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 :-)


  1. Hi Cerridwen

    Auto-pilot is the way to go, although I guess as I have some time to go before I have need of my cash, it's easier for me to say. This is when we all need those 'Keep Calm' signs! :-)

    Yes, this might be a good time to buy our Monkey Stocks, I can't see that prices will have recovered fully by the end of September!

  2. Hi weenie,

    As someone who is going to need the money in my SIPP/FSAVC pretty soon (hopefully within the next two years) I do feel a bit twitchy. However I have made sure there is a far lower equity allocation in there than in our ISAs and the biggest chunk of money is in a "smoothed" pension fund which seems to be holding out perfectly fine (at the moment). I'm in the middle of transferring this to my SIPP where I will hold it in cash. I really don't want the pressure of market volatility when my money will be needed so soon.

  3. I'm not on autopilot yet... I know it's the best way but I like to be in control of exactly when I am putting money in. I wouldn't exactly call it timing the market as I'm not buying then selling later but maybe we can call it micro-timing. Also I don't put in a set amount each month (at the moment) so it's hard to set up anything on a regular payment scheme.

    Seeing as you have two years before needing the SIPP cash would you not welcome a small market crash as you are still paying some money into it? Or you could move your cash holdings into it? I know it's a risky strategy in case it drops further, but if it really goes down town it could be a great buying opportunity to give your pot a really nice final boost. As this is completely the opposite to what your post was about though I am guessing you don't think that would be a good idea :)

  4. Hi TFS,

    It could turn out to be a great idea :-) (or, possible a disaster as I'm working to a pretty tight plan here). I need about £35,000 in my SIPP to cover all bases as regards definitely being able to retire in April 2017. At the moment (once my FSAVC transfers in) there is about £34,000 in there. When the £20,000 FSAVC turns up I've initially asked for it to be left as cash but I'm not sure that's the best thing to do with all of it as it will actually be losing value if I do (in the form of inflation and the 0.35% fee I'm paying to Fidelity to hold it).

    You're quite right - putting extra cash into my SIPP would give me the tax boost (which is not to be sneezed at) but I will need a fair chunk of that cash before I start drawing down the pension so there's a limit to how much I could use in this way - if I started drawing it down before I finished work I'd end up paying the tax back (although I suppose I could take the TFLS).

    You have given me food for thought though so I will take another look at this. Thanks.

  5. "although I suppose I could take the TFLS": when one passes 55, the existence of the TFLS makes pensions pretty flexible even for people still at work. As long as you restrict yourself to the TFLS, your annual allowance for pension contributions will stay at £40k: take a penny more and it drops to £10k. The latter might constrain last-minute pension-stuffing.

    1. Come to think of it, the other possible constraint on last minute pension-stuffing for someone who has taken a TFLS is the continued existence of the Recycling Rules.

  6. Many thanks dearieme, it's useful to know that taking out the TFLS doesn't impact on how much you can continue to pay into a pension (I'll need to look up the recycling rules though if I ever do decide to put much more in there).

  7. I'm also not really on autopilot, my son's investments are though. Like TFS, I am looking at this recent turmoil as an amazing buying opportunity... Now, where to get the extra cash to take advantage in September...

    1. An advantage of having lots of time for the value of your investments to fluctuate is that you don't have to be so concerned about preserving capital. We're on the verge of needing a fair amount of cash (although the bulk of ISAs probably won't be needed for many years yet) so sticking to plan and not re-investing the funds we've just taken out is key. Tempting though it may be ...