Extreme Investing - Blood Sports and Hoarders.

If asked to define our aims when investing, most of us would be able to give a reasoned reply and describe an outcome we are trying to achieve, whether it's to buy a house or retire early. We know how much we need (well roughly :-)) and we are making plans to get there.

But, like the huntsmen with their hounds, some investors seem to chase profit for it's own sake and delight in making a killing even when they have no real use for the spoils. Accumulation and growth is the thing, the excitement of putting another "0" onto the bank balance, just like the thrill of the chase and watching the dogs kill the fox, are what it's all about. Investing has become a sport in which owning a large amount, or making large gains, are aims in themselves and not means to an end. In fact, after a certain amount of wealth has been generated, there simply can't be any other "end" than to make more of the same. When you are able to have anything money can buy with the click of a finger, making more money becomes the only challenge.

Then there's those investors who treat investing like a game of chess, a challenging intellectual pursuit with sophisticated tactics and gambits. The figures at the end of the balance sheet are almost academic, rather than a practical goal, because that's what the whole exercise has become.

Although these types of relationships with investing can seem alien to most of us, who just aim to have enough money to do what we want in life, there is a further attitude towards money that also often results in "having too much" and which is even more toxic from an economic point of view, and that is cash hoarding.

We all know about the gradual shift of the world's wealth into the hands of the 0.1% and how it has continued to the extent that they can't possibly spend it and put it back into the economy. However it also seems that the super rich aren't investing as much as we might expect them to either. They have stopped building business to the extent that they were "meant to" by the economic model and are becoming more content to let their capital feed on and nourish itself.

Cash hoarders have bloated bank accounts full of "stuff" they have no use for. They take delight in counting it and checking that it's all still there, rather than in what it can do to improve their lives. There is an argument that these people are to be pitied just as much as those who fill their homes with old newspapers and other rubbish. However, on the other hand, a TED discussion concludes that: " the harm caused by a wealth hoarder is generally imposed upon their community while for other forms of hoarding it is the hoarder themselves who bears the brunt of that behaviour." 

Those of us in the PF/FiRE world often (and rightly) pour scorn on the need people seem to have to buy more and more "things" and have more and more "stuff", but stock piling wealth for its own sake could be regarded as just as much, if not more of, a sin. I see it time and time again on MSE forums - people who obviously have far, far more than they need raising anxious questions about what to do with the rest to make sure it continues to grow. I struggle to see how having all that money is enriching their lives (although Freud could probably give me a theory :-))

In the budget next week George Osborne is expected to introduce more incentives for building, keeping and passing on wealth for those of us who are fortunate enough to be in a position to do so. Maybe he should be concentrating on encouraging us to see the benefits of knowing when we have enough and giving us ethical and effective ways of investing it back into the world we live in.¹

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1 See Mr Z and DD for some ideas^↩

Gifting the Inheritance Away

I have two adult sons who have both done fairly well for themselves but have followed very different paths.

The eldest has lived in rented accommodation in London since graduating. At first he lived with a succession of house mates and then a long-term girlfriend but he is now on his own which is very expensive but at 31 he feels he needs his own place. He has a job that pays him well enough to live in London and has paid off his student loan but he has never saved beyond a few hundred for his next holiday. Recently he has become very disillusioned with his career (a para-legal job in the health services). His salary is barely creeping up, promotion prospects are poor and his pension is being down graded quite drastically. Basically he is bored, burned out and bordering on unhappy.

My youngest son has not yet ventured out of full time education after moving from a degree to an MA and then a PhD which he is just finishing. He has done some teaching work along the way but has mainly been funded via scholarships and bursaries which he has won due to hard work and excellent academic results. He actively enjoys living frugally which has helped. His friendship group is large and very supportive and he's very happy where he is.

Both my sons have a potentially life-shortening genetic illness. I mention this because it does make a difference to the decision-making process that my husband and I have just gone through. We have decided
to give/gift/pay out around half of our ISA savings to our sons now, when they need it, rather than continue to save it in case we have a "rainy day" (whatever form that might take).

As we aren't even proper "pensioners" yet we haven't really thought much about inheritance. We don't expect to end up paying any inheritance tax given that a surviving married partner also inherits their partner's unused allowance so this means that the total estate would need to be over £650,000 before any is due? Someone please correct me if this is wrong.

But in any case the timing of inheritance is something over which you have no control and doesn't fit in with anyone's plans. Why would we want to sit on cash "in case" when there is currently a valuable use for it. Waiting till we die to pass the money on to our sons makes less sense the more I think about it. We have around £70,000 in our ISAs which only form part of our retirement plan in that it would be used to provide a small amount of income (maybe about £3,000 a year) and be a care-cost buffer if we need it. In actual fact the costs of care are so astronomical that if residential care were to be needed for either of us on a long term basis, whether we had £35,000 or £70,000 would be soon become academic because it would vanish in such a short period of time. This is a scary thought but it does mean that keeping the ISA funds for this purpose doesn't make a whole lot of sense.

So we have decided to manage the money so that our sons can have around £17,500 each over the next couple of years. My eldest son can then leave his job and do a Masters in a subject he will enjoy. The change in him since we talked about this and told him of our decision is remarkable. He's full of enthusiasm and plans for the future, whereas before he seemed to be losing his naturally positive outlook on things. I defy anyone to tell me that this is the wrong thing to do.

I need to do some work on how we can do this and what would be the best way to "gift" it. I also need to bottom out which bits of our ISAs to sell and move into cash, whether to give the money as lump sum(s) or regular payments and investigate implications for taxation. In addition to the money my eldest son will hopefully be living in our studio flat for a year whilst he does the course so I also need to work around the loss of the rent for that period. Back to the spreadsheets.

In the middle of all this I'm expecting to put in my application for VR during the summer which might, or might not be accepted. Interesting times :-)