Monday, 24 August 2015

Time to Switch to Auto PIlot

Personal Finance is all about control and FiRe chasers have to be the biggest control freaks in the game. If we don't have all the strings in a firm grip, know exactly how long they are and when to pull them, how else are we going make it happen?

But there are times when the best strategy is to stop trying to make things happen and sit back and ride it out. It's fast looking as if this is one of those times. I've never "seen" a market crash or bear market. Of course I've lived through them, I've even been invested through them as I've held, and regularly paid into, a S&S ISA for around 10 years. However up until 18 months ago I wasn't remotely interested in what I was actually doing or even tracking how things were going, apart from glancing at the annual statements and thinking "that doesn't seem to have gone up much" (or the opposite). I was far too busy with kids, life, work and all the rest. This time it's very different.

Letting go of control and not being able to do anything but roll with the punches, sounds and feels more than a little scary until you realise that doing so should actually be part of the plan. Exactly as a pilot trusts his instruments to know better than he does at times, so we have to trust our PF plan to work to our best advantage when we can't see what's ahead (and as Monevator said at the weekend if you haven't got a plan get one quick:-)) Leaving the plan to do what it's meant to do is the whole reason we have it, it's there to prevent us having to make decisions when we don't have the tools to be able to do so.

I recently watched a television documentary about the terrible Staines air crash in 1972 which killed 118 people. The causes of the accident were complex but at least some of the blame has been placed with the pilot who, just before take off, had had a violent disagreement with a fellow pilot and so can be presumed to have been in an heightened emotional state. It appears that whilst the plane was coming out of take off he didn't climb quite high enough and then, when problems started to become apparent, an automatic stall warning and recovery system were overridden. As a result the plane went into a "deep stall" (from which recovery is impossible) and fell to the ground. Human intervention and faulty decision making disrupted the pre-programmed routines of the take off and tragedy ensued. The parallels with investing are clear.

(Incidentally the notion of a "deep stall" during which nothing can be done to pull the plane back up seems to me to have a financial equivalent in the situation in which many people who take out pay day loans find themselves. No matter what is done, it must feel like even the possibility of control has been lost. Apparently 44% of people who take out such loans use them for everyday essentials such as food.)

Markets across the world are tumbling, and for the first time I'm watching it happen. I'm very glad that I sold our CIS UK Growth funds a couple of months ago and took out the cash that we will need for the next two years as there is no indication of when things will recover and according to some commentators we could be in for a very bumpy time.

For now I'm going to sit tight and see what happens. (Well apart from buying £580 more of the Scottish Mortgage Trust we hold in my husband's ISA which has dropped over 7% since Friday. My husband has just received the final payment from his pension TFLS due when he retired so we have a little extra spare cash). I'll also be buying my Monkey Stocks on iii's next regular investments day towards the end of Sept. Who knows, they may be very cheap indeed by then :-)

Tuesday, 18 August 2015

Student Living

Last week we finally received the great news that my son had been awarded a place on the MA course he applied for at the beginning of July.

This was a tremendous achievement on his part as the Department is rated second in the country for the subject and they describe the competition for the course as "fierce", deliberately keeping the number of students down in order to preserve a high staff to student ratio. As part of the application process he had to produce a research proposal and a piece of critical writing as his degree is in an unrelated subject (Law). He worked very hard on all this and we're extremely proud of him.

Since we now have a clear plan for our retirement and are pretty sure we have (more or less) enough to do what we want to be able to do, we have decided to gift £17,500 of our ISA savings to each of our sons as an "Opportunities Fund" to be used to allow them to do something they would otherwise not be able to do, hopefully to improve their lives permanently. This may (or may not) be directly tied to job prospects as personal satisfaction and development comes in many forms. :-) The eldest is using his to go back to University and the youngest is leaving his with us for the time being until he has a good use for it.

In addition to gifting the £17,500 we have also said that my eldest son can live rent free in our studio flat for the year. Our youngest son has already made use of the flat between his MA and PhD when he was doing some intern work and applying for funding. This is, in fact, why we bought the flat, as we only own a modest semi and having an adult son live at home can get a bit "cramped" if it goes on for any length of time. :-)

(btw I am painfully aware that my sons have both been given an educational advantage by having parents who have been able to afford to supplement student loans, internships, housing and life in general. I am ideologically opposed to the idea that education is ever something that should be allowed to exclude people for financial reasons and would never have sent them to private school, but parents these days seem increasing sucked into supporting their kids through further education if they can. As this becomes the norm surely the kids of those who cannot afford to help become actively disadvantaged? One for my conscience (and vote)).

Having now got the offer of a place we have been thinking in more depth about accommodation and my son has decided that he would rather live on campus if possible. Although our studio flat is only about 30 mins by road from the University he doesn't drive and there is only one bus an hour and none after 6.30 in the evening. He had been thinking about getting a bike as there is a cycle route for some of the way but travelling home late in winter on poorly lit roads was a bit of a worry. In addition it would be good for him to be in the thick of things and we wouldn't have to give our tenant notice (something I'm loath to do as she has been very good and is obviously happy where she is despite only signing up for 6 months initially).

However the student accommodation prices came as a bit of a shock. As a postgraduate needing a 51 week rental the full range of choice of halls was not available to him and he's basically confined to a cheaper option of £5,800 (shared bathroom) and £6,700 (en suite).

Comparing these costs to the income/costs associated with him living in our studio flat works out like this:
  • After tax income from rental (estimated as it depends if any further repairs are required and\or the tenant gives notice): £3,700
  • Estimated utilities (electricity, broadband, water) to pay if in flat - currently covered by tenant: £1,000
  • Council Tax (currently covered by tenant): £1,200
Total: £5,900

So, taking into account the travelling costs associated with living in the flat and the fact that living on campus entitles you to 10% discount at food outlets and bars on site means that, although the university accommodation seems mighty expensive when compared to our studio flat, it would actually be more or less cost neutral for my son to live there.

This calculation was quite interesting from another point of view. If we are getting a profit of around £3,500 pa on our studio flat and it works out that it costs our son just about the same to live in what used to be called University "Halls", surely the University is raking in huge profits at these kind of prices. Their overheads must be proportionally much smaller given the scale of their service. They have a captive rental "audience" and can control their void periods (the rooms are let out for conferences and visitors during the vacations) and service the flats using their own maintenance staff.

It all seems a bit scandalous except for the fact that we have to recognise that this is yet another reflection of the ongoing trend towards the commercialisation of education. Government funding for universities has been reduced so they have to make money somewhere. What then happens is that cheap accommodation for the students without parents with the wherewithal to help becomes scarce and the poorer students are forced out into the private sector with all its attendant stresses and difficulties, things that young people leaving home for the first time do not always have the skills to manage.

Personally I'd rather pay a bit more tax, fund the universities properly so they can provide affordable accommodation and remove tuition fees for UK students, put kids back on their own two feet with a fair and adequate grant system and make sure that further education is only seen as attractive for the right reasons by the right people. Somehow, though, this all seems to be moving further and further out of reach.

Saturday, 1 August 2015

July 2015 Update

Things have wobbled about a bit this month but our portfolio managed to finish up in the green with combined assets up over £2,000 since last month. I haven't been doing much trading as we're in a state of limbo as regards how much cash we will need for the next couple of years (my son still hasn't heard whether he has a place on his MA course and there's been no further news on my VR).

The only investments I have made are £500 into my LGPS AVC, £57 into my CIS FSAVC (still waiting for this to be transferred into my SIPP) and a small amount of re-invested dividends ploughed back into my ISA.

All in all it's been a pretty unexciting month. However, I have been pleased to see that my Herald Investment Trust (global small companies in IT, multi-media and comms) has now made some steady progress (up just over 10% during the period I've been drip feeding it) and TR European Growth Trust seems to be hanging onto most of the profit it has made for me (19%) (don't know how long that will last though - I have been considering taking some profit from this but holding off for the time being). Globally smaller companies seem to be doing quite well currently with my FTSE 250 tracker also standing at 10% up, although Aberdeen Asian Small Companies just keeps on dropping (down 16%) and the modest amount I have in an S&P small cap tracker is refusing to make profit and has slipped into the red again.

What's not been doing so well recently is my iShares Global Clean Energy tracker.

The S&P Global Clean Energy Index offers exposure to the 30 largest and most liquid listed companies globally that are involved in clean energy related businesses, from both developed markets and emerging markets

KeyChartInstrument1 mth6 mths1 yr3 yrs
iShares Global Clean Energy UCITS ETF GBP-4.64%2.86%4.17%77.86%
Gbl ETF Commodity & Energy-6.47%-6.95%-17.09%-18.37%

I can understand why clean energy companies in the UK could have been taking a bashing due to the fact that the government has been reducing subsidies, but what the drop says about global trends following a surge in investment in 2014 is a little worrying. Maybe it's too soon to see it as an indicator of anything.
The fact that fossil fuels reap 4 times more in subsidies from world governments than renewable energies can't help though.

Although July's been fairly quiet maybe August will bring some excitement. Today my £9,000 worth of premium bonds will be going into the draw for the fist time. 

Drinks all round at York if ERNIE comes up trumps :-)