Saturday, 31 January 2015

January 2015 Update

January's update is here

The format for my portfolio updates last year was clunky and messy so I've tried to simplify things but retain the information. This year is pretty key in my plans as it will be the last chance I have to boost our ISAs and my SIPP before my husband retires and we're living on a much reduced budget.


I've gone a fair way towards balancing my ISA according to my asset allocation strategy, but I have yet to tackle my husbands which is still very top heavy in the two CIS funds. My aim for the ISAs is to provide £2000 - £3000 pa  income during the years before my LGPS becomes payable (hopefully starting in 2 years time when I would like to retire). I know that I am not "sticking to the rules" by having a fairly aggressive growth strategy when we may want to draw an income so soon, but we both have DB pensions that will be adequate when they are in payment so I am not intending to draw on the ISA capital until (and unless) we need to do so to pay for care costs in the future. A short term/long term/terminal (god forbid!) drop in capital wouldn't overly affect our ongoing standard of living.
  • To achieve my target I'm aiming for at least £70,000 in the combined funds by March 2017.

My SIPP needs to provide us with an average income of £7,060 pa (tax free) between March 2017 and March 2024 when I will be able to access my LGPS pension. Because this income is key to maintaining our standard of living throughout these years I am aware that I need to concentrate on hanging onto capital. The SIPP should therefore be invested quite differently from the ISAs. I'm not sure that I've got this quite right just yet (especially given the fact that I have an All World Equity Tracker in there :-)). This is a work in progress, (Any comments very welcome).
  • To achieve my target I'm aiming for at least £50,000 in this pot by March 2017
Summary Jan 2015
Total Funds Outstanding £25,520.34

(p.s I'm very interested in the progress of the portfolios of my fellow bloggers so this year I will be adding links to any updates as I come across them. If anyone would like theirs including please add a comment, likewise if I've tracked you but you would prefer not to be included.)

Saturday, 24 January 2015

Corralling the Credit Card

I have never paid a penny in credit card interest, in fact I have even used cards to increase my savings by taking advantage of interest free periods and linked high interest savings accounts. I have no personal issues with them as an aid to budgeting.

But this doesn't mean that I'd don't think they are very dangerous. We all know how easy it can be to get caught in the "minimum payment" trap, and how many people do so.

(The Money Charity)

The problem is made much worse by the fact that people who should not be given credit are routinely allowed to take out several cards in the full expectation that they will not pay off the debt and will be caught in this trap. Personal responsibility is one thing, and of course it's relevant here, but surely the financial sector should be more highly regulated. This much personal debt can't be good for the economic (or psychological) health of the nation.

The other side of the coin is the fact that having no credit record can be a real problem and the easiest way to get one is to get yourself a credit card. People who worry that they will not be able to manage a card and that they will be tempted to overspend have to work round this, or give in and get one.

I have had reason to think about these things recently because someone close to me has just revealed that they have a very large credit card debt that they can see no way of paying. The all round worry and distress that this is causing (and has been causing for some time) makes me very angry because it isn't debt built up buying expensive holidays and meals out. It's debt built up due to a low income combined with very high energy bills and the fact that living just a little over income has been turned into a big debt by interest-greedy card companies. I know that debt like this doesn't happen unless someone isn't in control of their budget (as we all should be) but personal failings in this area should not be allowed to become someone else's (large) profit margins. It simply isn't an ethical business model.

In other news, but also credit card related, I have been thinking about my own credit card spending and I have come to the conclusion that I should be keeping more of an eye on it. We pay for most things on credit card. In fact everything goes on them  that isn't paid for by DD or SO (we have 2 cards each) and we generally use them in preference to cash wherever possible. Given that this is the case you would presume that I know what % of the spending goes where? Wrong. I really don't know (although I do guess - not quite the same thing :-))  and I've been recently been prompted by TFSs Bloodbath post to find some way to check this out. (It's highly likely that my socialising spending is way up there too - maybe some way beyond.)

I am working towards a retirement "Number" that is based on what we spend now (minus savings and pension payments) which works out at £2380 per month. The credit card bills currently make up between 40% and 70% of that figure. It varies so much because we use them for holiday payments etc. I have stuck a pin in a number somewhere in the middle and assessed what we are spending as £1450 on "average". But I'm not even tracking this so how can I know? There's a big gap in my budgeting here that I need to address. 

Yet another spreadsheet I'm afraid. But, in the light of recent experience, credit card spending is one area that definitely needs constant care, control and containment.

Sunday, 18 January 2015

Paying To Trade

How much is it sensible/reasonable to pay to trade and should being able to do so at a lower price help you decide when?

For the last couple of weeks I have had around £10,000 cash sitting in my ISA account due to a further sale of my CIS UK Growth fund. I've been reluctant to buy anything with it as doing so would cost me £10 per trade. Because Interactive Investor owe me £30 commission credit as part of my transfer deal which should arrive any day now I've been hanging on and waiting for this before doing any buying or selling. (II have obviously over stretched themselves due to their low costs and are definitely struggling to keep up with some of the admin on accounts. Things seem to get sorted in the end but you do have to be prepared to wait. I'm hoping this will improve - transferring our ISAs to them has saved us a lot of money so I'm not regretting it just yet.)

When I was a very new investor and keen to see how online trading worked I made the "mistake" of racking up trading costs on very small buys - a couple of times I think I paid £10 to buy £150 worth of funds which is complete madness. These days my regular trades with II are done on a monthly basis and cost £1.50 each, which I have usually managed to squeeze out of the remaining transfer commission credit or the £20 per quarter which II give all their customers. In effect I've been dealing for free for the last 6 months or so. This won't continue for much longer as this will be my last instalment of transfer commission so I will need to squeeze both mine and my husband's regular buys out of the £20 per quarter (we have linked accounts so only pay one set of fees and get one lot of credit). This gives us around two buys a month each, if we want to sell this will cost the full £10.

I'm therefore trying to make sure that all the selling we need to do in order to rebalance both accounts is done over the next few months. This all makes sense from a superficial viewpoint, but I'm not so sure I should be worrying so much about the costs when other factors may carry far more weight. For example, maybe I should have spent £10 and bought £3,000 worth of the iShares UK Div Plus ETF I've got on my shopping list last week when it dipped, rather than hang on and wait till I can buy using the commisson credit. Buying slightly cheaper might have more than compensated for the trading fee.

This seems to be another of those financial "mind set" tricks that can trip us up due to a natural reluctance to speculate, or "waste" what we have in pursuit of greater returns, along with the mantra that tells us it is foolish to pay over the odds to trade. Sometimes it plainly is "worth it".

Strangely I don't worry about this kind of thing when managing my SIPP with Fidelity as I don't really have a choice about when I buy over there. Buys can only be of the bigish kind (you need at least £800 for a lump sum), or made via monthly contributions, and, as I'm not needing to sell anything I don't have lots of unallocated funds lying around. It is all "free" (well, sort of, it's covered by the 0.35% platform fee whereas II is a flat rate £20 per quarter) but it isn't as easy, or immediate, as it is with II. To be honest I prefer the feeling of being "closer" to my investments that I get with II even if it does mean I have to worry about working out and holding myself to a sensible trading strategy.

And speaking of strategies, what % of a buy (or sell) is it sensible to pay in trading costs? Has anyone worked this out? What effect do the costs on your platform have on your trading activities and frequency? Any thoughts very welcome.

Saturday, 10 January 2015

Paying For Supplements

This week I bought something that I swore several years ago, pre-FI days, I would never buy again. I bought a dietary supplement.

I dread to think how much I have spent on vitamins, minerals and "wellwoman" products throughout the years. I took a lot in my 30's and 40's. I wasn't exactly swayed by every craze that was doing the rounds, but I did subscribe to the "insurance policy" idea of being able to swallow a pill and not worry too much about what I was eating. I would also try to self-medicate for minor illnesses and conditions using vitamins - skin problems, digestive troubles, tiredness, wrinkles, weak nails, I tried "cures" for them all.

My parents have always taken multivitamins and they are now both into their 80's, so I didn't see any harm in them, and possibly quite a lot of good. I knew the case wasn't sealed but I was prepared to give it the benefit of the doubt (something like being an agnostic). Thinking back I probably spent about £8 a month on supplements over the course of 25 years, along with the occasional splurge on an expensive course of designer supervitamins, some of which I never even took. That's a lot of cash which, at the time, we didn't have available to waste.

It was probably about 4 or 5 years ago that reports in the media about the "myth" of the multivitamin started to appear and I had a re-think, did some research and decided to stop taking supplements. I already knew that my diet had improved, as more information about how to eat for good health, and the importance of doing so, became available. My husband (who is the cook in our family) was making sure we had home cooked food and lots of fresh veg every day. I had stopped eating sandwiches and crisps for lunch and was concentrating on salads, lean protein and fruit. I knew what I was doing and I was being a lot better about actually doing it. There was no need to swallow a pill "just in case". I haven't felt the effects of going cold turkey on vitamins one little bit.

However, for the last 4 months I have been suffering from a painful neck and shoulder along with pins and needles and numbness in my right arm and thumb. The doctor tells me that I have a trapped nerve due to "wear and tear" in the vertebrae at the top of my neck which has irritated the nerves and caused inflammation. It is basically a form of arthritis and there isn't a lot that can be done, apart from wait for the inflammation to subside and try to keep positive. I am sick of taking pain killers, wearing heat pads and having disturbed sleep, so I turned to Google to see if there is anything else I can try.

I discovered that there there has been a lot of interest in curcumin (turmeric) as a natural aid to the reduction of inflammation in all kinds of ailments. It has even come under investigation as something that might help in depression, which some scientists are now suggesting is a result of inflammation caused by the body's immune system. So, after doing my due diligence, I decided to give it a try and ordered 60 tablets (two months' supply) for £20.

I must admit the FI part of me is struggling to justify this spending. The whispers in my ear go something along the lines of : "But aren't you supposed to be cutting out unnecessary expense, not adding to it and in the course of doing so also supporting unproven quackery". On top of having the slightly sick feeling that I could be throwing money away, I also hate the way that people are routinely taken for a ride and deprived of their money by the supplement industry. At its worst it is guilty of raising false hopes of miracle cures, instilling guilt in parents for not giving their kids the latest "brain-boosting" vitamin combo and generally making big business out of selling unproven products to under-informed consumers.

However, I'm still going to give my curcumin a go. Despite the fact that if things improve I will never know if it worked, or my body just mended itself and even if it doesn't work I run the danger of getting locked into the mind-frame of "give it a bit more time" and then "well, you might be worse without it". We'll see. But it does look as if I'm committing myself to £120 a year more spending. Maybe the best thing to do to make myself feel better about this is to find something to cut back on to balance this out. As part of my January detox challenge (thanks TFS) I have decided that drinks after work on a Friday will be of the non-alcoholic variety and therefore far less pricey. If I keep this up all year my health will benefit even more and I can stop feeling guilty about the curcumin.

Maybe sometimes we need to indulge our need for something just because it makes us feel better, even if it isn't strictly necessary or even justifiable and allow ourselves to silence that FI imp on our shoulder. I'm counting this as one of those times.

(Image courtesy of Rogue Fitness)

Saturday, 3 January 2015

What is a Fair Rent Increase?

When we paid a letting agent to advertise and manage our studio flat rental we were guided by their advice on how much rent to charge. During the 3 years they were acting for us we put up the rent once, between tenants, by £20 per month (about 4.5%). Last time we needed a new tenant we used OpenRent, and put the asking price up by another £10 per month. The price we now charge is exactly the same as the median rental value given for the address on Zoopla (I'm not quite sure how this works though - is it a recommendation or just a quotation of what is actually being paid?).

We were overwhelmed by the number of responses we got very quickly after advertising and had several offers of a higher rent from people who wanted to jump the queue. To be honest we found this part of the process quite stressful and it made us realise that part of what you pay the letting agent for is to do the "dirty" work and get you the best price. It also made us realise that we wanted to do things fairly, treat the prospective tenants properly and keep our word when we had accepted an offer . We could certainly have got more money if we had played people off against each other.

My son lives in a very similar studio rental in London for which he pays £900 per month which is exactly double the rent we charge. He is currently negotiating to extend his contract for another year. The letting agent told him yesterday that they propose to increase the rent by over 10% to £1,000. He has gone back to them and said he is prepared to pay an extra £55, but if this is not accepted he will look elsewhere. I think he has done the right thing. He could stretch himself (very thinly) and pay the extra 10% but it simply doesn't feel right that a landlord who has had his rent on the dot from a very reliable tenant should "take advantage" and attempt to get every last penny out of him that he can. It feels like a bit of a kick in the teeth.

I know that rental prices are determined by market forces but I also believe landlords have a responsibility to be fair, see their tenants as individuals, not just commodities and appreciate the fact that someone who they have relationship with (because that is what a landlord/tenant interaction is) is not going to be encouraged to stick to their part of the bargain with good grace if they feel that the landlord simply sees them as a "cash cow". My son's landlord has always been friendly, has given him home made wine and chats with him whenever they meet on the stairs. When he talked with him in person about extending the contract earlier in the week there was no mention of a rent increase. There is no doubt that the letting agent is responsible for advising him that he could squeeze more out of the rental if he tried (after all he gets his cut). My son does not object to paying a bit more, he understands that the landlord needs to make money, it is the steep hike that is the problem.

Should there be some kind of rules about how much the rent on a short-term tenancy can rise? What are the responsibilities of landlords in all this? Having seen the situation from both sides I believe that the sooner we have less people using bad letting agents the better, as re-introducing the personal touch into the situation is far more likely to produce a civilized settlement between the two parties. Unfortunately not all tenants are reliable and landlord protection is definitely needed, but too much reliance on third parties who have a very "cold" and one-faceted business model regarding rentals means there is a strong bias against the tenant.

In a similar way that vegetarians say you should only eat meat if you are prepared to kill the animal yourself, maybe you should only put up the rent by an amount you would be happy to look the tenant in the eye and negotiate yourself. Business needs the personal touch :-)