Monday, 19 October 2015

Pushing the Ethical Envelope - Abundance Sipp and Good Money Week

This week is Good Money Week so take a look at what's going on and get involved.

My "actions" towards becoming a more ethical investor/consumer include cancelling my subscription to Money Observer and using my financial magazine "allowance" to subscribe to Ethical Consumer instead. I've also written to my MP asking him to actively support the movement towards transparency and accountability in all areas of finance that is being promoted during the week.

Having control over what is being done with our money makes a big difference to how we feel about the whole process and, for me, being able to be confident that my investments are being used ethically would give me an added "bonus" that is worth far more than an extra % point on the potential profit. However it turns out that taking a hit on profits is no longer necessary because, (as was reported this week) ethical funds are now heading to the top of the leader boards due to the collapse in the prices of oil and other mining stock.

Divestment has actually made good financial sense for some time because, even if you're not worried about what will happen to the planet and the people on it after you're gone, you have to acknowledge that we simply cannot dig up and burn most of the fossil fuel left in the ground if we have any hope at all of keeping global warming down below the target levels agreed by governments. Fossil fuel companies are in very real danger of not being able to realise expected profits. It would be very short sighted indeed not to take this on board (-:  if the cap fits Ms Rudd et al :-))

In recognition of the unease many of us feel about the opaque nature of investing, Abundance, who I've been investing (and earning over 7% interest) with since March, have just announced the first peer-to-peer SIPP. There's a good write up on this on so I won't go into details here but it's very competitively priced (free to set up and no fee for the first year, 0.3% thereafter) and seems to make excellent sense if you're ethically inclined and worried about putting all your retirement eggs in the volatile equity basket.

I'm not in the market for any additional retirement investing myself as I'll soon be drawing down what I've got, but I'll certainly be talking about the Abundance product with my sons and their friends. My youngest son in particular is extremely "pension poor" as he's been in full time higher education for the last 8 years. This is exactly the kind of product that will appeal to him and his circle of friends who take the issues of corporate financial integrity and responsibility for the planet very seriously, seeing, as they can, where "turning a blind eye" has got us so far.

The introduction of new financial products such as this, ones that allow us to make our money work in ways we want it to, is an exercise in crowd-sourcing in its own right. People really do want to know what is being done with their money, and they want to be able to make informed choices about whose hands they put it in. Abundance have done their research and seem to have got a lot of things right regarding this product. They are honest about the fact that this pension is not for everyone and the risks involved. At the very least they are to be applauded for pushing the market forward and providing a product that supports all the principles of "Good Money" this and every week.

Monday, 12 October 2015

The IMF and Global Growth - Short-Termism and the Markets

(Disclaimer - my understanding of economics has been gained from basic reading of the popular press and a few more detailed online resources. I am very happy to stand corrected on any of the following :-))

Last week the International Monetary Fund met in Lima. Commentators agree that the outcome of their talks is worrying.

chart global growth 2 They have reduced their forecast for global growth again (for the 4th year in a row) and have concerns that the economy in emerging markets could prove very unstable if the USA raises interest rates.
'Despite progress in recent years, financial sector weaknesses remain in many countries, and financial risks are now elevated in emerging market' (Christine Lagarde)
The advanced markets in Britain and the US have achieved a level of stability following the crash of 2008 but it's been a long time coming and has required monetary policies (quantative easing, low interest rates) that haven't produced the rate of growth they were expected to:
"Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronized global expansion remains elusive," Maurice Obstfeld, head of research at the IMF.
Reading about all this from my very naive level of economic understanding I must admit I agree with Larry Elliot
'These are indeed weird times. Share prices are rising and so is the cost of crude oil, but the sense in financial markets is that the next crisis is just around the corner...'
There does seem to be a consensus amongst the people who "should know" that things could easily turn very rocky and a recession now would not be as easy to pull out of as it was in 2008. So why does the announcement that the Federal Reserve bank will not increase interest rates *just yet* have more power to raise the markets than serious data-driven announcements by reputable financial bodies has to depress it? (As was certainly seen in my portfolio last week). Is this just another example of the continuing (increasing?) trend towards short-termism in business and financial institutions?

There's an article from 2013 by David Kingman  on the subject of short-termism which makes some very interesting points, one of which he quotes from "The Road to Recovery: How and Why Economic Policy Must Change" by Andrew Smithers: American companies are now handing back a far greater proportion of their profits to investors than the amount they invest to grow the business. In the 70's 15 times more profit was invested than giving out in dividends, now it's just 2.

It's all seems to be down to the natural human tendency towards short term gain at the expense of long term well-being, a failing that anyone who is working towards FiRe recognises, and the damage that giving in to it too often can do. Companies (and individuals) are making money and then hanging onto it or paying it out as dividends, rather than investing it back in. On a global financial level this is causing growth to slow to the point of stagnation, and quite possibly stall as far as emerging markets are concerned because they need the demand that is produced by investment from the advanced economies. There is a massive amount of debt in emerging markets which has been fuelled by low interest rates and which needs servicing somehow. If growth diminishes and interest rate rise things could come crashing down. 

Hanging on to cash and failing to invest is also one of the reasons that so much wealth is getting concentrated at the top, it's just sitting there in bank accounts and not doing any work to create growth or further the famous (and contentious) "trickle-down" effect.

(btw I would argue with his definition of socialism - I think he actually means "communism" here).

The IMF is advising public spending on infrastructure projects as one of the ways advanced market countries can ease the situation, but with so much emphasis (and brain washing of the public) about the dire need to cut deficits, governments may find funding difficult unless they bite the bullet and miss a few targets (nothing new there then:-)) (And maybe if there hadn't been so much "austerity" going on in 2010 - 2012 things might have moved a lot quicker.) It does look as though Osborne has taken this to heart and the news that the pooled pension pots in the LGPS could be used to help fund things is especially welcome.

But why has business (and Government) become so short termist? If I can see the big picture from my very low level of insight then surely it's no secret that this is happening and what the likely effects are, and will be. This is an interesting question and it may be that it will take another market crash to improve things, as some commentators suggest that the last one didn't actually change policy and practise very much at all.

No one could accuse FiRe seekers of short-termism, but without Governments that build for growth, encourage investment in the future and tax wisely, and discourage cash bonus payments for company managers and the stock-piling of cash by obscenely wealthy people, we're might soon start to struggle to reach our goals. 

Saturday, 3 October 2015

September 2015 Update

This month saw what I would regard as the first "real" reduction in our assets as we withdrew some of our cash to fund my eldest son's university fees. It was a little painful as it felt like the end of "growing" our pot and the beginning of using it up and I hadn't expected to be entering this stage of the process for a couple of years yet. Still, I have everything worked out and I'm fairly confident that we're on track to be able to stick to our plan that I should retire no later than April 2017 (and hopefully a little earlier - more about that later).

In addition to the drop in our cash holdings there's also been enough market turbulence to do this to our investment portfolios and I expect there's more to come:

A's ISA£36,920.590.20%-8.40%7.00%
J's ISA£13,779.960.50%-7.40%5.40%
SIPP / CIS Pension£34,771.050.00%-1.80%5.80%

Luckily I think we can ride it out as (apart from my SIPP) we don't need these funds any time soon.

Yesterday I sent in my official request to be considered for Voluntary Redundancy in April 2016. My manager needs to cut between 9 and 12 people from the team over the next two years. Chatting with my colleagues suggests that there's not going to be a shortage of applicants. It's not a happy place to work any more, the cuts in services are depressing and demoralising and public sector wage increases are set to be capped at 1% for the next 4 years.

However, I have reason to believe that I may be fairly near the front of the queue as I have a niche job providing a specialist service that could be delivered totally differently (i.e. outsourced) or supported at a much less responsive level. The public who depend on it (who are incidentally some of the most disadvantaged members of society) would no doubt notice the difference, but needs must when the devil drives :-)

As I mentioned in my last post, redundancy would be a financial godsend to me and the figures I have been supplied with regarding the payout I could expect are even better than expected. I would be entitled to £24,000 redundancy payment plus immediate access to my pension unreduced. I'm not counting my chickens yet (although I have of course made contingency plans on what to do with the money :-)) but I am increasing my AVC contributions to the maximum allowed (50% of gross monthly salary) just in case. Pre-2014 LGPS AVCs can be taken completely tax free (this perk has been removed for anyone starting to pay in after March 2014), so boosting this fund is a better option than paying any more into my SIPP as, if I do get immediate access to my LGPS pension, anything I take out of the SIPP, over and above the TFLS, will put me over the tax threshold. The only risk is that if I don't get VR and have to revert to plan A, I won't be able to get hold of the AVCs until I take my main pension. This may make things a little more difficult to manage for a couple of years as I will have run our cash reserve right down and getting flexible access to my CIS FSAVC isn't as straightforward as I thought, but I think it's worth taking the chance.

So now it's just a waiting game to see if I'm one of the "lucky" ones. We should know by the beginning of December as they have to allow for the 3 month notice period. It might be a very jolly Christmas.

(Oh, and we won £25 on our Premium Bonds too - bonus :-))