September 2021 – Reaping what is sown

It’s been a while since the last post here. Turns out infants are time consuming, who knew. There is an increased respect for single parents. As I have sat awake feeding, changing nappies or soothing at 4am I have found myself with more time to ponder. The sleep deprivation has also made me more… cantankerous? Treat this as a trigger warning. Brexit and sustainability rant ahead.

It feels like the next twelve months could see a lot of chickens coming home to roost. Metaphorical chickens mind. Chickens for dinner are going to get harder to come by and more expensive (1). Food prices have fallen over the past 20 years, off the back of competition, cheap labour, EU market imports and large-scale agribusinesses (or so says the Chicken King) (1). That is set to end. The cost of energy and supplies like fertiliser has gone up, for a variety of reasons. Cheap labour isn’t coming from Europe anymore, and Brits won’t do it (2). There were those stories of food rotting in the fields because the farms couldn’t get staff to pick them (3). Here’s a good Twitter thread on the labour shortages:

Anyone with half an ear to the farming community knew this would happen. I know quite a few farming families, many voted for Brexit, and as far as I can work out they thought they would still be receiving subsidies from the government, and the lack of EU legislation would mean they could go gung-ho for currently banned fertilisers/ pesticides, while still selling into and receiving labour from the EU market. There was a lot of goose that laid the golden egg promises. The Government appears to have viewed the opportunity to set it’s own subsidies as a way to pivot towards sustainable practices (4). Which is great for the planet, but not so good if you’re an agri-business. The upshot is a lot of farmers are going to lose a lot (maybe half) of subsidies (5). If you’ve watched Clarkson’s Farm you know how precarious a lot of farming when you don’t have fame and public buffoonery to fall back on. Farmers are going to go bankrupt.

So, food is getting more expensive. Our monthly food bill has gone up. I’ve mitigated by always buying meat from a local vertically integrated butcher, and seasonal veg from a co-operative organic growing scheme (doncha know). Some people can’t afford that. We get our milk through a milkman who pays the farmer a fair price direct. Talking over the fence to a neighbour they said “oh that sounds too expensive”. I hope the population will start to see the sense in buying very local, very seasonal food, because it’s cheaper. It used to be if you were poor you ate cheap cuts of meat. I worry that people are used to £3 chicken.

And that’s before we get onto gas prices.

Energy bills are going to keep going up for the next 18 months (6). It’s going to put millions into fuel poverty (7). Most people will be £1000s worse off due to the combination of inflation, stagnant or falling wages/ benefits, and increased household bills (8). We may not see the government inflation figures rise much, but we will definitely feel it, and I’ve seen unofficial figures at 4-5%. Not that savings or interest rates will go there. If they did thousands would default on mortgages and loans. Plenty of new energy businesses have gone bust, the competition that was supposed to drive the prices down from the big boys not able to weather the storm (9). The big six remain the most complained about (10). Much like in the water industry, where the big boys keep failing, and suck up the fines as a cost rather than actually fixing the problems (11).

How do you combat the current setup? I quite like the idea of local energy production. Again, in the old days every town and city had it’s own power station. Now with the grid and massive power stations for maximum efficiency we’re reliant on a few providers and a few sites; hence the issue with the Kent interconnector fire (12). There’s a push back as part of sustainability drives to local energy production through Community Energy groups (13). Local investors buy bonds in small projects to supply cheaper energy to the local area. Maybe this could happen with the return of local stock exchanges, where you could buy into local businesses (14). Probably a bit revolutionary. At least in Wales the Government and Community Interest Companies are pushing forward with local energy sustainable energy production (15, 16). Wind and wave power may yet see the Welsh valleys reborn (17, 18). Neither will be cheap.

Taken together, things are going to get more expensive. Brexit and macro-economics seems to be pushing things more locally – “onshoring”. The global labour/ supply chain and just-in-time deliveries have made things cheaper. How would you feel if food returned to costing a third of the average household income (19,20)? Food, energy and basic household items are going to get more expensive, so time to tighten the belts.

September 2021 Dashboard

These are taken, as always, from my Beast Budget spreadsheet. I saved just under 20% of my salary, as I move to cover 90% of our household bills with MrsShrink off on maternity leave. This months S&S ISA money again went into Vanguard’s ex-UK Dev World Acc Fund. More churn in my Freetrade account, buying back into GME and some other hyped nonsense, and out of sensible dividend and environment stocks. If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

  • Groceries – Budget £200, spent £260.03, last month £196.58 – On holiday at the start of this month, with spending correspondingly inflated
  • Entertainment – Budget £100, spent £95, last month £113.55 – Making the most of the few warm days with babysitters
  • Transport – Budget £250, spent £210.35, last month £163.98
  • Holiday – £150, spent £274.65, last month £0
  • Personal – £100/ £0/ £73.85
  • Loans/ Credit – £50/ £188/ £159
  • Misc – £50/ £334.25/ £69 – Made a will, paid some nursery fees
  • Fees – £300 /£134.57/ £149.57

In the garden:

I love this time of year, reaping rewards of planting. At the same time I’m tinged with melancholy, knowing that my growing season is coming to an end. Mowing the lawn, tidying hedges, sowing winter seed. Lots of pickling of things like tomatoes, beetroot, french beans and gherkins. Soon it’ll be cold again, and it’s time to relish those few last warm days. Just a shame there weren’t many!

Happy October everyone!

The Shrink

References:

  1. https://www.walesonline.co.uk/news/uk-news/chicken-king-warns-days-cheap-21858567
  2. https://www.telegraph.co.uk/news/2021/10/17/wont-brits-pick-vegetables-30-hour/
  3. https://www.theguardian.com/business/2021/aug/25/the-anxiety-is-off-the-scale-uk-farm-sector-worried-by-labour-shortages
  4. https://www.instituteforgovernment.org.uk/explainers/agriculture-subsidies-after-brexit
  5. https://www.ft.com/content/62bf13df-195c-4f0b-a1d5-db1c80ffffd1
  6. https://www.theguardian.com/business/2021/oct/21/expect-18-more-months-of-rising-energy-bills-uk-householders-warned
  7. https://www.bbc.co.uk/news/business-58831110
  8. https://www.theguardian.com/money/2021/oct/19/british-households-will-be-1000-worse-off-next-year-thinktank-warns
  9. https://www.bbc.co.uk/news/business-58903122
  10. https://assets.publishing.service.gov.uk/media/54e1e26ce5274a451400000b/Summary_of_hearing_with_Energy_Ombudsman.pdf
  11. https://www.sas.org.uk/news/water-industry-fails-to-cut-pollution-again/
  12. https://www.energylivenews.com/2021/10/15/fire-struck-ifa-interconnector-not-fully-operational-until-2023-national-grid-says/
  13. https://www.thisismoney.co.uk/money/bills/article-9935477/Locals-bought-two-turbines-power-lido-make-profit-flow.html
  14. https://www.econstor.eu/bitstream/10419/141821/1/859906256.pdf
  15. https://www.southwalesargus.co.uk/news/19648241.wales-explore-public-owned-energy-company-renewables/
  16. https://www.thegreenvalleys.org/
  17. https://www.walesonline.co.uk/news/local-news/windfarm-senghenydd-caerphilly-rct-21960922
  18. https://www.business-live.co.uk/enterprise/17bn-green-energy-project-swansea-21956299
  19. https://www.which.co.uk/news/2019/11/heres-how-our-food-prices-compare-to-30-years-ago-and-you-might-be-surprised/
  20. https://www.hillarys.co.uk/back-in-my-day/

July 2021 – Property Planning

We recently signed up to a new five year fixed mortgage. Five years seemed a good time to fix at 1.65% for, with the spectre of inflation lurking (and potential associated interest rate rises). We’ve spent quite a bit (~£20k) on renovating our current house over the past two years, getting it to how we want it. Over that time local house prices have continued to rise. Wales appears to be bucking the trend, as house prices continue to rise here whilst falling or flatlining elsewhere in the UK (1, 2). Zoopla seems to estimate that our house is worth 10-15% more than we paid for it three years ago. The Rightmove estimates have asking prices for our area rising by 15% in one year (1). This seems an overestimate, and more about ambitious sellers. Either way, we would hope to achieve a 10% increase, and the useful leverage of a mortgage makes the equity my most significant asset.

Received wisdom (or what estate agents tell you) is to buy at the absolute upper limit of what you can afford. Borrow to the hilt, as that outsized leverage will boost your equity return.

When we purchased our current property it was following two previous purchases where we were gazumped/ outbid. For one, a property round the corner from our current home, it went to sealed bids and we narrowly lost. I found out later (through discovery of a mutual friend of the owners) that the ‘winner’ could not meet their bid, pulled out, the sale fell through and the owners remain in the property. The other potential purchase was in a different suburb, 15% more expensive than our current home was priced, and was a proper fixer-upper. We were gazumped by an offer 10% over our asking price bid prior to contract exchange. I am still sore about that.

We set a firm limit on our budget when we were buying this house. The mortgage had to serviceable by a single one of our salaries, just in case. Staring down the barrel of statutory maternity pay I am glad of this self-imposed limit. Estate agents and banks offered us 150% of what we spent, on favourable terms. We looked at some much larger houses in the countryside at the time. Houses that are now worth 20% more thanks to the pandemic rural shift. Will all those people who have moved be happy once they realise the internet doesn’t get better than 10Mbps, no takeaway delivers, and they need to do a 15 minute drive for a pint of milk on a Saturday morning.

Both MrsShrink and I were raised in the countryside (a market town and a hamlet respectively). With the new generation here we will return to our roots at some point. We hope that we haven’t missed the boat on rural house prices; I suspect we haven’t and a rejuvenation of city centres with bars, independent stores and activities will once again lure people back.

A shopping list is already being put together for that eventual purchase. Like Simon Lambert of the This Is Money podcast, stamp duty dissuades us from too many further purchases (3). Without stamp duty we would be tempted towards another five year property step up the ladder. As it is we will probably look for another fixer-upper as a forever home. A lifetime timescale means planning for 20 years in the future, and there the recent IPCC report on climate change has me concerned (4). Everything in the report frankly scares me witless, and I have to hope for the inventiveness, altruism and resourcefulness of the human race, even if others don’t (5, 6). Things like using flooded coal mines to heat homes through geothermal waters (7).

The specific bits of the IPCC report that’s got me thinking refers to sea-level rise and water cycles. Large parts of the UK are only a couple of meters above sea level, and the IPCC report suggests a rise of 0.28-0.55m by 2100 on the minimum best-case climate change projection, 0.63-1.02m in the most likely scenario, and up to 5m in the worst case estimates (Box TS4, Technical Summary)(4). It’s difficult to picture this, and the conventional flood risk calculators from the government (England, Wales, etc) used on building surveys and by insurers don’t seem to take it into account (8, 9). Helpfully Climate Central provide two different models, a coastal screening map and the more complex Surging Seas map which includes multiple models and the latest research based on Antarctic melting (10, 11).

Our future home will need to be >20m above sea level and away from active flood zones. How many of those taking ownership of a new build property as a forever home could anticipate annual flooding in the 2030s due to more extreme weather and sea level rise. We’re also aiming to be as off-grid as possible, for resilience and environmental purposes. Solar PV, ground source heat pumps, micro-hydro, and Tesla Powerwalls are all future dreams. Is this overly extreme? A bit prepper? Would welcome thoughts in the comments.

July’s Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved around 33% (28% not including pension) of my salary, which will probably be the last of the big savings months as MrsShrink is moving to statutory maternity pay. This months S&S ISA money again went into Vanguard’s ex-UK Dev World Acc Fund. There’s been a bit of churn in my Freetrade account, moving out of meme stocks into more long term holdings – mostly selling the last of my GME/ PLTR. If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

  • Groceries – Budget £200, spent £396.02, last month £281.22 – This is hugely over. MrsShrink and I sat down and noticed we had been spending at least £150/week in supermarkets, plus smaller shops. We’re not sure what this is on, which is a worry, so it’s going to be rice and beans for a month to see.
  • Entertainment – Budget £100, spent £133.45, last month £219.15 – We’ve been hosting a bit this month, which explains this cost
  • Transport – Budget £250, spent £384.92, last month £445.35 – More car parts. Thanks to my Starling pots and budgeting I’ve still got a little set aside for this
  • Holiday – £150, spent £0, last month £0
  • Personal – £100/ £78.71/ £236.81
  • Loans/ Credit – £50/ £960/ £340 – The main focus this month
  • Misc – £50/ £145.83/ £535.24 – A baby is an expensive investment
  • Fees – £300 /£421.85/ £630.26 – My indemnity fees have increased, so I’ll need to revisit this

In the garden:

Full on harvesting now, with lots of green beans, courgettes, cucumbers and squashes. First tomatoes should be this month, and the potatoes are hardening off in the ground ahead of being lifted. The heatwave caused a lot of my lettuce to bolt, so I’ll need to sow some more. I’ve also got some curiosities (luffa, salad burnet, land cress) going in the greenhouse.

Happy August everyone!

The Shrink

References:

  1. https://www.bbc.co.uk/news/uk-wales-58203740
  2. https://www.thisismoney.co.uk/money/mortgageshome/article-9893165/House-prices-UK-Asking-prices-fall-time-year-says-Rightmove.html
  3. https://www.thisismoney.co.uk/money/podcast/index.html
  4. https://www.ipcc.ch/report/ar6/wg1/#TS
  5. https://www.forbes.com/sites/jamesconca/2021/08/16/latest-ipcc-report-predicts-disasteryet-again-but-not-much-will-happenyet-again/
  6. https://www.theguardian.com/commentisfree/2021/aug/13/ipcc-latest-climate-report-hope
  7. https://www.bbc.com/future/article/20210706-how-flooded-coal-mines-could-heat-homes
  8. https://flood-warning-.service.gov.uk/informationlong-term-flood-risk/postcode
  9. https://naturalresources.wales/flooding/check-your-flood-risk-by-postcode/?lang=en
  10. https://coastal.climatecentral.org/map/11/-0.1212/51.4848/?theme=sea_level_rise&map_type=year&basemap=roadmap&contiguous=true&elevation_model=best_available&forecast_year=2050&pathway=rcp45&percentile=p50&return_level=return_level_1&slr_model=kopp_2014
  11. https://ss2.climatecentral.org/#9/51.5074/-0.1278?show=satellite&projections=0-K14_RCP85-SLR&level=5&unit=feet&pois=hide

Quarterly Returns – Q4 and 2020 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.

So that’s 2020 done and dusted, a global annus horribilis. For some it’s seen mounting debt, for others an opportunity to save. I’ve spent a lot of time reflecting. Here’s the update.

Q4 Returns:

Net worth excluding my DB pension & student loan
  • Cash Accounts £12,000 (-£1,300)
  • Investments £7,950 (+£1,850)
  • Property £49,700 (+£1,100)
  • Cars £2000 (no changes)

This quarter we finished some major house renovations, had a tiny UK-based holiday, and spent the rest of the time locked down and hermit-like at home gorging on fancy food. House renovations sucked up some saved cash, but my net worth was boosted by my continued investment and the stock market bounce back.

As a result of the above my net worth now sits at ~£67,500. This has continued the rough progression of £20k/year increases; my end of 2018 net worth was ~£28,500, and end of 2019 was ~£49,700. Unlike previous years this increase hasn’t been smooth, and has seen decreases in some months (renovation spending, stock market falls). I’ve mean averaged a monthly net worth increase of 1.7%, combining to a year total of ~20%.

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.

I currently hold £12k in cash accounts, so by rights this goal should count as complete. I’ve learnt over the course of the year that holding cash in our joint current account is not sensible, as it tends to evaporate purchasing nice things for our house/ life. Lifestyle creep I suppose. £8,800 of my emergency fund is in my name, split about 50% premium bonds, 40% cash saver, and 10% Starling ‘pot’. The Starling emergency pot is the instant access option, with the cash saver available in 24-48 hours, and the premium bonds <5 days.

For 2021 £12k remains my emergency fund target. Our stripped back monthly household expenses run around £1,800-2,000, so £12k allows a six month buffer. I plan to make my emergency fund (almost) entirely separate from the rest of my cash accounts. This means upping a few pots to be about £6k premium bonds and £4.5k cash saver, with the rest in my Starling pot and our joint current account. I also need to get my unsecured debts back to £0. So for 2021, the goal is: Finalise emergency fund structure and pay off credit card.

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)

2020 Savings Rate

Despite the wobbles thanks to (a) NHS payroll and (b) house renovations, I’ve smashed my savings rate goal with an end year mean average of 34.7%. This is way above previous years (2018 15%, 2019 23.5%). I blame lockdown. In line with my plan for incremental goals, 2021 will be: Save 35% of my income.

Goal 3: Calculate savings made by growing my own food

This goal proved to be harder than expected for two main reasons. First, it’s kind of hard to work out how much you’re actually savings; it requires tabulating all your produce and then cost comparisons with supermarkets. It’s a level of spreadsheeting that I couldn’t bring myself to. My little gardening notebook goes bare when the renovations took over my time, but I kept a rough tally. I spent ~£50 on seeds (yes, a lot) over the course of the year, and grew about ~£80 worth of veggies. Second, my own apathy as a result of the first.

I’ve learnt something important from this goal. Making targets, goals and objectives for hobbies can make them a chore. Gardening, cars and blogging are all hobbies I enjoy. They’re supposed to be relaxing. If I’m trying to reach a target then it stops being something to enjoy. The Mad Fientist covered this well in his recent post “A Better Alternative to Resolutions and Goals(2). Instead I need to just make time for the process, and let outcomes result as they will. Goal 3: Make goalless time every month for hobbies.

Goal 4: Make changes to reduce carbon footprint

It feels like lockdown has enforced this on so many people. We have not flown or been abroad for holidays. My commute is a fraction of what it was. We continue to eat local produce, and we use Splosh for our household cleaning (3). If you want to give them a go use referral code YQL240THX1 to get 15% off. We use Bulb for our energy. We rarely buy new clothes, and if we do they are organic sustainable cotton or wool. We’ve been buying gifts and household items from the local zero-waste shop. Our veg/ fruit comes from either the local organic co-operative, or if from a supermarket we only buy seasonal UK stuff. Our meat comes from a fantastic butcher who only sources local, high welfare animals. We’ve reduced our meat consumption so it’s a treat, roughly now three veg, two fish, two meat/ week. Next steps will be switching to milk bottle delivery, and getting our fish delivered by the local fishmonger from UK catch. Overall, I feel like we’ve made quite a few low-hanging lifestyle changes.

From here, it’s thinking about bigger impact changes we can make. Switching to an electric car is tempting, but probably not meaningful given the tiny amount of driving we do in efficient, older cars. Installing solar panels/ ground source heat pumps etc are probably not economical until we have a larger home. Suggestions welcome.

Goal 5: Automate investments and savings

Another success from this year, automating things so I pay my Freetrade account first. My regular savers have come to an end, and as noted above, I’m pretty close to my emergency fund target. I’ve recently found out about the Principality Thank You Saver, which is a 1.4% regular saving offering for NHS workers in South Wales (4). Lovely stuff. I’ll be using that to top off my emergency funds. In my investments, I’ve mixed adding new funds/ stocks and topping up existing holdings.

Rough Global Asset Allocation
Asset Allocation in Investment Portfolios
Core to Satellite Ratio

Core/ Satellite Passive/ Active Split

I’ve basically spent this quarter topping up my iShares EM ETF and Vanguard FTSE All World holdings (fancy a free share? Sign up to Freetrade using this link, and we both get one). The YTD time-weighted rate of return is 13.44% in my Freetrade ISA, whilst my Vanguard ISA has a 23.15% absolute return. The graphics in my Freetrade account suggest my time-weighted rate of return is a couple of percentage points above VWRL, whilst maintaining a smoother progression thanks to holdings in TRIG, UKW and a couple of consumer staples. I really need to benchmark my investment spreadsheet to properly calculate this.

I continue holding some cash as a buffer. I’ve gradually realised I am actually more risk averse that I thought. I idealise that I am gung ho, and willing to YOLO on individual stonks. My behaviour pattern is quite the opposite, as although I’m holding lots of equities and DIDN’T SELL!!1!!111!, I didn’t buy cheap tech stocks, instead purchasing counter-cyclical holdings. Hindsight is 2020.

Plans for 2021:

Some changes here. I’ve been reading a lot of Slate Star Codex, and in that vein I am going to start assigning goals predictions on whether I will achieve them. I’ll also make some rough predictions with conviction percentages for the next year. I already do this in as part of my Investment Strategy Statement and in a paper diary about my personal life, so I might as well move it here, with passages redacted. This is essentially an experiment analyse my underlying bullish/ bearish traits at future predictions. Therefore, targeted goals:

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

Predictions.

  1. UK vaccination will be completed before the July – 75%
  2. Greater than 200,000 UK COVID deaths – 30%
  3. UK has worst death rate as percentage of the population in the world – 60%
  4. Under-reporting in developing nations hides significant pandemic effects – 90%
  5. The UK tier system is still in use in December 2021 – 60%
  6. The UK experiences another ‘lockdown’ in winter 2021/2 – 75%
  7. COVID-19 mutates into a form immune to the current vaccine – 40%
  8. I am personally working in office >80% of the time again at some point in 2021 – 10%
  9. Someone I am close to will die of COVID-19 – 25%
  10. Endemic COVID-19 circulates in the population with lockdown easing and shops re-opening – 80%
  11. … and self-isolation becomes normalised – 80%
  12. … and higher death rates tolerated among the over 50s with consistent effect on life expectancy by end 2021 – 75%
  13. Boris resigns – 60%
  14. Keir Starmer above BoJo in the opinion polls – 80%
  15. Inflation above 2% – 75%
  16. … due to Brexit-resultant shipping and food cost rises – 60%
  17. There are resultant food shortages – 10%
  18. Homeless rate rises – 95%
  19. Foodbank usage rises – 95%
  20. House prices continue to increase – 75%
  21. FTSE100 above 7,000 – 60%
  22. FTSE100 remains above 6,500 – 80%
  23. FTSE100 hits 7,500 – 20%
  24. FTSE250 hits 22,000 – 60%
  25. S&P500 hits 4,000 – 75%
  26. S&P500 hits 2,500 – 30%
  27. £ hits $1.40 – 50%
  28. We have £100k in equity – 95%
  29. We start to overpay our mortgage – 30%
  30. I have £15k invested – 30%
  31. I am saving £1k/month – 30%
  32. We have [redacted] – 90%
  33. MrsShrink [redacted] – 75%
  34. We replace one of our cars – 50%
  35. The project car gets repainted – 25%
  36. The project car gets sold – 10%
  37. We have a holiday – 80%
  38. Outside of the UK – 20%
  39. I learn another language – 30%
  40. I continue to exercise at least three times/ week for the whole year – 75%
  41. I can do a pull-up again – 40%
  42. I can do a hand-stand press up again – 20%
  43. I return to [redacted] – 10%
  44. I complete [redacted] – 25%
  45. My ongoing work has not conformed to anticipated plans – 90%
  46. I publish [redacted] – 90%
  47. I publish [redacted] – 25%
  48. I publish on average four posts/ month – 40%
  49. Most page views ever this year – 30%
  50. This blog gets abandoned – 10%

Let’s see how this bit of fun plays out.

Happy 2021 everyone. Let’s hope for a better year,

The Shrink

References:

  1. https://flowchart.ukpersonal.finance/
  2. https://www.madfientist.com/mastery-over-goals/
  3. https://www.splosh.com/how-it-works
  4. https://www.principality.co.uk/savings-accounts/everyday-savings-accounts/thank-you-online-saver

Quarterly Returns – Q3 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.

2020 continues to be the weirdest year in a while, so how are we faring financially?

Q3 Returns:

Net worth excluding my DB pension & student loan

  • Cash Savings Accounts £13,300 (+1,100)
  • Investments £6,100 (+£1,000)
  • Property £48,600 (+£5,700)
  • Cars £2000 (no changes)

Slow increases in my cash savings, which comes as a bit of a shock to me given the amount of spending we’ve been doing on house renovations. My investments have actually gone down slightly, with a gain over the three months of less than I’ve put in. Reasonable jump in our property equity consistent with an increase in local house prices, and this has driven the rise in my net worth.

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.

Source: https://flowchart.ukpersonal.finance/ (1)

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)

YTD Savings Rate

My savings rate has been all over the place this quarter, thanks to some early/ late payment of my salary, and then a subsequent overpayment and underpayment. Wish my payroll department could sort itself out. I’m still averaging 37.17% over the year, so on track to beat my goal.

Goal 3: Calculate savings made by growing my own food

This goal has been somewhat forgotten, as I got distracted from the garden by house renovation. We have had a good glut from the harvest; toms, potatoes, courgettes, marrows, pumpkins, french beans, peas, carrots, onions and plenty of salad veg. I have failed to maintain my spreadsheet, but I have been keeping a diary of what’s grown well (or not). I’ve had great success with varieties bought from the Real Seed Company, so would recommend them for next year (2).

Goal 4: Make changes to reduce carbon footprint

I continue to work from home, we’ve only had a couple of long weekends away in the UK (so no foreign hols), we continue to eat local produce, and we use Splosh for our household cleaning (3). I’ve spoken about them before; 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. We’ve found we actually save money as well, as the concentrate is strong stuff even watered down, and we use less. If you want to give it a go use referral code YQL240THX1 to get 15% off.

Goal 5: Automate investments and savings

My regular savings account and FreeTrade investment is all now automated and working nicely. A few of the savers have come to an end, and I’ve pivoted that money to pay off new credit card debt from house renovations. My final regular saver comes to an end in December, and I’ll need to have a think about the best direction for that cash. In my investments, I’ve mixed adding new funds/ stocks and topping up existing holdings.

Core/ Satellite Passive/ Active Split

After purchasing a few stocks and active funds in Q2, it was back to slow and steady drip feeds into my iShares EM ETF and Vanguard FTSE All World holdings. Both have hovered around my buy price through the quarter, and I wouldn’t be surprised to see losses. I’m currently holding a reasonable chunk in cash to deploy if necessary and as an extra buffer for the next 3-6 months. Or at least that’s the cognitive trick I play on myself to tell myself that I’m not timing the market.

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

Hope everyone else (outside of lockdowns) are seeing gains,

The Shrink

References:

  1. https://flowchart.ukpersonal.finance/
  2. https://www.realseeds.co.uk/
  3. https://www.splosh.com/how-it-works

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

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/#/

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/

The Financial Dashboard – April 2019

The goals for April were:

  • Sell £100 worth of stuff
  • Set up pots for holiday and personal money
  • Look at other ways to reduce environmental footprint
  • Set up regular stock investment
  • Finish my portfolio spreadsheet

Checking the assets and liabilities:

April AssetsApril Liabilities

These are taken, as always, from my Beast Budget spreadsheet. This month my net worth grew by £1,108, 3.34%. I put the final £200 in my 5% Santander saver, which matures next month. Santander have dropped the interest to 3% now so I’ll probably open a separate account elsewhere. We continued to pay down our family wedding loan. At the end of last month the clutch began to go on my daily driver, so I stumped up for a replacement. This went partly on my credit card, so swallowed up efforts to reduce that debt, but I was able to clear part using money put aside in a car maintenance savings pot.

Goals:

Goal failed: Sell £100 worth of stuff

Continuing to fight hordes of time-wasters, asking me to part with big ticket items for tuppence. Wearisome.

Goal achieved: Set up pots for holiday and personal money

Quick and easy win this. My accounts now have an organised flow, where my salary comes into my main account, then anything after bills and direct debits gets moved into my Starling. This has spaces set up, which I’ll start to fill with the budgeted holiday and personal money.

Goal achieved: Look at other ways to reduce environmental footprint

I’ve already spoken about moving to a sustainable energy supplier (Bulb) and trying to reduce our plastic usage. We eat local and healthy, though I admit with busier work comes decreased time to actually organise healthy food. We’ve reduced our plastic consumption for toiletries, using shampoo and soap bars, switching back to washing powder in cardboard boxes. Toilet roll was an issue. Most supermarket toilet roll isn’t recycled, the production process is surprisingly damaging and toxic, and then it’s all wrapped in plastic and shipped to us. A great case in point of clever branding is the new company Who gives a crap (1). They make a big thing of eco credentials; all their loo roll is either recycled or from sustainable bamboo, it’s wrapped in paper and 50% of the profits are donated to safe water/ waste charities. My major issue; all this loo roll gets containerised from factories in China invalidating some of the headline eco credentials.

In looking for alternatives I found the shopping guides from the excellent website Ethical Consumer (2). They score and rank companies on their ethical and environmental merits to produce a list of bestbuys. We opted for the UK manufactured Ecoleaf, which is the same price as standard supermarket loo-roll, and half the price of Who Gives a Crap. We’ll be using the website again, as it’s got guides for most household products, which can be purchased on the Ethical Superstore (3).

Goal failed: Finish my portfolio spreadsheet

It’s surprisingly hard to find a platform for a portfolio that has all the functionality I want. I’ve amalgamated/ butchered YFG and Firevlondons’ spreadsheets, but I’m still not happy.  I’m going to give the Rebo app developed by Andy at Liberate Life a go (4, 5). May well end up drafting something new.

Goal achieved: Set up regular stock investment

A set amount a month is now going into my S&S ISA. I’m somewhat limited in my portfolio options at the moment, due to using Vanguard as my platform. I’ll cover what I’m going to do about it in my next Quarterly update.

Budgets

  • Groceries – Budget £300, spent £184.25, last month £207.01.
  • Entertainment – Budget £150, spent £99.38, last month £76.50.
  • Transport – Budget £460, spent £851.53, last month £329.90. Grim.
  • Holiday – £150, spent £0, last month £0.
  • Personal – £100/ £41.88/ £47.57.
  • Loans/ Credit – £350/ £88.97/ £748.44.
  • Misc – £50/ £121.92/ £81.77. Misc payments this month:
    • £40-odd at Dunelm for bathroom furnishings
    • £30-odd on chicken feed
    • £50 on bathroom fittings

In the garden:

Everything is starting to come up, my favourite time of year in the garden. We have: two types of tomatoes, two types of potatoes, two types of onions, radishes, salad leaves, lettuces, courgettes, spring onion and various beans. The clematis is in flower and the raspberry is shooting up canes. All good things.

Goals for next month:

  • Sell £100 worth of stuff
  • Finish my portfolio spreadsheet
  • Get two extra blog posts out
  • Remortgage
  • Set up new bank accounts

What’s in the pipeline: (Life continues to get in the way of blogging)

  • Our wedding pricetag
  • How I calculate my net worth
  • Stoicism and the finance world
  • Green Credentials
  • Property Renovation Lessons Part III
  • Plus the usual Full English Accompaniments and other drivel…

Happy May everyone,

The Shrink

References:

  1. https://uk.whogivesacrap.org/
  2. https://www.ethicalconsumer.org/home-garden/shopping-guide/toilet-paper
  3. https://www.ethicalsuperstore.com/
  4. https://reboapp.co.uk/
  5. http://liberate.life/index.php/2019/05/01/track-portfolio-rebo/

The Full English Accompaniment – Watch the population slump, and then the economy

What’s piqued my interest this week?

In the allocations section of my Investment Strategy Statement I mentioned that I favour emerging markets (a generalisation) because of changing demographics. Events of the past few weeks have prompted me to flesh my thought process out. I have a hunch/ theory/ feeling in my waters that long term stock market movements correlate to changing demographics (so far so normal), particularly the ratio of 20-40 year olds to other demographics. This has long been muted, but is difficult to prove, partially (I think) because it depends on where and how you define the demographics and stock market changes, and how you look at dependants (1). It should be noted by the passive investor because if you invest in a national index now you want to be sure that that same index is going to keep going up.

The Japan Problem

Japan is the canary in the coalmine. People have been noting for some time the relationship between Japan’s relatively stagnant growth and its ageing population. This has improved somewhat under Shinzo Abe, averaging around 1% growth over the past decade despite the significant headwind of a falling population. With the highest life expectancy in the world and a fertility rate of 1.4, Japan’s population is getting older, with the expectation the proportion of those >65 will go from 3 in 10 to 4 in 10 in the next 40 years, with the population shrinking by 25% (2, 3). By 2025 it will have an aged dependant per worker ratio of 75% (3).

This is a huge challenge for a social security system, as more people rely on pensions and the healthcare system than the funds that are coming in (4, 5). Public debt increases or the numbers of workers increase, or both.

Europe

The problem I see is the EU isn’t that far behind. There’s a big post-boomer bubble coming, made up of those born 1955-75 (6). Shock! Millenial not slating the boomers.

We’re already starting to see one sign of the problem, as companies struggle under the weight of increasing pension debts. It’s one of the things that’s dragged down BHS, Debenhams, HoF, and look at the ongoing saga with private railway company operators. Stagecoach and Virgin don’t want to be on the hook for the Railways Pension Scheme deficit (7). As the working population reduces and the dependant population grows this chasm in the unfunded public sector pension schemes will yawn wider. Executives are looking down the barrel and running for the hills, to mix metaphors. This is across Europe. Germany and Italy have expanding dependant populations, Bulgaria has a birth rate of 1.5 and has seen its population fall by 2 million in 30 years, Poland is closing schools due to the lack of children (8, 9). Some countries though, like Sweden, are bucking the trend through immigration.

The Global Picture

Look wider and there are notes of caution but also reasons to be cheerful. Globally birthrates are falling, the low levels in the developed world balanced by high birthrates in India, the Philippines and Africa (8). Emerging market populations are growing faster than the developed markets are shrinking, so the population will keep growing, but at a slower rate (9). This is good news for the planet, which can’t sustain the current growth rates indefinitely, but bad news for those who dislike immigration, as migration will be required to maintain labour forces in the developed economies with shrinking populations. Or will it?

Before I move on it’s worth focusing on three more countries: India, the US and China (9, 10, 11).

Things are looking peachy for India, which has an expanding population likely to drive greater growth even as it modernises and develops (although this is not without its issues). The US is in better shape than most of the developed world, with forecasts for a relatively flat or increasing population before you even take migration into account (12). This is one of the reasons, combined with global corporate and technological monopolies, that I don’t believe the NYSE is about to undergo a crash when the boomers call time and cash their retirement cheques. But what happened to China? The single child policy. We’re past its peak, and now China is looking at a reduction in its working age population of 212 million by 2050 (10). 212 million less people working. That’s the current population of Brazil. That’s what state top-down planning gets you.

‘Abenomics’ and ways out

So how do we get out of our slump? Well we could open our borders to a motivated migrant workforce, but that would just be too sensible and easy. Some authors look back to Japan for the way out of this population pickle. Shinzo Abe has sustained growth in the face of a falling population primarily through recruiting more people into work who previously were not, alongside technological productivity developments (13). Japan in many ways is a deeply conservative country. The perceived social norm continues to be men go to work all day, women are home-makers. In 2013 Abe introduced ‘Womenomics’ (there’s a theme here), increasing female participation in the labour force through a number of methods (13, 14). I don’t feel this would necessarily translate to western European cultures, where women working is the norm. I think efforts in our economy to bring those out of the labour market for whatever reason into work, like zero-hours contracts, have been less successful. There’s more people in work, but productivity and earnings aren’t necessarily increasing.

Technology and automation, on the other hand, probably are solutions. Automation enables greater output with fewer workers, and can be applied to manufacturing, construction and some service industries, as it has in Japan (14). It’s not good news for the factory workers and low-skilled employees, which is all the more reason for Universal Basic Income – an argument for another time. There will continue to be some jobs robots will struggle with; caring roles or where intuition is required. As a shrink I’m probably safe. Robots are yet to understand human emotions.

Major caveats

Important flaws in this whole essay:

The stock market isn’t necessarily correlated with population demographics.

There’s lots of arguments and evidence of this. It can basically be boiled down to:

  1. You can’t correlate specific bear markets, like the dotcom bubble, to demographic/ population change points – this is often identification error
  2. External factors and drivers such as politics (e.g. the fall of the Berlin Wall/ communism etc) have unpredictable effects on a) markets and b) demographics
  3. The timescales and effect sizes are such that the end result on the stock market appears negligible (15, 16).

Add in the fact that we have an increasingly interconnected world, with global corporations taking earnings from multi-national operations, and it all gets murky. I don’t think any developed market is about to crash while companies listed on it’s market utilise cheap developing world labour (17). Just also don’t ignore a developing market with increasing capitalisation (18). Which is why I aim to hold more in certain developing markets. But you, as usual, should do your own research.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

The Right Way to Keep Chickens – Virginia Shirt – Another guide to our new pets.

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://bit.ly/2UVX1x6
  2. https://www.indexmundi.com/japan/age_structure.html
  3. https://www.weforum.org/agenda/2018/12/japans-economic-outlook-in-five-charts/
  4. https://www.economist.com/the-economist-explains/2018/11/26/the-challenges-of-japans-demography
  5. https://www.project-syndicate.org/commentary/japan-demographic-lesson-european-growth-by-daniel-gros-2017-11?barrier=accesspaylog
  6. https://www.indexmundi.com/european_union/age_structure.html
  7. https://www.theguardian.com/business/nils-pratley-on-finance/2019/apr/10/unloved-stagecoach-may-have-a-point-on-rail-franchise-pension-risks
  8. https://www.theguardian.com/business/2019/mar/31/birthrate-crisis-require-new-mindset-growth-population-prediction
  9. https://www.businessinsider.com/2-charts-tell-the-global-demographic-story-2015-12?r=US&IR=T
  10. https://www.businessinsider.com/changes-to-working-age-population-around-the-globe-2016-12?r=US&IR=T
  11. https://www.indexmundi.com/united_states/age_structure.html
  12. https://fat-pitch.blogspot.com/2018/05/demographics-growing-prime-working-age.html
  13. https://www.wsj.com/articles/how-aging-japan-defied-demographics-and-turned-around-its-economy-11547222490
  14. https://www.cnbc.com/2018/02/09/what-is-japans-secret-women-and-technology.html
  15. https://medium.com/street-smart/the-demographics-of-stock-market-returns-part-ii-a41a46622198
  16. https://global.vanguard.com/portal/site/institutional/nl/en/articles/research-and-commentary/vanguard-voices/demographics-and-equity-returns-vv
  17. https://www.economist.com/finance-and-economics/2019/03/28/slower-growth-in-ageing-economies-is-not-inevitable
  18. https://www.forbes.com/sites/advisor/2018/08/01/should-long-term-investors-own-more-emerging-market-equities/#3fcebc6854ee
  19. https://www.bbc.co.uk/news/business-47609539
  20. https://www.theguardian.com/business/2019/apr/04/sales-new-cars-fall-uk-consumers-continue-shun-diesel-brexit
  21. https://www.theguardian.com/business/2019/apr/04/us-china-risk-house-price-slump-trigger-recession-imf-lending
  22. https://www.theguardian.com/business/2019/apr/01/was-the-us-stock-market-boom-predictable
  23. https://www.theguardian.com/business/nils-pratley-on-finance/2019/apr/01/fca-supervision-lcf-london-capital-finance-investigated
  24. https://monevator.com/the-slow-and-steady-passive-portfolio-update-q1-2019/
  25. https://monevator.com/what-is-a-sustainable-withdrawal-rate-for-a-world-portfolio/
  26. http://quietlysaving.co.uk/2019/04/01/march-2019-other-updates/
  27. http://quietlysaving.co.uk/2019/04/11/freetrade/
  28. http://www.mrmoneymustache.com/2019/04/01/how-i-sold-this-website-for-9-million/
  29. https://gentlemansfamilyfinances.wordpress.com/2019/04/01/month-end-accounts-march-2019/
  30. https://gentlemansfamilyfinances.wordpress.com/2019/04/03/fire-health-the-diabetes-epidemic/
  31. http://diyinvestoruk.blogspot.com/2019/04/trig-share-offer-completed-update.html
  32. https://youngfiguy.com/audit-reform/
  33. https://simplelivingsomerset.wordpress.com/2019/04/09/through-the-brexit-looking-glass/
  34. http://eaglesfeartoperch.blogspot.com/2019/04/financial-planning-2019-annual-review.html
  35. https://www.msziyou.com/net-worth-updates-march-2019/
  36. https://www.msziyou.com/dating-as-a-feminist/
  37. https://indeedably.com/random-acts-of-bastardry/
  38. https://indeedably.com/feels-like-home/
  39. https://indeedably.com/designed-to-fail/
  40. https://www.ukvalueinvestor.com/2019/04/rightmoves-share-good-value-dividends.html/
  41. https://www.ukvalueinvestor.com/2019/04/three-value-traps.html/
  42. https://www.ukvalueinvestor.com/2019/04/three-value-traps.html/
  43. https://tuppennysfireplace.com/how-to-stockpile-food-shortage/
  44. http://twothirstygardeners.co.uk/2019/04/building-a-raised-bed%EF%BB%BF/
  45. https://sharpenyourspades.com/2019/04/13/allotment-gardening-and-the-power-of-to-do-lists/

View at Medium.com

Quarterly Returns – Q1 2019

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.

This post marks one year of my blog. One year of posting rants and general waffle. It marks a new year, and the end of the old tax year, so how did I get on in my Q1 of 2019?

Q1 Returns:

Net Worth Q1

  • Cash Savings Accounts £2800 (+£1000)
  • Investments £1000 (+£1000)
  • Cars £3000

My net worth now sits at £~33,200, an increase of £4.7k over the past three months, and up dramatically from the £~20,000 I first wrote about twelve months ago. I’m fairly sure I won’t be able to keep up a 60% increase in net worth, but I’ll keep a twelve month rolling calculation out of curiosity.

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).

I’ve continued to add to my Santander 5% regular saver, which will reach maturity this month. It currently stands at £2200, which is a month of total household expenses at our current spending, or two months of my half. I’m now looking to set up another regular saver. I’ve parked some extra cash to pay for upcoming car and work related expenses. In the past three months I’ve decided I’m going to define my goal emergency fund as three months total household expenses (£6k) in my name, plus a further three months (£6k) held jointly. This seems a fairly realistic target for the next year.

Goal 2: Pay off short-term debts

Q1 Short Term Debt

At the start of 2019 my short terms debts stood at £1.25k to family and £2.6k on 0% interest credit cards. In the past three months I’ve paid £1k off our loan to family, but some significant work expenses had to go on my credit card, so that figure has only come down by £600. I’m going to have to work hard to achieve my goal of clearing my credit card by the end of Q2.

Goal 3: Save 25% of my earnings

Q1 Net Worth

In the past three months my savings rate has gradually increased, but it’s a bit early to take averages, particularly with the March outlier. I calculate my savings rate using this formula:

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

Where income minus spend equals the money left from my income in my accounts at the end of the month. It’s important to note I don’t include any mortgage payments in this (i.e. increased equity), nor do I include reductions in debt. This is purely the amount I have been able to save out of my earnings. I see some arguing that imputed rent or equity increases should be included in savings, but for me this figure is a literal savings percentage. Equity/ debt changes show up in my net worth, which accounts for the rapid increase in net worth concurrent with a piddly savings percentage.

Goal 4: Live more sustainably

Some success here. We’ve reduced our plastic usage, we’re eating more locally and sustainably sourced food, and I’ve finished setting up our mini-market garden with new raised beds for veggies and some pet chickens. As things start to crop I’ll add them up and work out cost savings from homegrown produce.

Goal 5: Commence investing!

Q1 Tax Efficiency

I’ve taken the plunge. March’s tax rebate has been quickly squirrelled into a Vanguard S&S ISA. I opted for the FTSE Developed World ex-U.K. Accumulation Fund, buying at £352.62/unit. I learnt a quick lesson in a) market timing and b) not checking investments too frequently, as literally the day after the price fell to £341/unit. I’m not in it for short term gains, I told myself.

Since then I’m trying to avoid impulsively checking the NAV every hour (bloody idiotic), busying myself building a spreadsheet to track returns and allocations. Like many others my intention is to unitise my portfolio (1, 2, 3, 4). I’ve been reading about this methodology through (as usual) Monevator, and also Bogleheads which has a fantastic portfolio spreadsheet (5, 6). Hopefully by the end of Q2 it should be ready to be unveiled.

Until next time.

The Shrink

 

References

  1. https://firevlondon.com/2017/01/17/my-investment-tracking-spreadsheet/
  2. https://www.ukvalueinvestor.com/2018/08/how-to-manage-a-portfolio-of-shares.html/
  3. https://simplelivingsomerset.wordpress.com/2019/01/11/unitising-my-portfolio-shows-i-sucked-last-year/
  4. https://en.wikipedia.org/wiki/Unit_valuation_system
  5. https://monevator.com/how-to-unitize-your-portfolio/
  6. https://www.bogleheads.org/wiki/Calculating_personal_returns#GoogleDocs