Weekend reading: The land where time stood still

Weekend reading: The land where time stood still post image

What caught my eye this week.

Another week in the time-warp that is Brexiting Britain. Don’t hold your breath if you’re waiting for Star Trek.

First we had prime minister Theresa May’s ‘Brexit vision’ in Florence.

While almost devoid of content, I thought May delivered a pretty rousing speech.

Unfortunately it was almost 18 months too late.

True, it wouldn’t have convinced me Brexit was a good idea back in May 2016. But I would have doffed my cap to her for making a stirring case.

But this wasn’t a wishy-washy Vote For Us campaign speech. This was a speech given more than a year after the UK voted to leave the EU! In a Referendum where many apparently thought we’d be more than halfway to the exit by now.

And it’s ever more abundantly clear that there is/was no idea of the scale of the challenges, no plan, no progress – just barely concealed panic.

The only content in this curious piece of should-be historical reenactment? An admission that – of course – there will be a transition period and – of course – the UK will continue to pay into the EU during it.

Both are entirely obvious requirements to anyone but the politicians on the Leave stump last June, and to a sizeable cohort of their voters.

You might consider May vaguely acknowledging these realities is progress, but it wasn’t delivered in a grown-up or rational way. Rather she offered a deeply couched acceptance to soften up the Brexiteers for the inevitable. It was in the same way flummoxed parents promise to the kids in the back of the car that there’ll be ice creams later but first we have to go to B&Q. Miserable.

Uber stupid

Meanwhile back in London – shining capital of a bold new Brexit Britain or Wiley Coyote running over a cliff-edge, depending on your point of view – we had Transport for London announcing it would not be renewing Uber’s licence to operate, potentially cutting off a service enjoyed by three million people at a stroke on 30 September.

True, Uber won’t just cease operations – there will be an appeal. An appeal I suspect they’ll win. We might be tending towards mob rule in the UK, but the mob wants Uber and I think they’ll keep it.

But to try to cut the service down at a stroke seems a Draconian way to do business in 2017.

Why not big fines? Why not notice periods? I’m not an expert on taxi cab licensing, so perhaps my thoughts are wide of the mark. But to me it seems like a return to 1970s-style local politics and protectionism, and emblematic of the irrational way we’re making decisions these days.

Uber is a far from perfect company, but the world and its dog knows that. The founder has been replaced. The internal culture is getting an overhaul.

Yes, there have been some horrible crimes committed by Uber drivers. If it has dragged its feet bringing them to light, it should be punished.

But those celebrating Uber’s apparent cessation in London should think about the bigger picture.

Firstly, as is often the case with capitalist innovations, it’s easier to overlook the massive way the company has improved life, just because it happens to make a profit.

Uber has facilitated millions of journeys in London – especially late at night or to out of the way places – that made living in this often difficult city easier. We’re talking tens of millions of hours of lives better lived.

Then there are the attacks and similar. Nobody wants to write “yes, but” and consider the bigger picture when it comes to such things – but that’s exactly what we should do.

Over the past two decades I have seen numerous friends – most often younger and arguably more vulnerable women – get into literally random cars on the street, despite my protests, for various financial and perceived safety reasons. Horror stories about rogue mini-cab drivers were ubiquitous until Uber arrived on the scene.

Are Uber-haters considering the alternative of going back to 2010 – many more people walking home late at night or getting into unlicensed cars at 3am drunk or similar because they can’t find/afford a black cab or even a mini-cab?

I agree Uber has not been the greatest company culture-wise and they need to upgrade their practices. But the technology is revolutionary and it has transformed late night London. The fact that all Uber journeys are logged and linked to a user makes it far safer than most alternatives. TFL should be working to roll this out everywhere, not seeking to roll it back.

Uber should have been fined or put on some sort of official notice or similar. They should not exist outside of regulation. But there’s no use being sentimental about it. Black cabs are as dead long-term as red phone boxes.

Let’s hope this decision isn’t the canary in the Brexit coal mine that Tyler Cowen at Bloomberg fears:

The new Britain appears to be a nationalistic, job-protecting, quasi-mercantilist entity, as evidenced by the desire to preserve the work and pay of London’s traditional cabbies. That’s hardly the right signal to send to a world considering new trade deals or possibly foreign investment in the U.K.

Uber, of course, is an American company, and it did sink capital into setting up in London — and its reputational capital is on the line in what is still Europe’s most economically important city…

Unfortunately, the U.K. is in a position where it can’t afford too many more mistakes. It just made one.

  • You can petition against TFL’s decision here.

From Monevator

How online retirement calculators can mislead you – Monevator

From the archive-ator: Become your money hero – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

UK credit rating downgraded over Brexit uncertainty [Search result]FT

The silly pension lifetime allowance of £1m is starting to hit – Telegraph

Cars over 40-years-old will not need an MOT – Telegraph

The young are not ready for mortgage rates to rise – ThisIsMoney

The £230-a-year marriage allowance you could be missing out on – Guardian

Britain falls to 25th in the best buy-to-let destinations in Europe – ThisIsMoney

Ros Altman blames the rise of populism on QE [Letter] – via Twitter

Chart showing how UK households are saving more than thought after ONS revised data

UK consumers are in better shape than most people think… – Woodford Funds

…oh no they’re not, they’re primed to blow – Guardian

Products and services

Coventry Building Society launches Best Buy 1.05% Easy Access ISA – ThisIsMoney

Advert boasts of ‘safe’ 15% returns: Should I invest? [Um…]Telegraph

The true cost of zero-rate credit card deals [Search result]FT

How Standard Life is changing the investments of 1m savers – Telegraph

Fix your mortgage before rates rise – ThisIsMoney

How to borrow interest-free for three and a half years – ThisIsMoney

ETFStream is a new site about… well, have a guess – ETFStream

Car financing continues to speed down a dangerous road – The Value Perspective

How to choose the ‘best’ (not the cheapest) investment platform – Telegraph

Remember Thriva, the sci-fi blood test dashboard solution? (Work with me here.) Not only will you get £10 off your first kit with the following link, you can use the code BLOOD50 at checkout to get a further 50% deduction – Thriva

Comment and opinion

Bet with Buffett on index funds, not against him – Barry Ritholtz

The lie of averages – Flirting with Models

Workplace pensions shouldn’t be this much work [Search result]FT

Social proof in the markets – A Wealth of Common Sense

ESG investing: Don’t let the perfect be the enemy of the good – Abnormal Returns

Paranoid and deranged behavioural algorithms – Tony Isola

Emerging markets may be due for their comeback – Bloomberg

One spouse, two cars, three houses, four jobs – Financial Samurai

Why David Gardner invests in rule-breaking companies [Podcast]Invest Like The Best

The humbling of former hedge fund star Hugh Hendry – E.S. [& me from 2009]

Back-testing Meb Faber’s Trinity portfolio (Lite) – Allocate Smartly

Seek not to be entertained – MrMoneyMustache

Bitcoin has become about the payday, not the potential – The Mission

Who will look after you in your old age? – SexHealthMoneyDeath

Larry Swedroe: Dividend strategies fall short – ETF.com

Why cashing out of a short position the day before the 1987 stock market crash was actually a great trade – What Works On Wall Street

Off our beat

Make your point and get out of the way – Morgan Housel

What a computer has to say about writing a best-selling novel – Guardian

Immigrants are a boon to the US, not a burden – Bloomberg

And finally…

“Everyone thinks Goldman is so fucking smart,” he railed. “Just because Goldman says this is the right valuation, you shouldn’t assume it’s correct just because Goldman said it. My brother works at Goldman, and he’s an idiot!”
– Andrew Ross Sorkin, Too Big To Fail

Like these links? Subscribe to get them every Friday!

  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/weekend-reading-the-land-where-time-stood-still/


How online retirement calculators can mislead you

Photo of Lars Kroijer.

This article about online retirement calculators is by former hedge fund manager Lars Kroijer, a regular contributor to Monevator. He is also the author of Investing Demystified.

The Internet has revolutionized access to information, as we have discussed many times on Monevator. Investors can now find a plethora of tools on the Web to help us better manage our finances and lower our costs.

But are you getting the whole story from these free resources?

Retirement calculators, for example, apparently serve a very useful function. You simply feed a few data points into the calculator and voila – the computer tells you whether or not you’ll have enough money for a happy retirement in your old age.

Job done? Sadly, it’s not quite so simple.

Calculated odds

Take a look at the CNN Retirement Calculator, for instance. This tool has all the standard options to change the inputs, but for the purposes of this article I stuck with its default assumptions:

  • I am 35 years old (I wish!)
  • I will retire at 67
  • I have $100,000 saved up
  • I earn $55,000 a year…
  • …of which I’ll save 15%

Reading through the calculator’s methodology footnotes, we learn it assumes your income will grow 1.5% above inflation. Your investments (both current and future) are projected to return 6% per year, presumably before inflation of 2.3% (so a 3.7% real return). We aren’t told if that is a compounding return or annual average.

To calculate your future spending needs, CNN works out what it costs at retirement to buy an annuity that gets you 85% of your pre-retirement income. While CNN uses US dollars (USD), the logic would be the same in other currencies.

Choosing to input all this data in real terms amounts (that is, after-inflation) and with the assumptions listed above, the CNN caculator tells us we will have enough money for retirement.

Phew. It seems we’ll have $883,000 in today’s money, and that we actually only need $804,000.

That’s nearly $80,000 spare to put towards a big retirement bash!

Risk and retirement

Now before I start saying what is wrong with this logic it is important to mention that the CNN tool does do a lot of important and useful things for you.

It reminds you of the importance of saving for your retirement. It gives you an idea of orders of magnitude. It has figured out the math of long term savings and the eventual cost of annuities. And it’s done all this without charging you a penny.

However in my view the calculator also gives you a false sense of security that is important to understand.

In particular, the return assumption in the model is 3.7% after inflation. The yield after inflation of US/UK 30-year government bonds is currently around 0.8%. Since these government bonds are perhaps the most ‘riskless’ investments, we’ll obviously need to take some risk to get up to an annual return of 3.7% after inflation.

And therein lies the problem. These kinds of calculators lead you to believe that if you do what is said in their assumptions, then you’ll have enough money. End of story.

But that is only the half of it.

You see, if you need to take risk to earn that 3.7% post-inflation annual return, then there is obviously a risk that things don’t go according to plan and that you fall short of reaching your retirement goal.

And it’s critical that you know this before you blindly assume that your savings will be enough.

Risk and returns

How much risk do you need to take to get a 3.7% real return?

If we assume that we can get 0.8% from riskless bonds and that equities deliver about 4.5% a year in real terms (a little lower than what they have in the past) we can reasonably expect a 3.7% annual return from a portfolio that comprises roughly 20% long term government bonds and 80% equities.

But a portfolio that is 20/80 bonds/equities will have a broad range of potential outcomes – particularly over a whole working life.

How broad is the range, and in how many cases does it leave us with insufficient money?

It all depends on your assumptions of risk with respect to equity markets – or whatever other types of risk investment you make – and on whether you accept the calculator’s 4.5% return expectation.

The point is the certainly suggested by the calculator is really just an educated guess as to how on average things will turn out.

Calculators with caveats

Instead of saying ‘you will have enough’, or ‘you need to contribute more’, I would prefer such calculators to say ‘given these [stated] assumptions on risk of the returns, we think there is an X% chance that you have enough’.

This is important, because that is how it works in the real world. There are very few sure things in investing. If you’re saving for retirement, it’s best you know that from the start.

Instead of the false sense of security that the CNN calculator gives you, it would be better for you to know and understand the probability of falling short. Then you can think about how happy you are with that probability.

Would you be comfortable if I told you there was a 20% risk of falling short? What about a 10% chance? 5%?

It all depends on your circumstances and your feelings towards risk.

Your attitude towards risk – as reflected in different inputs you would then feed into your projections, and the outputs you’d be given – will demonstrably alter what spending power you can hope to achieve in retirement.

A more transparent exploration of risks and outcomes would also enable you to see how by changing your investment allocations or pension contributions today, you might influence your financial future.

Build your own retirement spreadsheet

Below you’ll find a video that further addresses the issues around the CNN retirement calculator:

I built a financial spreadsheet to address the issues in the CNN and other calculators, in order to enable investors to understand these issues and play around with the impact of different assumptions.

You can read my article explaining why and how you should build your own spreadsheet. Then check out my ongoing How To series for more on YouTube.

As with my previous Monevator pieces I’d really like to hear your views.

Please comment below on what you’d like to see added to my model or anything that you believe I could explain better. I’d like the model to be as accessible and useful as possible, and your feedback is greatly appreciated.

Check out the new edition of Lars’ book, Investing Demystified.

from Monevator http://monevator.com/how-online-retirement-calculators-can-mislead-you/

Weekend reading: Stuff to read while we’re elsewhere

Weekend reading: Stuff to read while we’re elsewhere post image

What caught my eye this week.

Apologies to the many thousands dozens of readers who checked in during the week and found no new Monevator posts – for the second time in a month!

Pretty shocking, considering it’s probably only the third or fourth time this has happened in the past five years.

Away from the site I’ve got quite a lot going on at the moment – and their different ways all the other core Monevator contributors have had busy summers, too.

Hopefully we’ll get back into the swing of things in a few weeks. Until then, you’ll find another monster list of links below.

(One thing I never stop doing is reading!)

From Monevator

From the archive-ator #1: Reasons to buy a house instead of renting – Monevator

From the archive-ator #2: Reasons to rent a house instead of buying – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

Pound jumps as BOE hints at interest rate rise – BBC

Implications of a rate rise for savers and borrowers – Guardian

‘Huge variations’ in company pension default funds [Search result]FT

The Big Read: Digital Coin Mania [Podcast]FT

How house price affordability has changed across the UK since 2007 – ThisIsMoney

400,000 in the UK had data ‘potentially’ stolen in last week’s Equifax hack – Telegraph

Bitcoin crashes again after China moves to halt exchange – Bloomberg

BAML global asset managers allocations.

Global asset managers really hate the UK at the moment [My ears prick up!]Fat Pitch

Products and services

Charter Bank’s Best Buy 18-month savings bond pays 1.88% – ThisIsMoney

Monzo? It might just be the future of banking – Guardian

Is your bank’s ‘exclusive’ credit card actually any good? – ThisIsMoney

Atom Bank has already cut its Best Buy savings rates. Where now? – Telegraph

What’s the cheapest way to buy an iPhone 8? – Guardian

First Direct slashes mortgage fees but hikes rates – ThisIsMoney

Bitcoin investment trust premium is TWICE net asset value – Telegraph

Comment and opinion

My stock picking friend is beating me – The Big Picture

The fishy pension graph – The Value Perspective

How Warren Buffett broke American capitalism [Search result]FT

There is no perfect retirement spending strategy – Oblivious Investor

A dozen lessons about investing and money from Dan Ariely – 25iq

What gets measured gets managed [Free spreadsheet]The Escape Artist

The unreliability of long-run stock market returns – Evergreen Small Business

Going, going… – Sex Health Money Death

Know thy investing self (and sell all your gold if you must) – Of Dollars and Data

Even long dead Ben Graham engaged in indexing arguments – Alpha Architect

Bag a premium income from the insurance majors [PDF]John Kingham

How an Austrian economist explains the tulip bubble [Podcast]Bloomberg

Familiar hard versus unfamiliar hard – Bason Asset Management

Off our beat

Lower-status men don’t ask for raises, either – Mel Magazine

10 depressing thoughts (and links) on data breaches – Abnormal Returns

How to poop on a first date – Mel Magazine

And finally…

“The best advice I can give you is to ask yourself what do you want, and then ask “what is true” – and then ask “what should be done about it?” I believe if you do this you will move much faster towards what you want out of life than if you don’t.”
– Ray Dalio, Principles [Out on 17th September]

Like these links? Subscribe to get them every Friday!

  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/weekend-reading-stuff-to-read-while-were-elsewhere/

Weekend reading: If the market is getting dumber, active managers must be morons*

Weekend reading: If the market is getting dumber, active managers must be morons* post image

What caught my eye this week.

How is it September already? Once again spring teased us with a heatwave, summer soaked us, and autumn is sneaking up with an existential crisis.

Some things never change, however, such as passive investing guru Larry Swedroe’s ability to take apart criticism of indexing strategies with the precision of the EU’s Michael Barnier taking apart the delusional New Victorians we’ve sent to Brussels to peddle Brexit for us.

But we did that last week, so instead let’s enjoy a quote from Swedroe on the idea (pretty much fabricated in a fund management marketing department brainstorm, as best I can tell) that markets are becoming inefficient as a result of passive investing:

50 years ago, there was a small fraction of the number of mutual funds we have today, and the hedge fund industry was in its infancy. On top of that, individuals dominated the market, because the majority of stocks were held directly by investors in brokerage accounts.

The research shows that retail money is “dumb” – active managers exploit its pricing errors. But even back then, the evidence was that on a risk-adjusted basis, in aggregate, mutual funds underperformed – though not anywhere close to as poorly as they are doing today.

For example, about 20 years ago, roughly 20% of active managers were generating statistically significant alpha.

As noted above, the figure today is just 2%, with no evidence the trend is reversing.

Just 2%! Where are the active managers skipping around picking up the golden apples that passive investors are scattering across the ground?

Nowhere, that’s where. Active investing must always be a zero sum game, but if the market is really getting stupid then more than 2% should be profiting from it. They’re not.

I love stock picking, but I wouldn’t pay anyone to do it for me. If I am going to pay over the odds for something I can do for myself, I want to know I’ll get superior results.

Sushi chef? Foot masseuse? Belly dancer? I’ll happily shower money on them.

Almost-certain market-lagging fund manager? Not so much.

*To be clear, active managers are not morons. They’re invariably extremely clever, and I’ve enjoyed the company of every manager I’ve met. The answer to the riddle is rather that the market has NOT got any dumber due to passive money. It may never.

From Monevator

MiFID II and you – Monevator

From the archive-ator: How to score an own goal – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

How you can get 24 days off in a row in 2018 using 14 days of annual leave – Telegraph

UK insurance payouts to shrink after U-turn on lump sum formula – Guardian

Smart Investor switch angers Barclays Stockbrokers’ clients [Search result]FT

‘Buoyancy’ returns to UK housing market, as prices edge up 0.1pc – Telegraph

First-time buyers in London gain edge over buy-to-let landlords [Search result]FT

High earners face pensions tax taper shock [Search result]FT

It’s taken 10 years for emerging markets to reach their pre-crisis highs – The Atlas Investor

Products and services

How studying abroad could save you £50,000 – Telegraph

The cost (to an index fund) of turnover in an index – Oblivious Investor

How to invest your Junior ISA – ThisIsMoney

‘Is my smart meter charging me for the energy generated by my solar panels?’ – Telegraph

Help-to-buy scheme aids some buyers, but boosts builders even more – Guardian

Comment and opinion

Darling, benchmarks are soooo last year – The Evidence-based Investor

The Cobra Effect, and the risk of owning bonds – Of Dollars and Data

How to be an angel investor: Interview with Jason Calacanis [podcast]Meb Faber

Improving the Safe Withdrawal Rate for UK retirees – Retirement Investing Today

Swedroe: Passive investing misconceptions – ETF.com

Howard Marks’ clarifies his warnings about the bull market [PDF]Oaktree Capital

30 obvious investment truths – A Wealth of Common Sense

Now what? Presentation on the state of the market [Slides] – also Ben Carlson, via Scribd

The challenges of using a funded ratio to track progress towards retirement – Kitces

A thoughtful Neil Woodford on his poor recent performance [Video]Woodford Funds

Why automation shouldn’t the end of employment – The Value Perspective

When gold can brighten up your portfolio – Interactive Investor

The fickle fortunes of market timing – Bloomberg

Off our beat

The Brexit fallacy of migrants taking British jobs and driving down wages – Vince Cable

Self-driving cars on their way and Morgan Stanley is down to party [Search result]FT

What we get wrong about technology – Tim Hartford

Few cities could accommodate Amazon’s new headquarters – Bloomberg

A soft Brexiteer tells the Hard Brexiteers why they’re wrong – Pete North via Twitter

Social networks: You are the product – London Review of Books

A stern letter from the tooth fairy – Henry Warren via Twitter

And finally…

“Active managers charge relatively high fees for the ‘promise’ of alpha. If their outperformance can be explained by exposure to one or more factors – also often referred to as beta, or loading, on the factor – there was no actual outperformance, or alpha, on a risk-adjusted basis. If that is the case, the high fees charged by active managers can no longer be justified.”
– Larry Swedroe & Andrew Berkin, The Incredible Shrinking Alpha

Like these links? Subscribe to get them every Friday!

  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/weekend-reading-if-the-market-is-getting-dumber-active-managers-must-be-morons/

Weekend reading: Still dithering our way to Brexit

Weekend reading logo

Before the link list, a Brexit update. If you don’t like the odd bit of politics here please do skip down to the articles – there’s plenty else to read this week!

Time heals most wounds – including the self-inflicted – but 15 months on from that vote, we’re still motoring ahead with our great populist mistake.

As Winston Churchill noted in The Grand Alliance Vol. 3:

Governments and peoples do not always take rational decisions. Sometimes they take mad decisions, or one set of people get control who compel all others to obey and aid them in folly.

For those who’ve not been keeping up, a quick recap:

  • Yes, we are going to pay a multi-billion bill before leaving the EU
  • No, there is no extra money for the NHS
  • Yes, subsequent post-vote reporting has confirmed that Brexit is a logistical nightmare, from Ireland to atoms
  • No, Frankfurt isn’t too terrible to play home to American bankers
  • Yes, the EU is united in dealing with our pathetic tantrum mighty negotiators
  • No, the Eurozone hasn’t collapsed. Rather, the economic cycle has continued to turn. (The EU is now growing faster than the UK.)
  • Yes, the EU has signed trade deals with Canada and Japan since the Referendum
  • No, the UK won’t get a better deal by being a smaller country with less bargaining power
  • Yes, clever EU citizens are already being tempted to leave the UK
  • No, the French didn’t vote in the fascists. (Our own rash decision – and the other one over the pond – probably gave them pause).
  • Yes, we are probably going to keep obeying EU regulations, including via the European Court of Justice, post-Brexit
  • No, scaring away skilled EU citizens hasn’t cut net immigration to the ‘tens of thousands’ yet (and Brexit won’t either, because much of net migration is from the non-EU and we never did anything about them before the vote)
  • Yes, it’s true our economy didn’t slump in the wake of the Referendum result. (I was wrong footed there, but my bigger fear is for the long-term hit anyway)
  • No, there has been no great export boom due to the cheap pound
  • Yes, future generations of UK citizens will be unable to live and work anywhere in Europe like their parents and grandparents could by right
  • No, there’s no evidence this curtailment will do anything for the disaffected and angry people in slow-growth provincial towns, except reduce the tax receipts that pay for aid and benefits

I could go on, but it’s too depressing. How often do rational people – as opposed to mobs on the streets – get together to decide to do something against their own interests? To negotiate a worse economic outcome? To cede power?

Perhaps in suicidal religious cults. Not much else springs to mind.

About the only good – if unsurprising – development is that things are going slowly. As Tim Hartford puts it in this week’s FT [Search result]:

The British people have dealt the British establishment an unplayable hand: a parliament strung out between several lunatic fringes, and a referendum result that is hard to interpret and even harder to deliver.

With the prime minister powerless, her ministers are showing signs of quiet realism.

Yes, the country is chugging towards a train-crash Brexit, but at least our politicians are tying fewer hostages to the tracks.

To return to the Churchill quote above, what rational people would conclude at this point is that we should get off the tracks.

But at the moment, the democratic symbolism foolishly placed in the Referendum – even by many Leavers – means the best version of getting off the tracks from here is probably some sort of fudge that looks like a Brexit, but that doesn’t walk or talk like one. A fake Brexit.

But who knows? Perhaps if we do drag it out for long enough it might never happen. Better than any alternative, as far as I’m concerned.

Matthew Parris for one says Brexit is dying:

“Brexit is in terrible trouble – and with every month that passes, the difficulties become clearer, and the Remain side of the argument becomes stronger.”

Fingers crossed.

Still crazy after all this year

Of course the fallout from not-Brexiting would now be terrible, too, especially if it was called off any time soon.

That’s because because enough angry people came to believe Brexit would solve problems that are in reality probably close to intractable.

I’ve come to understand over the past 12 months how the Brexit vote reflected genuine anger and disquiet among a chunk of the population who feel that the world isn’t going their way. (Almost inexplicably, in the case of the comfortably off Barry Blimps, unless you go down the identity politics rabbit hole).

But I’ve seen little to show it has much to do with the EU.

What I think took the vote from a minority of committed Eurosceptics to a winning majority were wider forces like globalization, technology, income inequality, urbanization, and fundamental terrorism.

And then was the misinformation campaign that’s been much debated in the subsequent year.

Happily, researchers have found that as we learn to cope better with social networks and their ability to distort reality (and as those networks get better at policing themselves) we might see fewer crazy years like 2016.

As Bloomberg reported concerning one academic deep dive:

The study does offer one positive conclusion: Broad awareness of fake news should tend to work against its success. Campaigns were much less successful when individuals in the model learned strategies to recognize falsehoods while being fully aware that purveyors were active.

This suggests that public information campaigns can work, as Facebook’s seemed to do ahead of the French election in May.

In other words, fake news is like a weaponized infectious agent. Immunization through education can help, but it might not be a comprehensive defense.

Either way, it’s too late for Britain, which could be sliding towards a situation where even the food chain is disrupted.

That’s not me being a doomster – it’s the supermarkets:

Failure to find an agreement on free trade within Europe before Brexit day is likely to result in gaps on UK supermarket shelves, increased waste and higher prices, retailers have warned.

More than three-quarters of food imported by the UK comes from the European Union, but if the UK does not agree on a transitional period or a deal when it leaves the bloc in March 2019, World Trade Organisation rules will apply.

This means that goods coming from the EU will be subject to the same custom checks, tariffs and regulations currently in place with the US, with some 180,000 extra firms drawn into customs declarations for the first time.

Let’s hope that a shortage of Werther’s Originals leaves a sour taste in the mouths of the legions of Brexit-voting pensioners – hundreds of thousands of whom have already left this Earth and their mess for us to clean up.

Harsh? Perhaps, but as Ian McEwan said when he seconded my own observation that the Leave vote was probably literally dying:

“Truly, Brexit has stirred something not heroic or celebratory or generous in the nation, but instead has coaxed into the light from some dark, damp places the lowest human impulses, from the small-minded to the mean-spirited to the murderous.”

Yet on we dawdle, into the pointless maw.

Note: As usual I’ll be deleting anything I arbitrarily and personally happen to think is overly nasty, racist, or intolerant (on both sides) so please watch your words if you’d like to comment. And if you don’t like the sound of that, no worries, there are other places to chat on the Internet. This is a benign dictatorship, not a democracy. 🙂

From Monevator

Using the Rule of 300 to estimate your retirement pot needs – Monevator

From the archive-ator: Don’t forget your financial freedom goals – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

Non-doms pay an average £105,000 in tax; £9 billion a year in total [Search result]FT

Does a £7,600 a year service charge for a 3-bed above a shop seem fair to you? – Guardian

First signs of rising rents as buy-to-let investors pass on higher tax [Dubious!] Telegraph

Gun-shy private equity firms are sitting on nearly $1 trillion in cash – Bloomberg

Products and services

An Islamic bank is offering the highest return on cash, at 1.7% – Telegraph

Tax rule changes and low rates prompt collapse in cash ISA totals – Guardian

Pensioners hit as annuity rates drop by 10% in two years [Search result]FT

The new PPI deadline advert staring Arnie is pretty compelling – FCA via Twitter

British banks had to contribute £30m towards that PPI advert – Telegraph

The ‘secret trick’ that enables you to transfer part of your pension – Telegraph

Why people are waiting longer to upgrade their smartphones – Guardian

We don’t cover it much, but the cryptocurrency space looks bubbly – Techcrunch

Creating a set of cryptocurrency benchmark indices – Bletchley Indexes

Comment and opinion

The dumbest call of the era – The Reformed Broker

What do the best investors do that the rest don’t? – Behavioral Investing

Want a house price crash? Be careful what you wish for – Guardian

Have equity income funds had their day? [Search result]FT

The worst case scenario for passive investing: Part 1 [Debate!]Bloomberg

The Analyst on Monevator’s 1-page investing philosophy – Todd Wenning via Twitter

Tobacco stocks could be damaging to your wealth – The Value Perspective

The market is high. Beware of portfolio drift – New York Times

Decisions, decisions – A Wealth of Common Sense

Time to buy gold? – The Irrelevant Investor

How time perspective influences portfolio decisions – Portfolio Charts

Jason Calcanis on how to invest in technology start-ups [Podcast]Meb Faber

Forecasting: How to map the future [Video]BBC

Do Spanish pensioners have it much better than Polish workers? – SexHealthMoneyDeath

There is always some clown with a bigger boat – The Escape Artist

Just buy the cheapest stocks [Research, wonky]Alpha Architect

Off our beat

Why we should stop trying to contact aliens – Big Think

How to save money on gardening: An A-Z – Backyard Boss

How milk became the go-to beverage of the alt-right – The Conversation

What working from home does to your brain, apparently – Mel

And finally…

“Try to imagine the calamity of that: Zack, age twenty-eight, with no management experience, gets training from Dave, a weekend rock guitarist, on how to apply a set of fundamentally unsound psychological principles as a way to manipulate the people who report to him.”
– Daniel Lyons, Disrupted: My Misadventure in the Start-Up Bubble

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/weekend-reading-still-dithering-our-way-to-brexit/

Using the Rule of 300 to estimate how much money you need for financial freedom

Illustration of a crystal ball as metaphor for using the Rule of 300 to gaze into your financial future.

Today I’m going to talk about the Rule of 300. This shortcut helps you envisage how much money you’ll need for retirement or to achieve financial independence.

That’s right! The rule of 300 turns an amorphous future you into a flesh and blood creature with their own wants, needs, and bank statements.

Most of us find it to imagine paying for stuff several decades hence. The Rule of 300 handily bends the space-time continuum.

However let’s get one thing straight.

The Rule of 300 is not a scientific law that can’t be broken. On the contrary it will probably always be off a bit. It’s just a rule of thumb.

The assumptions behind the Rule of 300 are open to debate.

Equally, anyone who thinks they can predict exactly what will be on their bill in 30 years’ time – from the cost of robot insurance to the price of a mini-break to Mars – is delusional.

But as always with investing: What’s the alternative?

All forecasting methods have their downsides. Few compensate for them by being as simple as the Rule of 300.

I will return to the caveats later. Once you know what assumptions you disagree with, you can replace them with your own guesswork.

Let’s first outline the rule as it stands.

What is the Rule of 300?

The Rule of 300 is dead simple. To use it you need two numbers, and one of those is 300.

Take your monthly expenditure. Multiply it by 300. The result is how much you’ll need to have saved to keep living like you do today after you jack in your job.

Let’s say you currently spend £2,000 a month.

£2,000 x 300 = £600,000

The Rule of 300 says you’ll need £600,000 to quit work and still pay your bills.

(Or to tell The Man to go hang. Or to safely smirk in meetings. Or to swap your job to do something less boring for money instead. Or to keep loving your job with a safety buffer. You decide!)

Be sure to multiply 300 by your monthly expenditure today. Not by your monthly salary, or a guess at what things will cost in 20 years, or by two-thirds of your income or anything else.

Simply put in your expenditure as it stands, and the Rule of 300 tells you what you’ll need to have saved to keep spending like that from your capital.

Do not include any regular ISA or pension payments. For the purposes of this calculation we’re assuming you stop saving and start spending.

A spartan guide to using the Rule of 300

The Rule of 300 is the easiest maths you’ll ever do in personal finance. But to save you even more bother, here’s a table that shows how much you’ll need saved according to the Rule of 300, based on various monthly expenditures.

Current spend (monthly) Capital required
£750 £225,000
£1,000 £300,000
£1,500 £450,000
£3,000 £900,000
£5,000 £1,500,000
£10,000 £3,000,000

Source: Author’s calculations.

Depending on your circumstances and penchant for caviar, those numbers may seem dauntingly high or encouragingly achievable.

Are you in the “HOW MUCH?” camp? Then Rule of 300 could be extra useful. It can help you envisage what your various monthly spending habits will cost you in capital terms.

Let’s say you spend £6 a month on Amazon’s music streaming service. Multiply that by £300, and voila – you can see you need £1,800 to keep the music playing indefinitely.


However you may have other more questionable commitments:

Spending Monthly cost Capital needed
Gym £30 £9,000
Top mobile phone £50 £15,000
Golf club £100 £30,000
Weekly meal out £200 £60,000
Fancy car on PCP £400 £120,000
Monthly mini-break £600 £180,000

Source: Author’s research (and bills)

I’m not judging. If your idea of retirement bliss is playing golf as often as possible, then something has gone wrong if don’t plan on paying for club membership.

The point is that by looking through the lens of the Rule of 300, you might be motivated to cut the things you don’t care about so much.

This way you can reduce how much you need to save for financial freedom.

The safe withdrawal rate (aka the caveats)

The maths behind the Rule of 300 is based on a safe withdrawal rate (SWR) of 4% a year.

The SWR is said to be the money you can theoretically spend every year from your portfolio without (too much) risk of running out before you die.

Here’s how the Rule of 300 works: Let’s say your monthly expenditure is £2,000. Over a year that’s 12 x £2,000=£24,000. To find the capital required to fund that with a SWR of 4% we must solve (4% of Capital = £24,000) which is equivalent to (Capital = £24,000/(4/100)) which works out at £600,000. Alternatively, the Rule of 300 says multiply £2,000 x 300=£600,000. Ta-dah! Same!

To say the safe withdrawal rate is controversial is an understatement. It’s the personal finance equivalent of the Kennedy assassination. Different people take it to mean different things, which may even be contrary to the original research.

Some are dubious because it’s based on US investment returns, which have been strong compared to the global average. They say 4% is too high.

Others add that today’s low interest rates mean return expectations (and hence the SWR) must be lowered, too.

Yet others believe that’s too pessimistic. Yields should rise eventually, and anyway the 4% rule was stingy when markets did well so there was arguably a buffer in there.

Newer thinkers even claim the SWR strategy can be improved by assuming variable withdrawals as conditions fluctuate.

Finally, old active investing luddites like me presume we’ll never touch our capital, but rather live off our income. We often coincidentally target the same income yield of around 4%, even though the key SWR research was based on potentially spending everything.

Roll your own Rule of Whatever

I’m not proposing to solve the SWR debate today. Just know that you can tweak the Rule of 300 to suit your own beliefs by reworking the maths above.

  • Want to target 5% a year as your withdrawal rate? You can use a ‘Rule of 240’ to estimate how big your pot must be.
  • Think 3% is more like it? For you it’s the ‘Rule of 400’.

Personally though, I’d stick to the Rule of 300.

You’ll read all kinds of authoritative sounding comments about what is the best number to use for either the SWR or as a multiplier.

Reflect on them but understand nobody knows because we don’t know how your investments will pan out, how long you’ll live, and nor how much money will really be required in the future for a decent standard of living.

And it is only a rule of thumb. Keep it simple, Sherlock.

Not one rule to rule them all

Despite my rather analytical education, I’m not one for precise modelling in anything other than the underwear department.

Unlike my co-blogger I don’t track my expenses or stick to a budget. I prefer to keep a rough idea of cash flows in my head.

I’m also not one for working out the exact amount of capital to target for some potential retirement in 23 years and three months’ time.

I’ll sometimes look at what’s needed to replace my current income, but only as a ready reckoner. (That method targets pre-tax salary, unlike the Rule of 300’s after-tax spending. Both have their uses.)

Good for you if you prefer precision – I’ve nothing against it. We can all learn from each other.

But even if that’s you, the Rule of 300 takes zero effort to apply in your everyday thinking. You may have a 20,000-cell spreadsheet back home in the lab, but the Rule of 300 can still be a useful shortcut in conversation.

Of course most people out there don’t even have a financial plan on the back of a napkin. They haven’t the foggiest what they’ll need to have saved when they no longer receive a regular pay cheque.

Many are deluded. Some think they’ll enjoy round-the-world cruises on the back of saving £50 a month today. Others believe they’ll need so much money that stopping working is an unrealistic fantasy.

Does that sound like you, or someone you know? The Rule of 300 can be a good start in getting a grip on things.

No, it is not a scientific law. But in terms of revolutionizing how you think about your financial needs, the Rule of 300 could be as significant for you as that apple that fell on Sir Isaac Newton’s head was for him.

from Monevator http://monevator.com/the-rule-of-300/

Weekend reading: Better to aim for an average outcome than risk bad fortune

Weekend reading: Better to aim for an average outcome than risk bad fortune post image

What caught my eye this week.

I think sequence of return risk is perhaps the least discussed Most Important Thing about investing.

That’s probably because it doesn’t impact professionals so much.

Big institutions such as pension funds and endowments typically have an infinite time horizon. There’s no cliff edge for them where they move from saving to spending – which is the cut-off point where sequence of returns risk can do the most damage.

Individual fund managers? Well, they do face a related career risk. The best thing for a poor-to-average fund manager is to achieve your great returns early on, in order to attract a lot of assets. You can then revert to the mean with your mediocre-to-bad years later, when you’re earning a fat fee on all those billions.

Of course this is the opposite of what would be best for the average investor in that fund, but that’s a topic for another day.

Anyway Ben Carlson of the Wealth of Common Sense blog published an excellent deep dive into sequence of return risk this week, noting:

The sequence of returns in the markets is something we have no control over.

Some investors are blessed with weak returns in the accumulation phase and strong returns when they have more money, while others are cursed with brutal bear markets at the outset of retirement or markets that go nowhere when they have a bigger balance.

Luck plays a larger role in investment success than most realize since we each only have one lifecycle in which things play out.

Oh yes, that’s yet another reason why we don’t hear much about sequence of returns risk – there are no perfect ways to counter it. Even the good and sensible ones are likely to sap your returns. (Like diversification, however, they can still be perfectly sensible things to do).

See Ben’s full article for some ideas on managing sequence of returns risk.

And have a great Bank Holiday!

From Monevator

I know, another week with no new content. I’m disappointed, you’re disappointed. Let’s get through the summer and see how we feel then? In the meantime…

From the archive-ator: Lump sum investing versus drip-feeding – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

Retire today and you’re 46% worse off than 10 years ago – Telegraph

UK growing at half the rate of Eurozone [Will they let us back in?]Independent

The latest ups and downs of the UK housing market – Guardian

Millions of taxpayers sent warnings about offshore accounts [Search result]FT

People start hating their jobs when they hit 35 – Bloomberg

Products and services

Atom Bank has four new Best Buy savings deals [Move quick, won’t last]ThisIsMoney

NS&I is scrapping Children’s Bonds – Telegraph

Which? finds people trust banks more than pension products [Search result]FT

How to claim mis-sold PPI for free – Guardian

Pension firm introduces equity release to the buy-to-let sector – Telegraph

Ford offers a £5,000 diesel scrappage scheme amid Government inertia – ThisIsMoney

The postcode lottery of pet insurance [Search result]FT

Where to get more foreign currency for your Brexit-battered pounds – Telegraph

How to finance a home extension – Guardian

Comment and opinion

Your financial life is complicated, your portfolio shouldn’t be – Morningstar

In reality it’s hard to buy when there’s blood on the streets – Of Dollars and Data

A look at UK Robo Advisors – DIY Investor

Has Neil Woodford lost it? – The Evidence-based Investor

Probably: The cult of the portfolio manager is over – Morningstar

Stop frugality leading to lifestyle deflation – Financial Samurai

Change the portfolio, or change the investor? – Daniel Egan

The investing opportunities presented by climate change [PDF]GMO

An interesting article for stock pickers on improving their process – SumZero

Beware: Portfolios built with ETFs do worse on average [PDF, research]Alpha Architect

Beware the ‘billionaire bears’ – The Macro Tourist

Behavioural bond bucketing [Note: US ‘CDs’ are *a bit* like UK bank savings bonds]Abnormal Returns

It’s not you, it’s me [Long article on mental biases and other failings]Above the Market

39 lessons from three favourite investing books – UK Value Investor

Why retire at 43 then go back to work at 45? – The Matrix Experiment

Holiday in Siberia – SexHealthMoneyDeath

Off our beat

More evidence that being middle-aged is the worst – Quartz

Silent threats in the night: A forgotten memory until Charlottesville – Financial Samurai

Weird! Someone praising the London Underground – Business Insider

And finally…

“Governments and peoples do not always take rational decisions. Sometimes they take mad decisions, or one set of people get control who compel all others to obey and aid them in folly.”
– Winston Churchill, The Grand Alliance Vol. 3

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/better-to-aim-for-an-average-outcome-than-risk-bad-fortune/