P2P - month 2

Apologies for the delay, the updated numbers are below for todays date, I'll try and be more regular in the future, or go down to a quarterly summary:

Total in FC	Invested	Cash	Paid in (new capital)	Fees	Losses	Total no of loans
£     2,027	£      2,013	£     14	£                       -	£      2	£        -	79

No losses, which is nice. The interest rolls in and new loans are bought, it's very simple and easy to do. One thing is that I had made previous larger loans which means there's a bump in some principle payments which may be allowing this to push on a little quicker than someone starting purely with the £20 loans parts, it also explains why there are interest payments right from the word go.

Universal Basic Income

Interesting article, mirroring the Financial Independence bit of FIRE. I agree with much of it, but there seems to be an assumption that the advance of robots / AI etc will fundamentally destroy jobs and not offset the destroyed jobs with new, different ones. Equally there is no mention that AI in combination with human intelligence is even better again than AI on it's own.

We look back at the industrial revolution and see how it generated wealth and jobs rather than destroy them, why will it be different this time with this digital revolution?
https://www.bloomberg.com/view/articles/2017-06-04/universal-basic-income-is-neither-universal-nor-basic

Still, better safe than sorry in my view, and work towards building your own "universal income" rather than rely on the government to provide it.

Peer to peer experiment - month 1

I've kept away from peer to peer lending as I don't like the downside - namely, if one of the companies you've lent to stops paying, the amount anyone would pay you to take that debt off your hands is going to be negligible. It's pretty much a sunk cost once invested, until the happy day the final repayment is made.

That said I have dipped a toe in the water and haven't suffered any failures yet...

With markets riding high, hinting at lower returns in the future, I turned to Funding Circle to capture some of those juicy returns promoted on their site.

I've topped the account up to £2k and set the automatic selector to go for anything other than those companies with the worst rating. This will mean when either enough interest and repayments accrue, or new cash is added, to hit £20 (I know, high roller!) the auto-bid function will select a new debt to invest in.

At the moment there are 76 loan parts making up the total £2k invested at a gross interest rate of 10%, so in theory good diversification of different companies in different sectors doing their thing, but how will it perform?

I'll post the main features - total invested, any new cash added, income, fees and losses etc. I'll ignore tax (for this experiment anyway) because it's different for everyone and I think the interesting thing is the performance of the investments and Funding Circle as a platform and the companies who go there, not how much the government can bite off for themselves.

In case anyone is interested, this is all my own cash and I haven't been asked to do this by FC or anyone else - my cash, my mistakes!

Early Retirement Dude

I hadn't seen this blog before, I like it!
https://earlyretirementdude.com/

Alchemy

I’ve been reading Memiors of Extraordinary Popular Delusions and the Madness of Crowds (free on Kindle!) and I’ve got to the chapter on alchemy, the philosophers stone and the water of life… one paragraph in particular stands out:

“Three causes especially have excited the discontent of mankind; and, by impelling us to seek remedies for the irremediable, have bewildered us in a maze of madness and error. These are death, toil, and ignorance of the future”

Alchemy, or the means to turn base metals into gold and silver, was a big thing for a long long, long, time only moving out of favour as the rigours of scientific endeavour starting making their presence felt. The book lists lots of people who wasted their lives seeking a means to allow them to cast a magic spell and have gold appear instead of toiling for it. The book also goes into the tulip mania, the South Sea bubble and other cases of mass hysteria when companies offered the impossible in the markets, amazing riches in short spaces of time, with surely no risk.

To ask whether we are in the middle of a stock market bubble is not a new one reading this and a couple of other things made me wonder about the passive debate and whether it’s creating its own passive bubble.

Firstly what is a bubble, google will provide some good alternatives, I’ve heard that its irrational exuberance or fundamentals getting so far out of whack that the mean reversion is hideous. Or long dated exposures on short term money. Others will be able to explain better than that and everyone knows a bubble after it bursts!

Is this a stock market bubble? Are we in the midst of a passive index mania? Can anyone get rich quick? Is the popular delusion that you just need a simple tracker and that’s it, let riches come your way?

The S&P500 is very high, the Shiller PE has only been higher twice and that was before the Wall St crash and the dot come boom. The Reformed Broker said: http://thereformedbroker.com/2017/05/09/into-the-teeth-of-the-next-bear/

If we are in the midst of a mania that implies lots of people involved who have no idea and simply participating gets them rich. If so, and when therefore markets correct, those people will be burned and will not come back to the market for some time. That implies lower returns for longer and potentially the comeback of actively managed funds, even if that is only a reaction to people rotating out of passives.

No matter I hear you say – periods of lower performance are find because that means I’m buying cheaper units so my future returns on those units will be higher, so fine. However, I was also listening to the podcast (by Capital Allocators) where they discuss the 'Bet with Buffet', you know, the one where he bets a hedge fund guy they can’t beat the S&P500 over a ten year period. Well, in that there are a few excuses for losing but equally there was the assertion that the S&P hasn’t had such a strong run over such a sustained period.

This isn’t to say simply following the market and using passive indexes won’t continue to work and outperform a multitude of active funds, but has this period of outperformance been artificially driven? If it's artificially driven up, can it be artificially driven down? If you’re wholly passive and expecting a 7% or 8% total return and that falls to 4% or 5% for a similar period, 10yrs, how does that impact your retirement plans?

It seems that as soon as something is entirely assumed in the market such as; “passives are the only way for performance, everything else fails”, it seems the rug will be pulled out from under you. Maybe I’m just reading too much about the markets at the moment from a FIRE lens which applies the passive approach a lot more than others, however it seems unlikely that markets can continue on the winning streak and the above is a possible outcome following a big drop.

When thinking about all this I remember a sketch from Mitchell and Webb. Webb asks Mitchell about alchemists. Mitchell, a stockbroker, provides an explanation and then asks if Webb had ever thought about the coincidence that the allure of alchemy faded away through the 17^th and 18^th centuries just as stock exchanges came into being across Europe…

I’m not, and can’t, suggest an appropriate alternative for you, nor can I reveal the future, but like most things it pays to keep an open mind and a check on your emotions.

Great post

http://tonyisola.com/2017/05/the-ultimate-alternative-investment-happiness/

A lot to take from this and a lot is easy to forget when climbing the slopes towards financial independence.

Tips and tricks

I started writing this in a longer format and it sounded terribly smug, so I'll provide the short version. If you're reading this, you'll have a good idea of what's what anyway;

Assumed income - I travel a fair amount with work so my pay is never static, always different with expenses. It's further skewed by the pension contributions and healthcare etc, so it's a bit all over the place. To this end I started assuming my actual pay was what it was prior to my last raise. This means there's always a little more at the end of the month to put in savings!

Net worth - really glad I started monitoring this. It's not like I've suddenly saved a load of money, but it really keeps the discipline on watching the pennies as I found I was tricking myself to the upside and didn't necessarily deserve the pats on the back I was giving myself.

Savings targets - If I take the free money my company gives me towards my pension as free money (not unreasonable) then my automatic savings rate is just under 50% pcm using post tax income. Having learned the sky doesn't fall in if you push yourself a little more I've bumped up the pension contributions to hit this level. Now I'll take a pause and even, whisper it, maybe treat myself with whatever is left!

Looking at it another way, I am automatically saving two and a half months of spending every month. So, say my average personal spend per month is £500 - lunches, the odd drink or night out, new tyres for my bike, take aways etc, I'm automatically saving £1,250pcm. It's not just going to cash, I wouldn't be able to call on the money that goes into pensions etc if I needed it, but it's a nice way to think about it!

It's clearly massaging the numbers for impact, but when I think back to where I was a few years ago, it's a massive difference and goes to show what can be done when you focus.

Tie the above together and hopefully the snowball will grow just that little bit quicker.