Tuesday, 30 September 2014

September 2014 Update

Portfolio update here. 

 It's been a busy month. My ISA transfer finally completed so I've been doing a bit of re-balancing. So far I've sold around £10,000 of my CIS UK Growth fund and bought £3,000 each of TR European Growth IT and an iShares global property tracker.

I would really like to increase my holding in the US but now just doesn't feel the right time to do it (classic market timing mistake?). However, as there are other areas that I need to beef up a bit (EM's, Europe and property) I'm concentrating on them at the moment. I do have a plan (put £5,000 into a US tracker) but it seems a very expensive one at the moment and I'm hoping to keep to it, but keep down the costs. Given that there doesn't seem to be an overriding and immediate reason to sell any more of my UK Growth top heavy fund just yet, I am prepared to wait it out a bit. I've a feeling that I will need to do it quite soon though, so I might just need to bite the bullet and get on with it.

We've also now taken the decision that my husband will retire fully at the end of Nov 2015. Our original plan was for him to keep going on 3 days a week until he's due for state pension in 2018. This means that our ability to invest at our current rate of about £1400 per month will be severely curtailed in 14 months time so I really do have to have a watertight plan if I'm going to be able to stop work at 58 - 60, defer my pension and live off my SIPP.

It looks like the plan I devised in May has to be refined yet again. Watch this space....

Thursday, 25 September 2014

The Feminine Touch

At the weekend I was reading Tim Hale (again) and I came across this statement:
"Overconfidence destroys wealth. Men tend to be more overconfident than women... men trade 45% more than women, This is reflected in risk-adjusted returns 1.4% less a year than women". (Hale. T., Smarter Investing, 3rd ed p89)
Apparently we women have something in our genes that makes us better investors, just like we are statistically better drivers and probably for much the same reasons. We tend to be more cautious, less aggressive and less inclined to take risks. (I just wonder how long it will be before some bloke turns this around by saying that although women are involved in less investing "accidents" they cause them by not getting out of his way fast enough :-))

It's such a shame then that so few of us actually do it. Maybe that's because we don't have control of as much of the wealth. Research in 2013 showed an average 17% difference between the wealth held by men and that held by women whilst:
"At one point, between the ages of 24 and 34, the Wealth Gap can be as wide as 185 per cent with men claiming an average wealth of "£21,827 compared to just £7,648 (by women)."
There an interesting article in April's Money Observer discussing how men and women differ in their attitudes towards investing and yet another in July which carries this infogram

This is all pretty serious and we really should get our act together, especially as far as pensions are concerned, because we're lagging seriously behind our male counterparts:
 "Women retiring this year are nearly three times as likely as men to have only the state pension to live on, according to a report by the insurer Prudential. Some 20% of women, who often take career breaks or work part time to support families, said they have no other pension provision, compared with 7% of men, the research found" (The Guardian April 2014).
I'm absolutely not in favour of creating further financial "dependency" by putting in place statutory measures to tie women's finances to men (as seen with the old "married women" reduced NI contributions etc) but I really don't see how we can ever be playing on a level pitch with men due to the time we spend out of the labour market having, and raising, kids. Or for the fact that we aren't given jobs even if we have no intention of doing so ( 40% of employers would rather employ a young male rather than a young female just on the basis that he won't be asking for maternity leave).

I am lucky in that I have managed to reach the same level of earnings as my husband (having got my MSc as a mature student after the kids went back to school) but I was financially dependant on him for the 10 years I was at home whilst they were little. It can be very uncomfortable indeed, even if it is never raised as an issue, as you can't really avoid feeling that you don't deserve as much of a say in the household finances. Unfortunately I'm not sure that there is a way round this, especially given the fact that such low status is traditionally given to the job/career of bringing up children. Financial equality between the genders is a really hard nut to crack and it may never actually be achieved.

Depressing though that thought is, we do have to deal with it and it seems to me that the only way that women can really support themselves to the same level as men is to be extra clever, start very early, use our innate "cautious" gene to invest well, save more than our male counterparts in those precious pre-kids years (which are also unfortunately the expensive "freedom years" for leisure and travel) and build a career that will welcome us back once family responsibilities lessen. In the meantime employing all our organisational skills and attention to detail to the task of living well, but frugally. Job done :-)

Of course, all this is generalisation. In our household I do all the investing but I do have to make sure that I manage my husband's ISA at a far lower level of risk than I do my own, as he is of a far more cautious bent than I. I'm pretty sure that he would not be comfortable with the risk profile of a couple of my funds, but he tends to act in much the same way as I sometimes do when he's driving - he closes his eyes, crosses his fingers and lets me get on with it.

Saturday, 20 September 2014

Missing the "Not So" Obvious

We have a Halifax Online Saver account attached to our main current account which is paying an introductory interest rate of 1.25% for the first year. This rate will soon be coming to an end and we'll be back down to 0.25%. There's not a lot of cash in there as it just holds our pre-emergency fund - ie for when the current account needs topping up a bit if we have an expensive month. Therefore it's pretty key that this money is easily accessible and instantly transferable into the current account. Currently the balance is around £5,500.

I have been thinking about what to do with this cash now Halifax will be dropping the interest rate and I was considering opening another of the higher rate current/savings accounts (we already have a joint Santander 123) when it suddenly dawned on me that the answer was (seemingly) obvious.

Last year I took up a M&S current account and credit card. I shop there a lot and this has definitely been a good move as the points I have earned have gained me plenty of money off vouchers and special offers. I have also been able to take advantage of a 6% regular savings account which is limited to £250 a month for one year (interest paid at the end of the term). The M&S credit card is interest free for 18 months so I have been saving my £250 a month rather than paying it all off knowing that I will be able to do so when the savings account matures whilst gaining the interest along the way. ("Stoozing" the card as I believe it is called).

It then occurred to me that surely the best action would be to pay off the £2,300 credit card balance using some of the cash in the Halifax saver. On the surface this feels like it would be a good move - my basic "commonsense" tells me that this way I will be gaining 6% on the cash and I will come out better off than if I continue to save the money and pay off the card at the end of the year as I originally planned. But is this true? Is there really any benefit to be gained? Don't I get exactly the same benefit either way?

What this exercise has shown me is that although there are lots of cases where we do ignore the obvious in money matters - paying off mortgages when we would be better to keep the low rate of debt and use the money elsewhere, being tempted by BOGOF offers when we didn't even want the "one", putting money into very low rate cash ISAs when there are current accounts paying better interest rates, racking up credit card debt and putting money into low rate savings accounts at the same time, the list goes on and on - there are also cases where our intuition is well and truly fooled by the mechanics of finance.

I am reminded of those "Magic Eye" puzzles which were popular a few years ago where you had to train yourself to squint in order to be able to see what was hidden inside the pattern.

Despite the fact that numerical literacy is generally of a fairly high level in this country some of the basic rules of how money "works" are not obvious, although they are (of course) always logical. This seems to be the root of the problem. We may not struggle with simple numbers, and we can be taught the rules that help us deal with them fairly easily, but the laws of logic are a little trickier to formalise, grasp and apply to real life. We can end up going round in circles and not actually doing anything because the best route isn't actually all that clear. It's easier to just concentrate on one part of the picture at a time rather than try to see it as a whole, work out how the bits interact and act accordingly.

As far as my dilemma goes I'm pretty sure that I'm only going to earn my 6% on the 12 x £250 payments once, so it doesn't really matter which money I use to get it (does anyone disagree?). In any case I will still be left with the problem of finding some way of getting a little interest from what's left over without giving myself too much hassle as regards managing it. Back to the drawing board.

(By the way my ISA transfer has finally completed and I put in a sell order for around £10,000 worth of my CIS UK Growth fund yesterday - I'll be double checking my strategy for what to buy with the money this weekend against Tim Hales and Monevator - hope I can do it without having to squint - those Magic Eye puzzles always gave me headaches :-))

Saturday, 13 September 2014

What it is to "travel"

I've just got back from a week away in the Yorkshire Dales, a part of the world which is very close to where I was born and bred and so feels like home, but which also effortlessly hits many of my holiday desirables. The physical beauty of the countryside is indisputable (especially seen in the kind of weather we've benn having recently), the people really do have more time to smile and pass the time of day, the pubs are many and varied and the walking is fantastic. It was a good week.

We spent a lot of time wandering up hill and down dale so I had lots of time to think. One of the subjects occupying my mind was the question of what we mean when we say, as many of us do, that one of the things FI will give us is the freedom to travel. On the face of things this is rather a simple statement. Travel is moving from A to B. But I, for one, certainly do not want to spend any more of my precious time in airport queues or motorway hold ups. The actual "travel" itself is an unfortunate, but unavoidable, side effect of the getting "somewhere else" which is the actual objective.

That "somewhere else" or "somewhere different"  means new experiences, challenges, tastes, sights and sounds and it also means new people with different lifestyles, viewpoints and outlooks. Travel makes finding all this "difference" easy, it gives it to us on a plate. The reason we say that it broadens the mind is that it forces the mind to exercise and to take in all that "difference", to fit it around our existing experience and in the best of cases, change the boundaries of our understanding. This exercise has a lasting influence when we come home,  it really does make us more enlightened.

True travel does not really require going very far at all, as it is ultimately about making an effort to force ourselves outside our normal daily experience and consciously seek out "difference", especially difference that challenges. This could be as simple as reading some science fiction instead of your usual crime, learning to sing or doing some voluntary work to clean out the local canal. Opportunities for travel are around every corner if we choose to take them.

On the other side of the coin there are plenty of people who move around the world but fail to really travel. People who take all inclusive holidays shut away in hotel "compounds" or go on luxury cruises with the odd coach trip to the sights and back again, business men who spend their lives on planes and in hotel conference rooms or the super rich who take their lifestyles with them when they move between their houses in Mexico, St Barths or The Hamptons. It is hard to see how any of these people are actually experiencing "difference".

From a FI point of view seeing travel in this way also means that we don't need to put our urge to get out and do it on hold until we reach our goal. In fact working towards FI could almost be said to be an exercise in travel (it is certainly a journey :-)) as it forces us to look at life in a different way. There are many ways to travel the world without breaking the bank or suffering from a guilt trip on the carbon footprint front.

Ordering my thoughts whilst walking off all those fantastic fish and chips has been a very useful exercise because it has helped me to pin down why I have never really understood people who cite travel as being one of their goals in life without qualifying what they mean and where they want to go. This can come across as a "been there, done that", tick-box kind of attitude which seems at odds with the true value of exploring the world. I much prefer the notion of time spent "wandering", or "roaming", where what happens one day influences where we go the next and the only itinerary is to experience something new and let it touch us in a way that enriches. In the end all that we really need for this kind of travel is time and the imagination to enjoy it. That is what I'm looking for from FI.

Here's something "different" I came across in North Yorkshire. :-) Does anyone know where?

Monday, 1 September 2014

August 2014 Update

It's now 6 months since I started planning for early retirement and investing to make it happen.

In that time my portfolio has increased by £10,687 which I'm pretty happy with. If I add in my husband's investments we now have almost £108,000 of the £170,000 that I reckon we need in order to be able to retire in 4 and a half years time. (£125,000 ISAs, £37,000 DC pension and £11,000 cash).

£62,000 and counting ....

Portfolio Update here