Note to self: follow up on more of this: http://richhabits.net/the-worlds-most-prestigious-self-help-university/
Found, with thanks, via Rockstar finance.
Friday, 4 December 2015
Change of tack?
I saw
this article not long after I’d posted my thoughts on how I like dividend
investing – I like to think I’m not so proud to think I know it all, it was
chastening to think that my approach was wrong. However, rather have a knee
jerk reaction, I just let it sit at the back of my mind, then I lost the link
to the article… but now having found the article and had a bit of time to
consider, I will be sticking to my approach.
The way Financial Samurai is advocating makes perfect sense, however, it is also the
way a lot of people underperform. I dare say that everyone would be following a
strategy which identified future Amazon, Google and Apple type returns, but
such continued foresight is surely all but impossible in reality?
Even if
you were able to latch onto a massive winner how long would you hold on to it?
300-500%... 1000%? Would you get worried in a correction and sell your winner
to lock in the great gain? Not unreasonable to do so, but then you’ve got to
find another and another and finding those multi-bagger winners has to happen
quite frequently and kissing lots of frogs will just cost you money and time. Even dialing it back in and saying you’re trying to beat the market is a massive
undertaking which most individuals fail at.
But say
you do chase growth and build up the pot more quickly when you hit your escape
number, or are approaching it, you then need to transition to income producing
shares which leads to a potentially very substantial capital gains hit once
you’re at that level of wealth (though potentially a large one off capital
gains tax charge may be less than the cumulative tax paid on dividends received
over the same period and ISA’s would help), but aside from that you also may
feel that you are changing at the wrong time in the cycle and buying dividend
paying shares when they’re expensive and locking in downside risk as well as
potential loss of income, perhaps you think you can manage your early
retirement by selling units of your growth stocks and relying on the price
rising sufficiently all round to maintain your strategy. The risks of this are
clear, but it also means your income is far from passive and if you’re able to
do this successfully, you could get paid a lot of money to do it full time! Who
doesn’t love that bit of irony!
This
isn’t to say that only stolid unimaginative companies should be bought where
the only attraction is a dividend, any company must have growth potential otherwise
that dividend can’t / won’t be increased and will probably end up being cut.
I like
seeing the value of my shares rise, who doesn’t, however, I love dividends
hitting my account each month and seeing progressive growth year on year! It
allows me to fly off to the time when different sources of income translate
into something firm on which to take the plunge and quit work. I also know I
don’t have the skill to consistently pick successful growth stocks and then
pivot from one strategy to another. This self-awareness, hopefully, protects me
from making really wild punts on The Next Big Thing in a bid to boost my
overall net-worth.
To my
relatively conservative mind a good strategy gets you from A to B; where B is
realistic, achievable and one you would be happy with and the process of
getting there is the same. Yes you want to get there quickly and aim high, but
in seeking shortcuts by targeting high growth sectors, shares or funds in an overly
aggressive or concentrated way can land you back at square one, or worse, in
short order – better to focus on spending less and investing more than chasing future unicorns.
Update: 10/12/2015 - as if by magic someone far more qualified than me pipes up with a similar sentiment.
Update: 10/12/2015 - as if by magic someone far more qualified than me pipes up with a similar sentiment.
Monday, 9 November 2015
Retirement income
I read this article on Bloomberg today. All good stuff about increasing retirement savings, but the most interesting thing for me was the subject's target of replacing 100% of earnings because of expected older age retirement care costs, rather than an expectation of spending like a demon in her golden years.
Thankfully in the UK the NHS provides an excellent safety net for health requirements, but is clearly undergoing change. Whatever your political persuasion, baby-boomers are starting to retire in big numbers and even for the so called 'gilded generation' with their massive pensions and mansions (!) they will lean on the state's infrastructure like never before. This means either higher taxes, higher borrowing, both, or a zero sum game where other departments lose out... oh and that generation are those who are most likely to vote, so they may plump for higher borrowing since, you know, in that respect, time or the lack thereof, is on their side.
But it makes you think - with the above pressures how will you pay for your old age, not just your early retirement?
Perhaps the answer lies within the FIRE community? If you are following this path you're more likely to be fitter. It's notable how many FI bloggers are active people generally, not just cycling to work to save cash. You're more likely to eat better - more home made meals, fewer pre-fab sandwiches chocked with salt and processed meat. When you've hit your escape number any work you do will be because you want to and because it makes you happy, so throw in greater levels of satisfaction and lower stress.
Finally, when you achieve FIRE you're spending will probably drop - see The Escape Artist for proof of that - so as a FIRE devotee you continue to add to your savings pile as you spend less than your passive income streams provide. Combine that with a few more decades of compounding on top of those already accrued and the ability to generate income rises in the period between early retirement and older age.
So, maybe in pursuing FIRE you are more likely to delay incurring those costs because of a longer more positive work life balance and self-sufficient attitude, and then be more likely to meet those costs when they do need to be incurred because you will have been adding to and compounding your wealth for longer.
Thankfully in the UK the NHS provides an excellent safety net for health requirements, but is clearly undergoing change. Whatever your political persuasion, baby-boomers are starting to retire in big numbers and even for the so called 'gilded generation' with their massive pensions and mansions (!) they will lean on the state's infrastructure like never before. This means either higher taxes, higher borrowing, both, or a zero sum game where other departments lose out... oh and that generation are those who are most likely to vote, so they may plump for higher borrowing since, you know, in that respect, time or the lack thereof, is on their side.
But it makes you think - with the above pressures how will you pay for your old age, not just your early retirement?
Perhaps the answer lies within the FIRE community? If you are following this path you're more likely to be fitter. It's notable how many FI bloggers are active people generally, not just cycling to work to save cash. You're more likely to eat better - more home made meals, fewer pre-fab sandwiches chocked with salt and processed meat. When you've hit your escape number any work you do will be because you want to and because it makes you happy, so throw in greater levels of satisfaction and lower stress.
Finally, when you achieve FIRE you're spending will probably drop - see The Escape Artist for proof of that - so as a FIRE devotee you continue to add to your savings pile as you spend less than your passive income streams provide. Combine that with a few more decades of compounding on top of those already accrued and the ability to generate income rises in the period between early retirement and older age.
So, maybe in pursuing FIRE you are more likely to delay incurring those costs because of a longer more positive work life balance and self-sufficient attitude, and then be more likely to meet those costs when they do need to be incurred because you will have been adding to and compounding your wealth for longer.
Wednesday, 30 September 2015
Seeing red
So the stock markets are busy at the moment, maybe the traders need to top up their children's school fee accounts? Those lifestyles don't maintain themselves you know!
So what now after the c.15% fall I was looking for - well, seeing red is never great when you log into your trading account, but there it is, about half of my investments are under water. Some by a few pounds, others by reasonably significant percentages. This makes me feel uncomfortable, obviously, I don't like it at all, but it's worth sticking with because it's caused by and will be helped by reinvesting the dividends.
Up and down, up and down - according to Reformed Broker in the US they are seeing a significant increase in the number of days when the market is up or down over 1% - I haven't totted up how the FTSE is doing, but if feels like it can't be far behind.
So what now after the c.15% fall I was looking for - well, seeing red is never great when you log into your trading account, but there it is, about half of my investments are under water. Some by a few pounds, others by reasonably significant percentages. This makes me feel uncomfortable, obviously, I don't like it at all, but it's worth sticking with because it's caused by and will be helped by reinvesting the dividends.
I generally stick to ticking the box that reinvests the dividends, which means all through the time when the FTSE was going from 6,200 - 7,050 roughly two years from 2013 to early 2015, before tumbling down to where it is now, I was buying shares. These are the ones that are now underwater by a few pounds as more expensive versions of the same shares were bought, taking the average price per share up. The larger losses arise from purchases where I felt I needed to act, bought too quickly and without enough thought - hopefully they will come back and I'll be able to get out of those holes and learn some lessons!
Pre-correction I was earning a yield of just over 5% in good blue-chip, main-stay companies which I bought and add to during dips. I feel this compensates me for my lack of knowledge and skill and increases my chances of avoiding capital losses whilst receiving an above market income return - nice and simple! That yield will now be boosted by the falls through new purchases and top ups along the way.
A slow recovery / this current bouncing about gives me time to think and hopefully act more rationally - my musings on buying shares in the oil industry show just how long I can take to think about things! I'm happy with that as my personal share dealing account is not my main investment pot, across them all I'll be buying more shares and units all the time at, hopefully, discounted prices supercharging future returns - from that point of view, it's all good, but that doesn't make seeing the losses any easier to bear.
I do also genuinely see these as paper losses, crystallised only if I hit the sell button. Since the money invested is surplus to everything else I spend on, I don't need to sell, which generally puts me in a decent position mentally.
So I'm okay seeing red at the moment. Deals are hopefully on offer, rather than "correct" valuations. I've bought Vodafone and the Vanguard worldwide high yield ETF during the slumps, so we'll see what else is out there in the next few weeks...
Tuesday, 29 September 2015
House price bubble?
Okay, this may seem obvious, housing in the UK is way too expensive, but is it entering bubble territory with the potential to deflate in an uncontrolled way.
I don't know if we're about to hit 2007/08 again. As a home owner I hope prices don't collapse and you can draw your conclusions of my ability to forecast on a macro level from the below - I'm an ordinary bloke talking about what I see. In any case the Government has shown a deft hand at re-inflating asset prices - particularly house prices - when it looks like negative equity might hit voters.
As things stand interest rates are rock bottom with no official pressure for them to go up - inflation is low, there are economic concerns abroad / at home, the Government has a massive debt pile to deal with and a little inflation would actually help them quite a lot (but I'm sure that's only a small consideration for the MPC!)
So debt is cheap and the house price Ponzi scheme has been boosted by the Government with help to buy and other bribes. Another factor to consider is lending standards. I personally thought the Bank of England did a good thing 18months or so ago - they tightened the criteria lenders had to follow to approve lending - I've been through it, it's hellish, long and tedious. You get asked how much you spend on clothes and shopping and gas and water, presumably you can stop your water intake to pay the mortgage...
Anyway, instead of using the sledgehammer of interest rates to knock down house price growth, and everything else in the economy, they just focused on telling banks not to lend lots of money to people who can't afford to pay it back. Well done.
Are those standards slipping? Something which would indicate an unseemly bubble. Have the rigorous controls become a tick box exercise more than actual review? This could provide a third leg to the bubble theory.
To conclude my summary of thinking on this I bring in my Kev "Grand Designs" McCloud Housing Index*. Have you seen any of the present series? The houses are monumental which suggests a fair amount of Hubris, but the amount and ease with which people are taking on debt is the issue. The one with tax accountant was great - this poor chap had a brain hemorrhage and having survived it decided to build a massive house without a proper budget. It ended up costing several million, that's million, with an m, pounds. It was "paid" for with over ten different loans including bridging finance at one point.
Ignoring personal decisions about how the house was supposed to make life better for the family involved, though how mountains of debt makes life better I don't know, it's interesting to see the houses built over time against the backdrop of the health of the economy.
A couple of series ago, the projects built between 2009-2012 ish, it was all highly energy efficient, smaller more innovative designs. Now that's all out the window - so far big is back and only the best concrete will do (paraphrased, but the sentiment was used in this show, it's insane.) A few series before that, projects being completed c2006, were mostly very large and paid for with easy loans from the banks...
Clearly this is not scientific and I don't want to be a perma "we're doomed" bear about the housing market, but its interesting to draw the comparisons. Maybe Nemesis is waiting round the corner to bite?
*not a real index
Further reading:
http://alephblog.com/2011/11/05/bubbles-are-easy-to-spot-well-almost/
I don't know if we're about to hit 2007/08 again. As a home owner I hope prices don't collapse and you can draw your conclusions of my ability to forecast on a macro level from the below - I'm an ordinary bloke talking about what I see. In any case the Government has shown a deft hand at re-inflating asset prices - particularly house prices - when it looks like negative equity might hit voters.
As things stand interest rates are rock bottom with no official pressure for them to go up - inflation is low, there are economic concerns abroad / at home, the Government has a massive debt pile to deal with and a little inflation would actually help them quite a lot (but I'm sure that's only a small consideration for the MPC!)
So debt is cheap and the house price Ponzi scheme has been boosted by the Government with help to buy and other bribes. Another factor to consider is lending standards. I personally thought the Bank of England did a good thing 18months or so ago - they tightened the criteria lenders had to follow to approve lending - I've been through it, it's hellish, long and tedious. You get asked how much you spend on clothes and shopping and gas and water, presumably you can stop your water intake to pay the mortgage...
Anyway, instead of using the sledgehammer of interest rates to knock down house price growth, and everything else in the economy, they just focused on telling banks not to lend lots of money to people who can't afford to pay it back. Well done.
Are those standards slipping? Something which would indicate an unseemly bubble. Have the rigorous controls become a tick box exercise more than actual review? This could provide a third leg to the bubble theory.
To conclude my summary of thinking on this I bring in my Kev "Grand Designs" McCloud Housing Index*. Have you seen any of the present series? The houses are monumental which suggests a fair amount of Hubris, but the amount and ease with which people are taking on debt is the issue. The one with tax accountant was great - this poor chap had a brain hemorrhage and having survived it decided to build a massive house without a proper budget. It ended up costing several million, that's million, with an m, pounds. It was "paid" for with over ten different loans including bridging finance at one point.
Ignoring personal decisions about how the house was supposed to make life better for the family involved, though how mountains of debt makes life better I don't know, it's interesting to see the houses built over time against the backdrop of the health of the economy.
A couple of series ago, the projects built between 2009-2012 ish, it was all highly energy efficient, smaller more innovative designs. Now that's all out the window - so far big is back and only the best concrete will do (paraphrased, but the sentiment was used in this show, it's insane.) A few series before that, projects being completed c2006, were mostly very large and paid for with easy loans from the banks...
Clearly this is not scientific and I don't want to be a perma "we're doomed" bear about the housing market, but its interesting to draw the comparisons. Maybe Nemesis is waiting round the corner to bite?
*not a real index
Further reading:
http://alephblog.com/2011/11/05/bubbles-are-easy-to-spot-well-almost/
Wednesday, 16 September 2015
I wish I'd written it....
I really like this post, it sums up the majority of my motivation for seeking FI.
There are a lot of posts written about reasons why people seek FI - sticking it to the man, quitting the rat race, giving the finger to a boss, company or industry you don't like. I'm in a lucky-ish position in that I have nothing to complain about, I am pursuing FI in the most part for reasons neatly laid out in this post:
http://www.beardeddragonfinance.com/borrowed-time/
There are a lot of posts written about reasons why people seek FI - sticking it to the man, quitting the rat race, giving the finger to a boss, company or industry you don't like. I'm in a lucky-ish position in that I have nothing to complain about, I am pursuing FI in the most part for reasons neatly laid out in this post:
http://www.beardeddragonfinance.com/borrowed-time/
Tuesday, 1 September 2015
Oil revisited
Since the last post on this things have been "interesting" in the markets and I'm getting tempted by the oil majors.
In the blue corner:
- http://www.reuters.com/article/2015/08/29/us-berkshirehathaway-phillips-idUSKCN0QY0L120150829
- http://theconservativeincomeinvestor.com/2015/09/01/royal-dutch-shell-from-one-correction-to-the-next/
- http://alephblog.com/2015/08/30/we-still-have-a-buck-in-the-till-were-solvent/
In the red corner:
- Me.
I get tempted to go for it and then think about how the market has changed now from 2008/09. OPEC seem to be washed up and the ability of US frackers to gear up when the market picks up should keep prices lower for longer.
Recognising my lack of knowledge is why I keep reading, generally and specifically. In this case, there is a fair amount of information pointing to the plunge and a 7% yield would be rather nice to complement the portfolio.
The current correction seems like it's not as V shaped as in the US, so I can deliberate a little longer...
As always DYOR.
In the blue corner:
- http://www.reuters.com/article/2015/08/29/us-berkshirehathaway-phillips-idUSKCN0QY0L120150829
- http://theconservativeincomeinvestor.com/2015/09/01/royal-dutch-shell-from-one-correction-to-the-next/
- http://alephblog.com/2015/08/30/we-still-have-a-buck-in-the-till-were-solvent/
In the red corner:
- Me.
I get tempted to go for it and then think about how the market has changed now from 2008/09. OPEC seem to be washed up and the ability of US frackers to gear up when the market picks up should keep prices lower for longer.
Recognising my lack of knowledge is why I keep reading, generally and specifically. In this case, there is a fair amount of information pointing to the plunge and a 7% yield would be rather nice to complement the portfolio.
The current correction seems like it's not as V shaped as in the US, so I can deliberate a little longer...
As always DYOR.
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