolio-addition.html
  32. https://averagemoneymanagement.wordpress.com/2020/09/25/blocking-out-the-noise/
  33. https://www.foxymonkey.com/beat-inflation/
  34. https://drfire.co.uk/the-long-tail/
  35. https://bankeronfire.com/build-wealth-with-the-80-20-rule
  36. https://gentlemansfamilyfinances.wordpress.com/2020/09/19/trading-up/
  37. https://medfiblog.wordpress.com/2020/09/24/flight-distance-a-p2p-story/
  38. https://www.itinvestor.co.uk/2020/09/worldwide-healthcare-trust/
  39. https://www.mouthymoney.co.uk/beware-dodgy-sellers-targeting-wannabe-influencers-to-peddle-rubbish-goods-online/
  40. https://sparklebeeblog.wordpress.com/2020/09/23/september-activities/
  41. https://monevator.com/should-you-use-cash-to-bridge-the-gap-between-your-isas-and-your-pension/
  42. https://monevator.com/weekend-reading-daddy-what-did-you-do-in-the-great-pandemic/

The Financial Dashboard – August 2020

The goals for August were:

  • Read three books
  • Exercise four times a week
  • Sell five things

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I was overpaid this month, so I’ve put the excess aside to wait for it to be requested back. This led to an ‘artificial’ savings rate of 50.76%. I think it should be closer to 20% with my new salary. My net worth fell slightly again, by -2.61%, as we put a load of our house renovation work on 0% finance. The usual cash regular savers were topped up, but I’ve now moved money out of my old Nationwide account and into premium bonds. New money in my Freetrade S&S ISA went to open in Vanguard’s FTSE All World.

If you fancy a free share, sign up to Freetrade with this link (I also get one).

Goals:

Goal achieved: Read three books

Completed The Intelligent Investor (finally) and then read two fiction novels which have been sat at my bedside for many months. Now alternating between Dan Jones’ book about the Plantagenets, and Aldous Huxley’s The Doors of Perception. Eclectic.

Goal achieved: Exercise four times a week

I achieved this on average, and feel better for it. Exercise has a huge effect on my mental health. I’m going to keep it on for next month to continue the momentum.

Goal failed: Sell five things

Too caught up in doing other things, I’ve actually acquired more stuff. I spent a weekend helping my father clear out some of his storage, and in doing so found some items I thought I’d already sold. Happily they should actually be worth something, so I’ll try to sell them this month.

Budgets:

  • Groceries – Budget £200, spent £175.55, last month £227.54
  • Entertainment – Budget £100, spent £84.95, last month £36.50 – Eating out to help out
  • Transport – Budget £250, spent £144.72, last month £279.02 – With the dramatic reduction in commute I’m cutting my petrol budget
  • Holiday – £150, spent £78.44, last month £0 – Long weekend away seeing friends
  • Personal – £100/ £123.76/ £91.66
  • Loans/ Credit – £50/ £50/ £0
  • Misc – £50/ £70.25/ £741.96
  • Fees – £300 /£129.97/ £370.91– Indemnity for work

In the garden:

Massive cut back, harvest of potatoes and tomatoes. Not much left now. Once the house work is done the next job will be further garden changes; new patio and planters.

Goals for next month:

  • Fix the bits on the cars I’ve already bought parts for – I’m terrible at buying parts and then never fitting them
  • Exercise four times a week
  • Sell five things

Happy September everyone, where has this year gone!

The Shrink

The Financial Dashboard – July 2020

The goals for June were:

  • Tidy the loft and begin to clear
  • Read three books
  • Audit regular spending ahead of job change
  • Track building work spending accurately

Checking the assets and liabilities:

July AssetsJuly Liabilities

These are taken, as always, from my Beast Budget spreadsheet. My savings rate according to my spreadsheet this month is -26.33%. This balances last months 86.9%, and is down to some payments coming out of my account late. My net worth fell slightly (-2.3%) which probably represents all the spending we’ve been doing on builders, plumbers and electricians. My usual cash regular savers were topped up, but our joint First Direct account has now finished. We’re going to use that money for DIY, topping up the emergency account, and ultimately start paying down our mortgage. New money in my Freetrade S&S ISA went to open a small position in Unilever (before it jumped about 8%) and DS Smith.

If you fancy a free share, sign up to Freetrade with this link (I also get one).

Goals:

Goal failed: Tidy the loft and begin to clear

Actually got round to this one, and have found a lot of books and items I will never use again. These will go on Gumtree, Music Magpie (or similar), or be given to charity shops. De-clutter time.

Goal failed: Read three books

I am still reading The Intelligent Investor. Close to the end now, and rewarding myself with some fiction. Should be done this month.

Goal achieved: Audit regular spending ahead of job change

My change of role is actually reducing my pay slightly. With that in mind I’ve followed Martin Lewis of MoneySavingExpert’s advice, and audited my direct debits and standing orders. I was previously paying £100/month on gym memberships (a couple for different purposes). With lockdown many of these were temporarily frozen, and it’s given me time to assess what I wanted and what I was using. I’ve simplified my membership down to a single one for £65, which I’m hoping will be enough to motivate me to do more.

One of the benefits of my new job is a shorter commute, so I’ve reduced my monthly fuel budget. I’ve been putting money aside for holidays, and that has gradually been accumulating, so I’m going to hold off adding to that for now. I’m not completely sure what my new salary will be, so if further pruning needs to happen it will come at the end of the month.

Goal achieved: Track building work spending accurately

I have kept a google sheet for this, and input all our spending. As with any grand design, there’s been a fair creep in budget.

Budgets

  • Groceries – Budget £200, spent £227.54, last month £237.31 – We’re continuing to spend lots on groceries as we host rather than eat out
  • Entertainment – Budget £100, spent £36.50, last month £56.50
  • Transport – Budget £460, spent £279.02, last month £432.65
  • Holiday – £150, spent £0, last month £0
  • Personal – £100/ £91.66/ £137.18 – Random tat
  • Loans/ Credit – £0/ £0/ £0
  • Misc – £50/ £741.96/ £724.15 – Building supplies, and the builder
  • Fees – £300 /£370.91/ £347.17– GMC/ Royal College

In the garden:

Everything has sort of been left to grow wild while we focus all spare hours on DIY. The pumpkin patch is now the pumpkin third, engulfing all in it’s spread. Sunflowers are just ending their thing, but are doing a good job of acting as climbing support for french beans. To top it off we have loads of lettuces, and the first of our tomatoes.

Goals for next month:

  • Read three books
  • Exercise four times a week
  • Sell five things

Happy August everyone, where has this year gone!

The Shrink

Quarterly Returns – Q2 2020

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.

A quarter of lockdown, three months blur of work, DIY and our own four walls. Did we save well?

Q2 Returns:

July Net Worth

Net worth excluding my DB pension & student loan

  • Cash Savings Accounts £12,200 (+1,900)
  • Investments £5,100 (+£,1900)
  • Property £42,900 (+£1,300)
  • Cars £2000 (no changes)

Gradual increases across the board. My net worth excluding my NHS pension continues to climb, though I expect a plateau over the next few months with property renovation spending.

Yearly Targets:

Goal 1: Build an emergency fund

My first 2019/20 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.

This has steadily increased, but recent DIY and impending builders/ plumbers/ electricians fees mean that attempts to stay above £10k are unlikely. The goal remains achievable.

Goal 2: Save 30% of my income

I calculate my savings rate using this formula:

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

Savings rate July

YTD Savings Rate

Lockdown has pushed my savings rate up, to a best ever rate of 57% in May. This has now dropped back, but my year average to date is still 40%, well above my target.

Goal 3: Calculate savings made by growing my own food

So I started my garden notebook at the start of the year, charting what I’d sown, what grew well and didn’t, and spending/ returns. As things were sown in Q1 it was all expenses, but now I’m starting to get some growth and profit! The first tomatoes, potatoes, lettuces and other salads have been harvested. I’m estimating about £20 worth of home-grown produce consumed so far, so still negative on my £30 of seeds. Roll on the harvest, and a spreadsheet of produce.

Goal 4: Make changes to reduce carbon footprint

Working from home to an extent, no foreign travel, no major new purchases means our carbon footprint should be well down on last year. We continue to eat local produce, and use Splosh (2). They’re a zero waste refillable start-up, and unlike most of the eco washing stuff we’ve tried, their stuff actually works really well. You order a starter pack which includes refillable plastic bottles, and then they send you the concentrated product which you mix in the bottle. When the concentrate is done you send it back to them and they recycle it, or some of them are compostable. After several months of using their stuff I’ve found we actually use less than we would if it was shop bought, so it ends up cheaper. If you want to give it a go use referral code YQL240THX1 to get 15% off.

Goal 5: Automate investments and savings

I’ve automated my FreeTrade investment and building society regular saver this quarter. The bounce back in the markets means I’m currently sat at total absolute return across my investments of 7.62%. Note this is absolute figure for what has my invested figure returned, without inclusion of time/ rate of return. No XIRRs here. Good returns for my ex-UK Dev World holdings have been handicapped by purchases at the start of the year of Emerging Markets and Global All-Cap, fairly near high water marks. Those are only now back in the green.

ActivePassive

Core/ Satellite Passive/ Active Split

At the start of the Quarter I bought further into Vanguards ex-UK Dev World, pretty close to the bottom of the dip. That small purchase is up 22%. In my FreeTrade account I bought Greencoat UK Wind (UKW) and The Renewables Infrastructure Group (TRIG). This brings me closer to my 80/20 passive/active split. My active investment choices have several purposes. UKW and TRIG are both in there to provide long-term stability (particularly present in my thoughts at the time of purchase), diversification and potential dividends. They’re also part of an attempt to purchase and invest my money sustainably. I won’t go into the fund particulars in detail, as both DIY Investor UK and GFF cover UKW (3, 4), whilst DIY Investor UK has covered TRIG a fair bit (5, 6). Both holdings were purchased at a premium, and they continue to run ~109% price/NAV. I still need to integrate my crowdfunding investments into my portfolio spreadsheet, along with tidying up my global allocation data. For now I’m holding a bit of cash spare in case of another crash, and will continue to drip feed every month in an automated way.

Fancy a free share? Sign up to Freetrade using this link, and we both get one.

Hope everyone else is seeing bounce back bonuses,

The Shrink

References:

  1. https://www.reddit.com/r/UKPersonalFinance/
  2. https://www.splosh.com/how-it-works
  3. http://diyinvestoruk.blogspot.com/2019/07/greencoat-uk-wind-portfolio-addition.html
  4. https://gentlemansfamilyfinances.com/2019/05/17/green-money-greencoat-uk-wind-share-offer-may-2019/
  5. http://diyinvestoruk.blogspot.com/2019/02/renewables-infrastructure-new-addition.html
  6. http://diyinvestoruk.blogspot.com/2020/02/trig-full-year-results.html

The Financial Dashboard – June 2020

The goals for June were:

  • Tidy the loft and begin to clear
  • Read three books
  • Update my investment tracker spreadsheet and sync with allocations
  • Explore overpaying mortgage

Checking the assets and liabilities:

Assets JuneLiabilities June

These are taken, as always, from my Beast Budget spreadsheet. My savings rate for this month fell back to 22% thanks to DIY spending, with my total net worth increasing by 1.4%. I’m actually astonished my net worth increased given our spending on the building work (currently at £2k). The usual cash regular savers were topped up (pretty happy about my 5% and 3% now), but my First Direct account is coming to an end, so we’ll start overpaying our mortgage instead.

Goals:

Goal failed: Tidy the loft and begin to clear

This got pushed down the priority list, but remains a goal.

Goal failed: Read three books

Still wading through Intelligent Investor. Currently 350 pages in, but I find myself needing to read it in small chunks to give me time to digest.

Goal achieved: Update my investment tracker spreadsheet and sync with allocations

I’ve moved into the 21st century, and transferred my investment tracker spreadsheet to google sheets, incorporating it’s price lookup function to track my worth in real time. Quite nifty, and I’ll share some images in my Q2 update.

Goal achieved: Explore overpaying mortgage

Having spoken to our mortgage provider we’re going to aim to channel spare cash from our joint account into overpaying our mortgage. It’s a split pot, and part is currently on the standard variable rate while we wait for them both to come out of their teaser rate period. That (much smaller) SVR part is on ~4%, while the rest is on 1.69%. We’re not going to beat that with savings rates, so it makes sense to try to clear down this debt.

Budgets

  • Groceries – Budget £200, spent £237.31, last month £176.91 – A pricey month, with lots of nice meals in cancelling out our usual eating out.
  • Entertainment – Budget £100, spent £56.50, last month £16.50
  • Transport – Budget £460, spent £432.65, last month £237.36
  • Holiday – £150, spent £0, last month £0
  • Personal – £100/ £137.18/ £65.74 – Mainly gifts
  • Loans/ Credit – £0/ £0/ £0
  • Misc – £50/ £724.15/ £71.45 – Building work
  • Fees – £70 /£347.17/ £295.49 – Amazon Prime, some other membership fees

In the garden:

I’ve been keeping up with watering, but everything else has gone to pot, so it’s now a riot. I planted far too many courgettes, squashes and pumpkins, and they have exploded to colonise most of the end of the garden. Ditto tomatoes in the greenhouse, which now looks like a tropical rainforest. Lessons for next year.

Goals for next month:

  • Tidy the loft and begin to clear
  • Read three books
  • Audit regular spending ahead of job change
  • Track building work spending accurately

Happy July everyone, I hope you’re all keeping well,

The Shrink

The Full English Accompaniment – Cold turkey interest rates

A few weeks back I considered the deflationary risk weighing on the global economy. A discussion on the This Is Money podcast, and comments from the BoE have taken me in the other direction this week. Why would we end up with high inflation and high interest rates?

First we need to talk about debt. Consumer debt has actually seen a record fall since the start of Coronavirus, something to do with not being able to spend and no need to keep up with the Jones’ (1). The same can’t be said for Government debt. As I write this The Economist’s Global Debt Clock is rising through $61,594,467,000,000 (2). This was a problem before COVID-19. 2019 saw record global debt to GDP ratios (322%), following slight falls in 2017 and 2018 (3, 4). China’s ballooning debt was of particular concern, with plenty of tenuous business loans supporting growth (4, 5).

The word addiction had been bandied about with reference to debt. Below is a favourite short that I use to explain addiction when doing teaching sessions about the dangers of gambling and drugs. You come to rely on the object of abuse to feel normal. Credit cards and lifestyle anyone?

Credit: Andreas Hykade, Filmbilder & Friends (6)

The reasons for increasing debt woes are country specific. In Europe and the US it’s a combination of household spending, QE and zombie companies. There’s the massive junk bond bubble scare brewing; corporations kept going in 2008/9 through borrowed money now being refinanced, on the verge of reaching junk bond status, at the same time low yields push people to riskier bonds in aid of returns (7, 8, 9). Yet people keep buying bonds (10). China is just straight up building infrastructure projects that are getting abandoned or never used, while Japan can’t get it’s GDP to grow (11). Individual investors continue to seek returns. Interest rates on savings are minimal, with decent returns disappearing (12, 13). Bizarre investment structures, like this Buy-to-Let-Cars scheme, hoover up those desperate for income on their holdings (14).

And then there’s COVID-19. The Government were very happy to deny a massive money tree for the NHS/ social care. Then they’ve opened their metaphorical chequebook and are handing round a whole forest of blank cheques. Which is needed. But the cost could be £298 billion in debt for Apr 2020/21 alone (15). Analysis from the Resolution Foundation suggests that currently £80 billion has been raised with no deterioration in cover ratio (16). Predictions therein suggest a further extension to QE in June (16).

Image Credit: Resolution Foundation (16)

So we’ve got a mounting pile of government debt as we borrow our way out of trouble. Low, or even negative interest rates are helpful for the Gov here. Favourable to continue borrowing. As TA at Monevator covered this week, we’re seeing some negative UK bond yields (17). The noise from the BoE is that proper negative interest rates are unlikely, but not impossible (18). Certainly there’s no push towards an interest rate rise (19).

Why should there be. Inflation sits at 0.8% for April 2020,(20) well below the BoE’s goal 2.0%. We’re worryingly close to stagflation; rising prices due to rising demand with static growth (21). There’s an argument that there’s a lot of pent up demand due to lockdown, with limited supply also thanks to lockdown. The QE money creation rears it’s head.  Deflation is a feedback loop international governments definitely do not want (22). It will only increase their debts.

The magic bullet

So what about inflation. Measures of inflation like the CPI may not have spiked since the 2008/9 financial crisis because Joe Bloggs in his northern terrace has practically seen little inflation of prices. Consumer goods have probably decreased in cost. But the high ticket items like sports car, larger houses in certain postcodes, watches, wine, art and even gold have all risen in price.* The QE wealth got stuck on it’s trickle-down in high net worth owner’s assets. It created a high net worth inflationary micro-environment.

How are we getting out of this mess? A survey of top UK economists suggests that they feel there is no need to tackle public debt soon, and tax increases may the best method in the end (23). We can keep borrowing in the short term. In the long term there is the suggestion that inflation is the only sensible answer (24). QE and other factors are likely to push towards inflation anyway (25). Running inflation higher than 2.0% would reduce that Government debt burden. This method has been used before; after the second world war inflation ran at 4-5% for a good couple of decades (26).

My generation is just not used to that sort of inflation. One of my takeaways from The Intelligent Investor is the change in financial policy/climate. Graham wrote in a period where 4-5% inflation was not unheard of, and savings accounts could yield 5-7%. I vaguely remember those sort of numbers from my childhood building society, but I’ve never been conscious of that financial world. The risk of a 1970s/ Weimar Republic style inflation spike is present (27). The fear of that sort of inflation seems greater than the 1950s 4-5%, maybe due to recency bias, or because those with the most to lose are those who remember the 1970s (28).

Ultimately it seems we’re unlikely to see interest rates or inflation change in the short term. But maybe, in the medium-long term, we’ll see 5% interest rates again. We’re preparing for such eventualities (29). We can tolerate up to 12% on our mortgage with some belt-tightening. I’m sure many can’t. Those zombie companies would go to the wall. The BTLs may struggle. Perhaps a period of 4-5% inflation is the economic reset we need.

Have a great week,

The Shrink

*Gold is slightly more interesting because of just how much the price has rocketed, the argument for it’s use as a hedge, and it generally being the ultimate lesser fool’s gambit (30, 31). No-one wants to be left holding the hottest potato.

N.B. Again, as a more involved speculative post, I would love feedback and opinions on these thoughts.

News:

Comment:

References:

  1. https://www.thisismoney.co.uk/money/cardsloans/article-8380019/Consumer-debt-falls-record-7-4bn-April-borrowing-spend-slumps.html
  2. https://www.economist.com/content/global_debt_clock
  3. https://edition.cnn.com/2020/01/13/economy/global-debt-record/index.html
  4. https://blogs.imf.org/2019/12/17/new-data-on-world-debt-a-dive-into-country-numbers/
  5. https://www.ft.com/content/d93a95d0-2ee9-11e9-80d2-7b637a9e1ba1
  6. https://www.youtube.com/watch?v=HUngLgGRJpo
  7. https://en.wikipedia.org/wiki/Corporate_debt_bubble
  8. https://www.independent.co.uk/voices/coronavirus-economy-wall-street-debt-boeing-shares-junk-a9513176.html#gsc.tab=0
  9. https://www.barrons.com/articles/the-corporate-debt-death-spiral-shows-no-signs-of-stopping-51584023200
  10. https://www.cnbc.com/2020/02/07/junk-bond-scare-is-rising-no-one-cares-people-are-buying-everything.html
  11. https://www.forbes.com/sites/peterpham/2017/11/24/why-are-we-addicted-to-debt/#136e4b2515fd
  12. https://www.thisismoney.co.uk/money/saving/article-8381231/Top-fixed-rates-disappearing-Average-account-pays-just-0-3.html
  13. https://www.theguardian.com/money/2020/jun/05/savers-uk-covid-19-lockdown-cash
  14. https://www.buy2letcars.com/
  15. https://www.bbc.co.uk/news/business-52663523
  16. https://www.resolutionfoundation.org/publications/the-economic-effects-of-coronavirus-in-the-uk/
  17. https://monevator.com/negative-yields-bonds/
  18. https://www.thisismoney.co.uk/money/news/article-8357383/BoE-not-remotely-close-decision-negative-rates-Haldane.html
  19. https://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise
  20. https://tradingeconomics.com/united-kingdom/inflation-cpi
  21. https://www.theguardian.com/business/2020/may/31/for-all-his-woes-at-least-sunak-does-not-need-to-worry-about-stagflation
  22. https://foreignpolicy.com/2020/04/29/federal-reserve-global-economy-coronavirus-pandemic-inflation-terminal-deflation-is-coming/
  23. https://cfmsurvey.org/surveys/covid-19-and-uk-public-finances
  24. https://www.independent.co.uk/news/business/news/coronavirus-recession-bank-england-inflation-mandate-change-jim-o-neill-a9539796.html#gsc.tab=0
  25. https://moneyweek.com/economy/global-economy/601179/heres-why-the-coronavirus-crash-is-likely-to-end-in-inflation
  26. https://www.bloomberg.com/opinion/articles/2020-05-07/inflation-is-the-way-to-pay-off-coronavirus-debt
  27. https://simplelivingsomerset.wordpress.com/2011/03/15/when-money-dies-a-1975-cautionary-tale-from-the-weimar-republic/
  28. https://simplelivingsomerset.wordpress.com/2020/06/03/at-some-point-during-this-bear-market-i-realized-that-i-probably-shouldnt-keep-doing-this/
  29. https://www.moneyadviceservice.org.uk/en/articles/how-to-prepare-for-an-interest-rate-rise
  30. https://fee.org/articles/which-is-the-best-inflation-indicator-gold-oil-or-the-commodity-spot-index/
  31. https://pureadmin.qub.ac.uk/ws/portalfiles/portal/120196463/gold_inflation_s.pdf
  32. https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)31142-9/fulltext
  33. https://www.thisismoney.co.uk/money/news/article-8372271/Homes-face-14-price-slump-says-Nationwide.html
  34. https://firelifestyle.co.uk/2020/06/01/may-2020-financial-update/
  35. https://firevlondon.com/2020/06/02/may-2020-a-sunny-month/
  36. https://thesavingninja.com/savings-report-23-back-to-break-even/
  37. http://earlyretirementinuk.blogspot.com/2020/06/end-of-month-report-1st-of-june.html
  38. https://playingwithfire.uk/may-2020-savings-and-spending-update/
  39. https://obviousinvestor.com/p2p-lending-portfolio-update-for-may-2020/
  40. https://www.foxymonkey.com/property-partner-coronavirus/
  41. http://quietlysaving.co.uk/2020/05/31/may-2020-plus-other-updates/
  42. https://www.moneymage.net/2020-may-savings-report/
  43. https://awaytoless.com/monthly-spending-may-2020/
  44. https://thesquirreler.com/2020/06/06/may-2020-net-worth-update/
  45. https://asimplelifewithsam.com/2020/06/06/may-review/
  46. http://diyinvestoruk.blogspot.com/2020/06/mcphy-energy-portfolio-addition.html
  47. https://www.itinvestor.co.uk/2020/06/20-global-investment-trusts-compared/
  48. https://lifeafterthedailygrind.com/buying-used-electronics-can-earn-you-money/
  49. https://monevator.com/what-is-behind-the-coronavirus-trading-boom/
  50. http://bankeronfire.com/who-is-smarter-than-the-stock-market
  51. http://bankeronfire.com/it-wont-happen-to-you
  52. https://medfiblog.wordpress.com/2020/06/05/chasing-inflation/
  53. https://monevator.com/weekend-reading-boom/
  54. https://igniting-fire.com/2020/06/05/the-joy-of-creation/
  55. https://drfire.co.uk/building-wealth-in-my-20s-successes-and-failures/
  56. https://money-side-up.com/will-coronavirus-infect-the-fire-retire-early-movement/
  57. https://hustleescape.com/hindsight-bias/
  58. https://www.ukvalueinvestor.com/2020/06/dividends-and-dividend-cover.html/

The Financial Dashboard – May 2020

The goals for May were:

  • Tidy the loft and begin to clear
  • Read three books
  • Update my investment tracker spreadsheet and sync with allocations
  • Strip out kitchen for renovation
  • Fix minor problems on the modern(ish) car

Checking the assets and liabilities:

May AssetsMay Liabilities

These are taken, as always, from my Beast Budget spreadsheet. Lockdown is treating my finances well, as a reduction in commuting and socialising means I can squirrel away more cash. My savings rate for this month was a best ever 57% (44% excluding pension), with my total net worth increasing by 3.6%. The usual cash regular savers were topped up (pretty happy about my 5% and 3% now). Two previous Crowdcube offerings, FreeTrade and Cornish Lithium, both opened up pre-emption rounds which I used to increase my speculative investments. A further £350 also went into my FreeTrade ISA, to be deployed on a new passive tracker.

Goals:

Goal failed: Tidy the loft and begin to clear

This has been rate limited by the availability of the loft legs/ stilts we’re installing to add extra storage. Lockdown means they’re not being shipped, so waiting for them to come in.

Goal failed: Read three books

Set myself up to fail here, as one of them was The Intelligent Investor. Making heavy weather of it.

Goal failed: Update my investment tracker spreadsheet and sync with allocations

Continue to work on this, particularly trying to get the googlesheets systems to pull in prices working.

Goal achieved: Strip out kitchen for renovation

Bricks and mortar work starts next month, with floors and walls coming out. DIY naturally.

Goal achieved: Fix minor problems on the modern(ish) car

Going to call this a success as I fixed the worst of the problems. There’s still minor niggles, but on exploring them it seemed impractical (many hours of work and the potential for damage to other systems). As there’s no effect on the daily drivability they can be ignored for now.

Budgets

  • Groceries – Budget £200, spent £176.91, last month £238.77
  • Entertainment – Budget £100, spent £16.50, last month £55
  • Transport – Budget £460, spent £237.36, last month £429.79
  • Holiday – £150, spent £0, last month £0
  • Personal – £100/ £65.74/ £156.85
  • Loans/ Credit – £0/ £0/ £0
  • Misc – £50/ £71.45/ £3.25 – Bought a refurbished vacuum
  • Fees – £70 /£295.49/ £522.94 –  The punishment continues

In the garden:

Everything is going great guns now. I’ve avoided most root veg this year as it takes up a lot of space, but the leafy greens, potatoes and alliums are all doing well. I companion planted sunflowers, climbing french beans and pumpkins/courgettes, which are starting to create a nice little jumble of green. Greenhouse full of tomato plants too.

Goals for next month:

  • Tidy the loft and begin to clear
  • Read three books
  • Update my investment tracker spreadsheet and sync with allocations
  • Explore overpaying mortgage

Happy June everyone, I hope you’re all keeping well,

The Shrink

Investment Strategy Statement – Part 3 – Allocations (revisited April 2020)

So here’s the guts of my ISS.

When I first drafted it in late 2018 I painted in broad brush strokes with the optimism and ambition of the naive. This updated version is, I hope, more pragmatic.
Asset Allocation

As a novice investor with relatively little in the market my wealth can essentially be divided five ways:

  • Property equity
  • Cash
  • Alternative assets
  • NHS Pension
  • S&S investments (1)

The first four can be covered in short order:

Property equity

Tied up in my home. Dependent upon the local market, plus our own mortgage repayments schedule and renovation work. The largest portion of my current wealth, and continuing on it’s merry accumulating way whilst we work up to our forever home. I have no interest in BTL until that point is reached.

Cash

Current accounts, savings accounts and premium bonds. My emergency fund, plus any extra money saved for upcoming expensive purchases. Emergency fund of three months personal salary, plus three months held jointly. Holdings target high interest and liquidity, through usage of high interest current and savings accounts with FSCS cover.

Alternative assets

Miscellaneous other physical holdings; cars (including current classic projects), art and books. Not alternative investment assets like currency/ bitcoin, EIS or private equity (2). Just plain old shit I own because I like it, that happens to be worth something.

NHS Pension

Unfunded, with no option to trade-out, my NHS pension is entirely tied up in my working life and retirement date. Subject to the whim of the government and BMA, I don’t include it in most of my net worth calculations as it does not physically exist until I retire.

Stocks and shares investments

The more interesting bit. My timescale is long, my employment is (in theory) secure and my pension scheme is (supposedly) generous. All money going into my portfolio is that which I can afford to lose. My current lifestyle, while not extravagant, is comfortable and by limiting lifestyle inflation I hope to increasingly channel spare cash into investments. I’m happy to take a reasonable amount of risk on this basis.

In choosing my asset allocation split I’ve tried to read widely, including the usual Smarter Investing 3rd edn – Tim Hale, Monevator, etc (3, 4, 5). My holdings are split between a core 80% passive tracker portfolio and 20% active ‘satellite’. The ‘satellite’ includes stocks, funds, trusts, ETFs and some odd crowdfunding investments.

Allocations will be reviewed and re-balanced quarterly. At this stage I’m uninterested in commodities, currencies, and REITs or other property investments. The diversification benefit is not worth the added effort and complexity for my paltry portfolio. Bonds I may revisit in the future, but at this point accumulation with a long timescale is the name of the game.
Fund/Brokerage Allocation

I intend to allocate across ETF/ fund providers. Rules here are loose as I’m still in early stages, but the intention is that no provider will hold more than 34% of my holdings. To minimise risk I’ll also allocate across brokers, with the intention of simultaneously reducing TER and minimising tax burden (6).
World Allocation

Global allocation applies only to my market investments, not my overall wealth.

Testbed Active Portfolio

This section of my portfolio is largely UK-based, but not limited by global allocation targets. Some themes include EIS/ early stage investments, green investment trusts, tech and mining.

Core Passive Portfolio

It would be very simple to put all my money in a LifeStrategy 100 and be done with it, but as my wife will attest I like to make life difficult. As fits a diversified passive-focus portfolio the central core will mirror world markets, using all world tracker funds and ETFs (7).

I understand the broad investment logic behind investing in your own country, and holding trackers to your domestic market. The protection against inflation a home market affords (8). But much of my active investments, cash, property and other assets are in the UK. I’m already UK inflation vulnerable/protected before even looking at passive equities.

I’m therefore largely ex-UK in my passive section. But then how do you slice your pie? Contribution to Gross World Product? Global market capitalisation? If global cap whose data do you use?

Weighting

My goal is passive purist, using a blend from Bloomberg, Credit Suisse’s Yearbook, Star Capital and World Bank reported data covering all countries with contributions >0.01% (9, 10, 11, 12). Getting clear data for free as an amateur investor has proved to be tough. The ex-UK adjusted average forms the basis of my allocation, alongside a further CAPE-adjusted view.
In summary

My allocations are fairly standard, if slightly over-complicated by my own adherence to dogma. I’ll review this yearly with new world data to see what changes need to be made, and in five years for a full review of asset allocation split.

In Part 4 – Funds, Accounts and Rebalancing.

References:

  1. https://monevator.com/asset-classes/
  2. https://en.wikipedia.org/wiki/Alternative_investment
  3. https://amzn.to/2Sthjtv
  4. https://monevator.com/asset-allocation-construct/
  5. https://www.bogleheads.org/wiki/Asset_allocation
  6. https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts
  7. https://monevator.com/investing-for-beginners-the-global-stock-market/
  8. https://www.investopedia.com/articles/basics/10/protect-yourself-from-inflation.asp
  9. https://seekingalpha.com/article/4202768-u-s-percent-world-stock-market-cap-tops-40-percent
  10. https://www.credit-suisse.com/about-us-news/en/articles/news-and-expertise/esg-investing-a-trend-that-is-constantly-evolving-202002.html
  11. https://www.starcapital.de/en/research/stock-market-valuation/
  12. https://data.worldbank.org/indicator/
  13. https://monevator.com/world-stock-markets-data/