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https://ofdollarsanddata.com/2017/01/02/how-hedge-funds-get-rich/

You might not be investing in a hedge fund, but a reminder of the pernicious impact of fees.

Brexit thoughts

There are so many moving parts when it comes to Brexit; how will it work, what will Germany and France to, what will the EU do, what kind of a deal do we want, what might we actually get and was it the right decision to vote leave?

To my mind everything comes down to negotiation, anything else, especially at the moment, is hot air. The referendum, in my opinion, got it wrong. It would have given us a much stronger negotiating position with 52% in favour of remaining, but apparently it’s wrong to rig these things. A 52% remain vote would have allowed us to continue to be the stroppy spoiled child in the room demanding toys and treats and kicking up a fuss. There would be future concessions, the odd rebuke, but generally we would have got what we wanted.

Any Brexiteers reading this they will say that in voting out, we have regained control – of borders, migrants, laws and sovereignty with Elgar’s greatest hits drifting in behind them. It is true to an extent, but we lose influence, which I feel will have more of an impact over the long term.

The truth is we trade a lot with the EU, like it or not. It follows the same pattern everywhere – you trade more with your neighbours than those further away and so all parties should want to agree a trade deal between the UK and the EU quickly, a drawn out painful affair would harm everyone. Some EU officials / Eurozone countries say that the UK should be punished for leaving and that we have to be punished to dissuade anyone else from doing the same. Others say how ridiculous this punishment talk is given how the EU 27 are our allies and trading partners and it would be an act of self-harm to do so… though making that argument means the UK voting to trade with the rest of the world is an equal and opposite act of self-harm among trading partners and allies.

That aside, I think, this initial deal take too much of the focus. The results of Brexit will be felt over decades rather than days and coming back to the loss of influence, it is that loss which will be more keenly felt and more demonstrative of why it’s a bad idea to leave the club.

The reason is that the EU project is a slow moving behemoth, not a one off negotiation. If the UK “wins” this negotiation it will not, and cannot, force the EU into stasis, never changing again. It will change again soon – new laws, regulations, members, directives will continue to flow from Brussels, the important point from the UK’s points of view is that we will have no influence over those future decisions. So, the EU should agree a reasonable deal quickly for two reasons. Firstly to facilitate ongoing trade and not putting an unnecessary brake on the EU’s economy, because goodness knows it doesn’t need that… no one does. Secondly, post deal they can change some things that the UK would have always vetoed and move on to demonstrate that you have to be at the table to best protect your interests.

In a Brexit debate recently David Davis stood up and said that he thought the trade talks should go more quickly than with other countries (Canada, 7yrs and counting) because of the current common regulatory regime, which all sounds good David, but let’s extrapolate a little. What happens on the next round of regulatory discussions? The UK will have at best a vastly reduced influence, at worst, no influence; we will be outside the room waiting to be told what to do. Those regulations will be brought into force and UK firms will adopt them in order to keep on trading. We could choose not to follow them (hurrah for Brexit!) but where would be the sense or logic? Maybe India is a bigger market in general, or China, but they will have their own rules – are we going to follow all of them separately? No, you follow the one which will net you the best result, which will be lowest cost to the biggest client, which at the moment, and following generally accepted trading patterns, is and will continue to be, the EU.

The same would apply to services, especially financial services which France and Germany would particularly like to make a fairly sizable land grab. The passporting which allows us to transact in the EU could be withdrawn the moment our regulations don’t meet EU ones at the potential loss of jobs, tax and the multiplier that provides. 

It’s not a zero sum game, jobs lost from London wouldn't move directly to Paris, New York would probably benefit the most, but the power of incentives is ever present and the French, German and Luxembourg leaders would be trying their best to coax as much of that work to their shores away from London and that means actively trying to worsen the UK's position. 

Before we take the holier than thou attitude Remember when Boris said he would lay out the red carpet to Parisian entrepreneurs and bankers when their 75% tax rate was about to be introduced, well it’ll be the opposite from now on.

Moves will generally be slow and steady, a bank here, a decision not to increase capacity of a factory there. Changes will take time so the power shift represents the other reason why the EU should do a quick and ‘nice’ deal now. It will show where the power really lies – not in this one off negotiation, but in all the little ones coming up over the years where the UK will lose out again and again because we’re not at the table. It will impact on manufacturing and services, but hey, at least the twenty thousand odd UK fishermen will be free from the yoke of EU tyranny…

Can you tell the truth?!

This is an interesting blog and prompts a few immediate thoughts – the principal ones being, that’s a lot of money to have and still be working. Surely most people would have their feet up at that level of wealth? But hey, the question is being asked by the boss, and it’s a hypothetical, so it’s understandable that they would smile, tug the forelock and say yes sir, of course I’d still be here bright and early tomorrow morning! On the other hand it may highlight how much of a disparity there is between how much you need to actually stop working and the perils of lifestyle inflation.

That aside, it shows how people want to work in creative and interesting roles doing things they love, even when money isn’t an issue, which is at the heart of FI. It makes me happy that some employers must be getting it right in attracting the right people to the right jobs and keeping them engaged and interested. However, every job surely has to entail the boring bits, the admin has to get done otherwise the systems don’t work and no one has a clue what’s going on. I also heard that research showed entirely free thinking work was very draining and having some repetitive tasks to tick off the list gives us little dopamine hits, so an ideal job has a balance of both elements.

But if I didn’t have to slog through the boring admin and was liberated to spend more time being creative and apply higher thinking to situations, would I give up on FIRE, buy myself some sleek glasses and black turtle neck and stay in the workforce until 70years old?

It’s a no from me. A job still means sitting in an office for hours per day, commuting, suffering train delays, tube strikes and eating plastic wrapped sandwiches. It’s because of those reasons that I am pushing for, and will continue to push for FI.

I wonder what the reaction would be if the answer to the initial question was; work half as many hours? Saying it would make you more productive for being better rested and coming in seeking stimulation and challenge rather remaining stressed through overwork…

Would such a statement only demonstrate that you are not a good worker bee? If you couldn’t possibly say such a thing without severely limiting your career for such failure of loyalty, are you in the right job? If you can’t escape such a job, but it’s paying the bills nicely, then surely the answer is to put yourself in the position where you can look your boss squarely in the eye and tell them the truth (which isn’t the same as shouting obscenities and flouncing out the door) without fear. It means having an ‘F’ you pot if necessary and passive income.

Newsflash

https://www.bloomberg.com/features/2016-early-retirement/

People who are sensible about money are... sensible about money!

Generation FI

The church of FIRE is a broad one. Adherents believe that it’s a good thing that everyone, no matter what age, has a little spare cash to weather unplanned periods of unemployment or meet unforeseen expenses.

When you delve a bit further into this particular area of personal finance it seems that the majority of people are in or around their 30’s… this is obvious in some respects, we are earning quite well, a rung or two up the ladder from graduate in charge of tea and coffee duties, but also facing the prospect of another thirty plus years in an office. Faced with this we are thinking, acting and doing when it comes to escaping this reality more than other generations either side of us.

I don’t think it’s any coincidence really. Generation FI, newly coined patent pending, are sandwiched between Generation X – supposedly cynical but hard working in a more varied careers and creative and Generation Y, the millennials – supposedly lazy, “snowflake” hipsters who think they will never own a home and consider spending money on experiences as more important than buying things and will never have what their parents had asset wise.

If you take the best of these two you have Generation FI! A little cynical (hate The Man etc) but hard working and creative enough to seek and find the way out of the rat race to allow us to have more fulfilling experiences in the future, released from the yoke of enforced employment. We’re able to look beyond all the marketing noise to not covet things too much, but understand how money, assets, investments and compound interest work for us and that having it gives you precious options.

I am lucky to be born in a stable, capitalist, democratic economy, able to take advantage of the benefits of virtually universally available technology driving down costs but perhaps we hit a bit of a sweet spot in generational timing and traits to make us better suited to going for it?!

Keeping myself honest

I have a little confession to make, which makes me feel a little foolish. After grandly saying how I’ve been holding up my little corner of the FI world by saving hard I then re-visited my savings rate and my heart sank a little as I saw it was at less than 40%. I'm not proper hardcore like some out there, but I do try and hit some reasonable numbers and to my mind 40% is my benchmark for a good level - room to really screw down on costs if needed, but a lot higher than the average.

I didn’t really have a preferred measure before, but that needed to change. Looking through Zombie and FIRE Starter’s posts on it I decided to take me post tax, take home, salary and to sum half of what my employer puts into my pension, as well as my contributions to that and my other pension, ISA, mortgage over-payment and whatever’s left that goes into the long term savings pot each month. I did not count money going into emergency funds etc and I didn’t include tax relief on pension payments, which I could do, but this distorts the picture too much.

When I adopted this I realised I was down on where I thought was – so much for walking the walk…

To seek to remedy this and shine the spot-light of truth into the mirror of self-analysis I have started tracking my net worth, I know, climb down on earlier post, this is going well isn’t it! The aim of doing this is to accurately gauge, warts and all, the value of cash and investments (excluding pensions as I have no access to them currently for FI purposes and it keeps the admin down).

The important thing is that I should not be able to fool myself, it’s the same accounts summed each month, what is the change, what is the explanation. The number should be increasing, though I take into account market moves as I have invested more over the last couple of years and a good employment report here, or a presidential candidate stumbling there, can make a material difference in a short space of time. But if the markets are quiet and my totals aren’t increasing, then I’m fooling myself somewhere.

An example of how I’ve been doing this recently is that my significant other and I have done some work to our house. Hopefully improving the value, but it’s been expensive and the additional costs not included in the general budget are sapping my savings rate each month. Those costs will come to an end, but I’ve allowed myself to fudge my own accounting which flatters the true state of play and if that carries on into the future it will have a larger impact. The focus for the next few months is to get back on track, increase savings and investments and use the above to keep me honest, because no one else is going to and all it does is delay when I can walk off into the sunset, a bona fide, FIRE’y hero!

Good point

Good article; http://abnormalreturns.com/2016/07/14/a-rational-response-to-a-seemingly-irrational-world/

The more I read and experience the more I feel it's your mindset which is so crucial in actually succeeding in reaching the goals you set yourself. That is perfectly easily accepted in relation to sport, the will to win, the focus and drive, but in investing even more so because so much, in fact, pretty much 99.99% (as an individual investor) is out of your control.

"Everyone has a plan until they get punched in the mouth" M. Tyson. The market will punch you in the mouth most years, how are you going to handle it?