"Doing a Geoffrey" - Do Consumer Boycotts Work?

This time last year I finally gave in and decided to do some Christmas shopping on amazon. (I know the FiRe community is very down on "stuff" but everyone has to spend a little on it at Christmas don't they?) This capitulation followed several months of trying to do the right thing and boycott  them due to their tax avoidance (their treatment of employees being allegedly none too great either.)

I had been buying at local independent bookshops and feeling much better for it, but Christmas loomed, time was short, amazon deliveries are generally timely and prices competitive. I took the easy way out, felt pretty bad about the whole thing but did it anyway.

Today, with the Christmas shopping fast approaching yet again I decided to take another look at amazon to see what had changed and if I could feel a bit better about using their services this time around . It appears that things are on the move. Diverted profits legislation passed this year has forced the company to pass all it's UK business through HMRC for the first time since 2004. However:

"That development is unlikely to lead to a leap in Amazon’s UK tax bill, however, as the company continues to use further controversial structures to shift profits out of Amazon EU Sarl – which reported a loss last year – and back to the US."

So the answer to whether or not I can feel any better about shopping at amazon is "sort of", but not really. The ethos/character of the company hasn't changed, they're just finding it harder to do the same things and will keep on trying until all the loopholes are blocked. In fact their employee relations has been back in the news again. There is no evidence that they have any intention of reforming themselves into good guys any time soon.

So it's obvious that I can't persuade myself that it's now OK to go ahead and buy from them without guilt. However is boycotting them the best way of making my feelings about all this known or even really hitting them where it hurts?

Of course it's not easy to calculate how effective boycotts are as it's very difficult to count how many people didn't buy things, but last Christmas amazon anonymous had pledges from over 11,500 people to spend more than £2.5 million elsewhere. This was a very high profile boycott with backing from Ethical Consumer, probably just as effective a boycott you're likely to get, still the monetary effect it seems to have had doesn't look immense. In addition it didn't seem to have any impact on amazon's basic modus operandi as they only began to change when legislation forced them to do.

The trouble is that not enough of us were bothered enough to do something about it, and that is overwhelmingly the case where a very popular, convenient and high profile service/product like amazon is concerned. Boycotting amazon won't work, a small minority will put their money where their mouth is, whilst the majority will just make the right noises.

Apparently however, that "noise" is what companies should fear more than the slight fall in sales a boycott can produce. In fact the 2014 Deloitte global survey on reputation risk goes so far as to say:

"According to a study by the World Economic Forum, on average more than 25 percent of a company’s market value is directly attributable to its reputation"

The evidence suggests that companies should take the tag-line "It's got our name on it" very seriously indeed and Jefferey Bezos would be wise to be concerned about the reputation of his company. The fact that he rushed to its defence following the allegations this August proves that he knows this.

In the end though reputation is one thing and character another (the reputation of Volkswagen was obviously built on fairly sandy ground), and there must be serious doubts that the "character"/ethos of companies that continually fall foul of public opinion is sound. This is why our strongest weapon against immoral business practises isn't always in our purse, but in our democratic ability to influence legislation via our politicians. Collective conscience forcing standards of behaviour on business is far more powerful than individual action in this situation.

So, I will be going ahead and buying from amazon this Christmas. However I will also be moaning about them to anyone who'll listen whenever I'm given the opportunity. This post being a case in point :-)

(Oh and by the way, of course I realise that amazon's cheap prices are partly down to the very business practises which put it in the news, but there's also a lot of individual profit involved (for shareholders too, of which I am undoubtedly one). In 2014 Mr Bezos paid himself over the equivalent of £11 million. Paying a little more to get things right is sometimes necessary, and I would argue that people would see this if they are given the full information and choice about what they're actually buying - so long as they're not on the breadline of course.)

Diworsification and the Twitter Effect

It seems that Twitter uptake may have reached saturation point. Apparently the user count has stayed flat since the start of the year. Not good news for a social media service which bases popularity on pure numbers (as in number of followers, the "I follow you, you follow me" syndrome).

I do use Twitter but, I admit, not in the most "Twitter-ish" way. In other words I don't put any effort into boosting my followers and I "mix-up" my interests in the same account (some of my political re-tweets must drive my FI followers mad - if they ever read them, more of this below). In other words, I follow who I'm interested in and I tweet what I'm interested in. I only access my timeline about once a day - more often if there is a breaking news story that I'm curious about as I find it particularly useful for up to the minute information and opinion, and I don't tweet on anything like a regular basis.

Another interesting article about Twitter this week mentions a further effect that comes into play when it is used in the conventional way - i.e. the way aimed at gaining you the most followers by following lots of people yourself  - and that is a situation arises such that:

"genuinely tending to the tweets of more than 200 people becomes impractical (and unenjoyable) ..... with everyone sending out tweets few people have the time or energy to read or act upon." (Andrew Smith)

Over-enthusiastic "following" which is part of the essence of proactive Twitter usage, means you are less likely to actually see the quality tweets that you are really interested in, because your time-line will be full of stuff you're not really interested in .

 In many ways this emphasis on quantity rather than quality reminds me of the investing sin of diworsification - i.e. holding so many funds/stocks that any inherent quality/value in the portfolio is lost or watered down by the fact that it makes up such a small part of the whole.

The subject of this week's Portfolio Clinic in Investor's Chronicle is a case in point. The investor holds 46 funds, and as the commentators point out, he may as well be holding a global index fund at far less cost and trouble. But also, as with the Twitter "too much noise" effect any quality brought to his portfolio by actively choosing funds is drowned out by, and buried in, the quantity of assets he owns.

"46 is far too many. Apart from being a large number to manage, research and review, there is the potential for overdiversification or 'diworsification' - where a portfolio is spread so thinly that any outperformance is too small to be noticeable." (Danny Cox).

The obvious answer for us ordinary investors to the issue of diversification in equities is, of course, to hold a global tracker and not to look at it too often. This incidentally is also perfect advice for the ordinary Twitter user (celebrities excluded) who is determined to get their follower count as high as possible. Follow everyone, (if you're really dedicated to the task you can even use software to do the job for you) and don't even try to asses the quality of what they say. Trying to mix quality with quantity in either stocks or Twitter is a self-defeating exercise.

August 2015 Update

The month has been another busy one with day trips to York and London and an overnighter up in Yorkshire for my Mum's birthday. However all this hasn't worked out too expensive in the scheme of things as we used my leave last week for a "staycation" instead of travelling further afield, so there were no expensive hotel bills as anticipated. The plan had actually been to wait and see what the weather did and take the tent somewhere if at all possible, bailing out into a hotel if necessary, but there was altogether too much rain and wind for us to be able to raise the enthusiasm to pack our bags so we bought a local footpath map, packed picnics and "discovered" the area on and around our doorstep instead.

The good news is that the final part of my husband's TFLS finally turned up. Most of it stayed in our new NationWide current account to keep the balance topped up over the £2,500 and so gaining the maximum 5% interest, but £500 was invested in the Scottish Mortgage global equities IT we hold. I just happened to make the buy on "Black Monday" , however the timing was more by luck than by design as we had planned to do it anyway. It did no harm to buy at the lower price though. (This trust is currently trading at a 2.42% premium to NAV so I do have some misgivings about buying more, but it is just about the only exposure we have to American large caps at the moment and the charges are fairly cheap at 0.51%).

My FSAVC still hasn't made its way into my SIPP. Fidelity went down somewhat in my estimation when they phoned at the beginning of the month asking why I hadn't returned a bit of paperwork they needed to progress the transfer, and then obviously came across the said form in my file half way through the conversation. I'm used to this kind of administrative fiasco with Interactive Investor but I did think (hope?) that Fidelity were a different kettle of fish. Maybe not. I'm now almost 8 weeks into the transfer (the maximum time they quote for it to complete) but not holding my breath. It took iii over 6 months to transfer in both mine and my husband's ISA, so I know full well that patience is a virtue (and the only way to stay sane) with these things.

Further administrative incompetence meant that my instruction to reduce my work's pension AVC from £500 to £200 per month was not activated in time to make the change by the time my salary was paid at the end of the month (despite my asking for it to be done on the 2nd). This, although annoying, is probably a blessing in disguise as boosting my AVC pot is a very tax efficient way of increasing my post-retirement funds and being forced to put in a little, if unplanned, extra is not such a bad thing. Hopefully payroll will manage to make the change by the end of this month though, as our monthly budget requires that my salary is at a certain level now that my husband only has his pension coming in.

The financial news this month has been dominated by the volatility in world markets sparked off by the steep drop in the Chinese stock prices and the fear that growth there is slowing down. This has meant that our combined portfolio has dropped this month despite the fact that we have ploughed in over £1,000. The total is down from £126,304 at the end of last month to £124,759 this and is recording an investment loss of 4.7% for the month. (This figure includes our ISAs and my private pension and AVCs but not our DB pensions.) However on the whole we are fairly comfortable with the turbulence as I secured the cash we will need for the next couple of years to see my son through his MA course by selling funds a couple of months ago and took some further profit from our Japanese and Bio-Tech investments at the same time. It will be interesting to see what the coming months (and years?) bring.

On a more serious note we have all been further, and tragically, reminded that we live, and act in a global environment by the ongoing refugee and migration issues. The opportunities brought by global trade and travel also bring responsibilities. Simplistic nationalism backed up by barbed wire fences just won't work for very much longer and Europe is being forced to recognise this. Escaping war at home is one of the the current drivers, but in the future mass population migration may well involve many more desperate people moving around the globe trying to escape the effects of climate change. Personally I'm pessimist about our ability to reduce carbon emissions enough to prevent very real problems. We continue to dig fossil fuels out of the ground even though the harm reduction plans we are pretending to put in place mean that we cannot possibly burn them, the UK government massively reduces subsidies for renewable energy and we continue to reward CEOs for deepening the climate change crisis. This year is set to be the warmest on record, intensifying patterns of extreme weather. In the light of all this the ongoing market "blips" and the effects they have on our portfolio pale into insignificance. Hey ho.

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 :-)

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

Key	Chart	Instrument	1 mth	6 mths	1 yr	3 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 :-)

To Be Honest

(As always :-))

The budget left me depressed, demoralised and completely down. I was a "winner" financially but feel patronised (who really believes all that "working people" nonsense when the cuts to tax credits will hit so hard) and disenfranchised.

I work alongside emergency duty social workers earning less than £40,000 who have to deal nightly with suicidal people wandering the train tracks, children needing emergency foster care and mental health patients who should be sectioned for their own protection, needing beds that no longer exist. Despite coping with an incredibly stressful job these dedicated professionals, along with the rest of the public sector (nurses, teachers, librarians, firemen) are now being told that we are not doing work that is worth a jot to the country.

I'm bowing out for the time being. Good luck to you all. :-)

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^↩

Being Taken for a Ride. An Uber Rant

I am heavily dependent on public transport because I decided not to learn to drive in my 30's (after having given it a couple of goes and hating it). This decision has had an impact on where we have lived over the years - we have always had to live near facilities such as schools, libraries and shops - but it has never felt like a negative impact. We like being able to walk to pubs, restaurants, parks and local shops and the extra exercise carrying shopping and pushing buggies (at one time a double one to nursery and back twice a day), has kept me far fitter than I would have been if I had used a car. The cost benefit of only ever being a one car family has also been significant.

For the most part I enjoy my "bus time". I like the way you can sit back and let the driver do the work, and although I often still have to sit in jams on my daily commute at least the bus can skip past some of them via a priority lane and I'm able to jump off and walk the last chock-a-block mile through the park. The problem is that bus services on the routes I use are currently being reduced. I am more and more having to consider using taxis if I want to go out in the evening, or even just stay out for a couple of drinks after work. (Btw I live, work and play in medium sized towns in the Midlands - not the back of beyond - and am finding it increasingly hard to travel between the three after 7 o'clock in the evening. What ever did happen to a Government policy for public transport?)

 My problem with using taxis isn't just the cost. At times they can be cost efficient especially if several people are travelling together. They can certainly be time efficient. However I'm of a generation that didn't "do" taxis when younger. As a student my friends and I wouldn't have considered it, even though I was at Leeds Uni when the Yorkshire Ripper was at large and a door-to-door service would have felt much saver (in fact I lived in the same block of flats as his last victim which was very unnerving). Buses were much cheaper in those days (and more plentiful). However in my case the reluctance to use taxis was heightened by an experience at 17 which was very frightening indeed. On my way home from a night club the driver took me the wrong way and wouldn't explain where he was going - just kept driving in silence despite my questions. I came to no harm except that the charges were probably double what they should have been because he took such a circuitous route - obviously his intention was just to bump the meter up and not anything more sinister. However that feeling of powerlessness and vulnerability that is inherent in being in a car with a stranger has stayed with me and I only take taxis by myself as a very last resort. Especially at night. On a typical night out I will walk a third of a mile across a park to a bus stop rather than get a taxi from the train station. However due to the reduction in buses I may soon be faced with not only the walk but also a 45 minute wait at the bus stop after 11 at night. Not something I relish.

As an attempt to bring a little rationality to my relationship with the taxi I have been looking at statistics on safety and in doing so came across the Uber story. The Uber product is essentially an app that brings together drivers and customers wanting to buy a lift and the company is undercutting more traditional registered cab services all around the world. They were funded as a start up by "super angels" in Silicon Valley and have been highly successful financially (currently valued at around $50 billion.) but have been involved in a great deal of controversy along the way.

One of the primary concerns about Uber is the extent of its responsibilities towards both customers and the drivers it "employs". Many governments and taxi companies have protested against Uber, alleging that its use of unlicensed, crowd-sourced drivers was unsafe and illegal. 

But it has also been in trouble for its allegedly blase attitude towards the safety of women customers. Sexist advertising campaigns "that offered free 20-minute rides with Avions de Chasse ("hot chick" drivers)", and executives who have repeatedly had to apologise for making inappropriate comments (and worse) haven't helped. More recently the UN has pulled out of an initiative whereby it had pledged to encourage women to sign up as drivers for Uber due to concerns that the app does not protect women. 

Uber has been in the news again this week due to the fact that one of its drivers lodged a case for expenses that would be due to them as an employee whereas Uber contend that their drivers are independent contractors only. The driver won the case which, although the decision is expected to be contended, has at least opened up the discussion about what responsibilities the people who are making the money out of a business have towards the people who are doing the day to day work (never mind how menial that work is).

In some ways Uber seems to be a perfect example of where the market will take us if we let it. It demonstrates how profitable a company can be when it develops technology to do a job that used to be the province of the skilled or semi-skilled human (although ask the London cabbie with his hard earned "Knowledge" and he would still tell you that no GPS system could ever replace him :-)). The profitable technology is the "property" of the few who engineered and sell it, but these profits do not get passed down to those who do the low level work in either monetary terms, or protection via conditions of employment. 

Whether we want to let the market take us there is another matter. Technology may remove the need for human skill, but is that all that a person should be paid for? What happens if we not only reduce a significant section of the workforce to drudges spending their time doing low skilled and low valued work, but also don't pay them enough for them to be able to access the same health, education and the development in technology as the "upper tier"? If a piece of software/robot can do your job then what "value" do you add by being human?¹ Employment law is currently the way that we codify our acknowledgement that people matter. If we allow that to be eroded then we are effectively saying they don't.

(Also in the news this week Boris (a potential leader of the current government) told a London cabbie to "Fuck off and die" -  a very good indication of where he stands in the Uber controversy and unfortunately a strong indication of where the UK is going with all this.)

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1 The "value" of being human in business terms was an idea introduced by Steve Fuller. In addition his comments in a Guardian article in 2011 are also interesting : "these developments do have the potential to create whole new deep class divisions, maybe not along the lines of the old industrial class divisions, but just as deep. Sometimes, people talk about this as the "knows" versus the "know-nots". Divisions open up along the lines of who has access to all of these potential enhancements. At the moment, the problem is that the state is dwindling away and it is becoming less of regulator of any kind of activity, so market forces are basically determining the development of all these things I'm talking about. And what that means is that the rich get access to them more quickly and the poor get left behind.

Happiness is a warm "hygge"

In case you haven't come across the word before "hygge" means coziness, friendliness, peace of mind, belonging and social acceptance and it seems to explain, at least partially, why a recent eurostat report found that retired Danish women are the happiest people in Europe.

Eurostat -  Overall Life Satisfaction.

Contributing factors which encourage this state of affairs include the fact that the Danes have the best pension system in the world (as measured by the Melbourne Mercer Global Pension Index) the existence of social support networks, affordable child care facilities, good healthcare and a strong welfare system.

Denmark's pension system comes out with an overall score of 82.4 according to the  Global Pension Index which measures schemes on adequacy, sustainability and integrity according to a points system. The UK is currently in 9th place with a score of 67.2 (2 points up from the previous year due to auto-enrolment and rising contributions.) It will be interesting to see how the new flexibilities introduced this year affect the score. Despite falling out of favour in the UK, annuities are still widely bought in some of the higher ranking countries with 85% of Danes purchasing one, although some countries such as Australia (77.8) also do pretty well on more flexible systems like those being introduced here. In any case, having a secure, regular and guaranteed income must be one of the biggest influences on a general feeling of well-being and go a long way towards explaining the contentment of retired Danes.

In addition to a reliable pension system Danes "may pay some of the highest taxes in the world but they are rewarded with generous public services and a world-renowned welfare state." and "in Denmark grandparents are not faced with a second career as a childminder, unlike in the UK, where 47% of grandparents look after grandchildren and one in four working families rely on grandparents for childcare¹."

Being female is also key to the happiness quotient. The authors of the report think this is probably because women tend to make strong and lasting friendships and are more likely to have social interests and hobbies outside the home when they retire.

Another interesting fact revealed in the report is that the poorest 20% of Danes are happier than the richest 20% of Greeks which adds some weight to the idea that social stability and a well-functioning welfare system are bigger factors influencing happiness than personal wealth.

On a global scale the World Happiness Report "reviews the state of happiness in the world today and shows how the new science of happiness explains personal and national variations in happiness. It reflects a new worldwide demand for more attention to happiness as a criteria for government policy."

The criteria used to measure the happiness of citizens can be summarised in the following way:

"The happiest countries have in common a large GDP per capita, healthy life expectancy at birth and a lack of corruption in leadership. But also essential were three things over which individual citizens have a bit more control over: A sense of social support, freedom to make life choices and a culture of generosity." ²

An extract from the report's summary of Chapter 8 caught my attention with particular reference to the recent election.

"Well-being depends heavily on the pro-social behaviour of members of the society. Pro-sociality involves individuals making decisions for the common good that may conflict with short-run egoistic incentives.... Societies with a high level of social capital – meaning generalized trust, good governance, and mutual support by individuals within the society – are conducive to pro-social behaviour."

If Mr Cameron is looking to increase the overall well-being of the nation and move us up the chart, rather than down, over the next 5 years, (which surely sums up the job of government?) maybe he should download a copy and study it well.

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1 http://www.theguardian.com/world/2015/apr/28/female-over-65-and-danish-the-three-keys-to-happiness.
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2 http://www.huffingtonpost.com/2013/10/22/denmark-happiest-country_n_4070761.html^↩

Wealth and Glamour - the "Chelsea" Effect

I had a rare (and brief) "reality shift" into the high life last weekend whilst visiting my son in London. We went out for a fantastic Sunday lunch at a semi-exclusive establishment which cost much more than I've spent on eating out for a very, very, long time. We had champagne cocktails to start with, a bottle of good wine and all the extras. I really enjoyed myself. Strangely, and a little uncomfortably, the large bill almost added to the enjoyment. After the "high" of the experience died down I began to wonder what it was that I had actually paid for?

Like anyone who makes a habit of being aware of how they are spending their money I automatically question the value of what I buy and weigh up if it's "worth" what I'm paying. I admit that this calculation, for me, is not always as simple or as "pure" as it is for some FI'ers. I'm quite happy to add factors into the equation that could be regarded as self indulgent or self-defeating from a FI point of view - time being a frequent consideration. For example, I might buy something at one supermarket that I know I could get cheaper elsewhere, just because I am already in the shop and it would take a chunk out of my free time to save the difference. Not worth it, in my view. Similar calculations about value might include stress-reduction, health, quality and social responsibility. It's not as simple as pennies and pounds.

But when I think back about the meal at the weekend I realise that one of the things that I must have been including in my calculation of the "value" of the meal was the glamour of the whole experience. "Glamour" is an interesting word. The archaic meaning is "a magic spell, enchantment or charm" but modern definitions refer simply to "exciting" or "attractive" and current usage of the word definitely tends to overlay associations of the excitement and allure of wealth. Was I happy to pay more purely because I was seduced by being part of all that affluence, was I paying to be "glamoured" (anyone a "True Blood" fan?) - I suspect so. That's not a comfortable realisation.

Co-incidentally "Made in Chelsea" is back on Channel 4 this week. It is a (very) guilty pleasure of mine, watched alone and in secret, seldom talked about or admitted to :-).  For those who haven't come across the series it is a structured-reality show featuring a group of very attractive twenty-something year olds living in London with more money than they can handle, no responsibilities and no grip whatsoever on what life is like for the majority of their contemporaries. Strangely enough, despite all the champagne-swilling, holidaying in Barbados and shopping in exclusive boutiques they seem no happier than "ordinary" people and they spend as much time obsessively discussing and dissecting relationships, crying, falling out and making up again, as young adults in all walks of life.

However the overiding theme of the show is "glamour" and the cult of the mystique of wealth; not what money can do, or buy, but what having money makes us into. Somewhere along the line we seem to have bought into the delusion that this equates to attractive, charming and happy. And that, apparently, includes me .... (or at least a small part of me :-))

Made in Chelsea cast (Facebook).
Mark-Francis (second from the right) expresses his disdain for the sort of people who would order beer-battered fish and chips: "You'd leave before they'd even finished the sentence!" he gasped, his face contorted into utter disgust.(digitalspy)

What's it Worth? - Putting a Value on Bricks and Mortar.

A house, just like anything else, is only worth what someone will pay for it and I have been made painfully aware of this over the last week or so because I have been trying to arrange the transfer of my parents' equity release mortgage over to a cheaper provider, with a view to releasing them some more equity in the process.

The house was valued at £240,000 around 15 years ago. Putting this figure into the Lloyds House Price Calculator produces an estimated value of £540,000 so we did think there must still be a fair amount of equity available. The guy from the equity release advisory service I spoke to agreed and he arranged a provisional transfer agreement for them which would pay off their existing loan and give them access to another £75,000 worth of equity should they require it, along with reducing the interest rate they are paying from 7.9% to 6.2%. For a halcyon few days it looked as if all my parents' troubles were over and they would be able to relax and forget all about money. They are well past the point of wanting to spend on holidays and fast cars (they are both 80) but a new telly wouldn't go amiss and neither would not having to worry about the exorbitant fuel costs their rambling old house generates (they're currently paying £380 per month to Ecotricity - a long story).

But this was all dependant on the valuation and when this came back it was a total shock. The mortgage company valued the house at £200,000 (£250,000 when essential repairs are done). The house is over 300 hundred years old, a 4 bedroom detached with a large garden. Admittedly there is a lot that needs doing to it - new bathrooms, kitchen and central heating - but the general fabric and roof of the building are solid and the land alone must be worth more than that! The valuer wrote that the house is "in a rural location with few facilities" - true, which is why the other houses in the village have all been bought up and renovated by "Escape to the Countryers" with outdoor hot tubs and floodlit decking. The location is rural but the motorway is less than 5 mins away. Perfect for commuters.

You and I would find out roughly how much our house would sell for by looking at what the neighbour or people up the street got for theirs (or by getting Zoopla to work this out for us) but this does not work in my parents' case as there is very little data to give them a baseline. Houses in the area rarely come up for sale because there are so few of them and they tend to sell at auction when they do. That's the real difference. The auction environment determines "value" in quite a different way from the highstreet. Value becomes a far more fickle thing, dependent on the immediate play off between interested parties and therefore more attached to emotion, there is no clearcut "price".

To a large extent my parents see the value of their home in much the same way - priceless. They've lived there for the last 50 years and have never seriously contemplated leaving. As my Mum said when I last asked them if they would please(!) think about selling and moving to somewhere more comfortable, nearer the shops, easier to keep clean and heat, "No, We love it here and we won't be moving". The value of the house to them isn't quantifiable. It's just a real shame that, because he had to prioritise the need for a quick, risk-free sale and reliable price, the mortgage valuer saw things much the same way but from the opposite side of the scale and the two couldn't somehow meet in the middle.

So, we're back to where we were a couple of weeks ago. If we do take the recent valuation as accurate then I am pretty sure that the house will (hopefully) go into negative equity by the time they both die. Any equity release mortgage taken up in recent years does have a "no negative equity" clause but this is a very old agreement with a company who do not belong to the Equity Release Council - the situation isn't completely clear. In actuality it matters little as my parents have no other assets that could be thrown into the mix anyway.

It has been a difficult and painful experience because the perfect solution was flashed in front of us but then whipped away, and I do feel guilty about getting their hopes up only for them to be dashed back down again. I'm going to give myself a few days and then start thinking about "Plan B" - hopefully there is one.

Pension Fund Fury

I don't intend this post to be a defence or justification of public sector pensions nor an apology for the fact that both my husband and I are lucky enough to have one. I've been reading the MSE forums for long enough to grow a fairly thick skin about the predictable "gold plated public sector pension subsidised by the tax payer" stance taken by some posters on a regular basis (as an example latest rant here) , although I have found myself getting quite defensive at times when a seemingly innocent question about pension scheme rules will raise a hornets' nest of vitriol against the poster for happening to work in the public sector but not realising just how "lucky" they are. Of course there is a very valid point in there alongside all the "politics of envy" that gets displayed. (Please note - My tongue is pretty firmly in my cheek here as that particular phrase is very often used by exactly the same people but in quite a different context :-))

No truly, I do agree, public sector DB pensions are not sustainable and don't suit today's work patterns and life expectancy. However, the changing pension landscape will mean that public sector salaries will have to be raised to recruit and retain. For example my husband will retire from the Civil Service this year after doing 35 years during which he brought in tens of £millions of revenue. His final salary as a Higher Executive Officer was £32,000 and his pension is £12,000. He chose pension, job security and lower levels of stress (he's also had serious health problems in the past which might well have lost him his job in some parts of the private sector) but he did have to sacrifice salary. It was a choice, not luck.

But I digress and am in danger of doing exactly what I said I wasn't going to do so here is the real subject of this post: "A Pensions Patchwork" - BBC Radio 4. I was sent the link by a friend and have been feeling intermittently incensed ever since.

I don't expect anyone who isn't a member of the LGPS to have the staying power to listen to the whole 38 mins of the programme (although actually maybe you should as it turns out that it is your money that's getting wasted). But in case you're short on time here is the introduction:

"In Canada, everything is big - including powerful pension funds such as the Ontario Teachers fund which owns half of Birmingham airport and other large projects around the world. It's all a far cry from the British pension scene, where a hundred local government pension funds each run their own affairs separately and pay costly fees to City firms for investment advice. Many of them still have financial deficits. Taxpayers have been forced to pick up bills to pay off those shortfalls and already hard-pressed local services have been stretched further. Lesley Curwen investigates how these individual funds are run and asks whether we should have larger funds with cheaper costs - like Canada does. And she asks whether more councils should be using pension money to invest in housing and infrastructure as a way to boost their local economies?

And here are the main points I took away from the programme:

• The LGPS is a "fractured, cumbersome" structure which, although it is to all intents and purposes one occupational pension scheme, is divided up into over 100 funds each having its own admin function, infrastructure and fund managers. 

• On average the 89 funds in England and Wales are 21% underfunded which means there is a deficit of around £47 billion which can only get worse due to low interest rates and increasing life expectancy. The deficit has to be made up by the employer (ie the Local Authority and therefore the taxpayer).

• Local Authorities are already struggling with massive cuts to their budgets and this is yet another pressure on those budgets.The example of Birmingham City Council is given. The Council needs to make £101 million cuts due to loss of funding and it also owes the West Midlands pension fund £23 million to make up a deficit. The cuts will impact the flagship new library which is well used by tourists and locals alike. Weekly opening hours will be cut from 70 down to 40. 90 staff will be made redundant.

• The LGPS as a whole pays out a massive amount in fund management costs. A figure of £597 million is quoted for one year's costs and this figure does not include dealing costs which seem to be much higher than they need to be due to over trading by as much as 500%. Although there has been no detailed analysis made of the trading costs they could easily be adding another billion to fund management charges. 

• Councillors are often ill-equipped to made informed investment decisions so they rarely challenge or question fund managers about performance.

• John Clancy, a Birmingham councillor has studied the costs in more detail. He found that costs had gone up 20% in just one year although returns had halved. He discusses the issue further along with Michael Johnson from the Institute of Policy Studies in a blog post here

• Unison officials are also very concerned and agree with financial experts who advise that larger, regional funds should be created which can then employ their own fund managers instead of paying independent managers and "funding the buildings in Canary Wharfe" .

• The last words go to Michael Johnson who calls the LGPS a "national embarrassment" whose structure "acts to the detriment of members and taxpayers". Unfortunately he isn't hopeful of change any time soon because "the vested interests that oppose change... are very considerable....Imagine the screams of pain from the Investment Management Industry and bear in mind how political parties are funded in this country and draw your own conclusions".

This whole mess is made even more tragic given the fact that the majority of the members of the LGPS are fairly low paid workers (although there are some very highly paid managers at the top - in fact obscenely highly paid as ermines's recent post states). A typical pension for a fairly long serving worker is somewhere between £7,000 - £10,000 with a retirement age of 66. (My own will be around £9,000).

Despite public perception to the contrary, the true situation isn't a simple case of the typical local authority worker leeching the tax payer to fund her pension - that job is being done far more effectively (and cynically) by fund managers supplementing their already bloated salaries, aided and abetted by councillors making decisions on things of which they have very little knowledge.

Divesting and the Carbon Bubble

I was interested to read recently about Norway's largest sovereign wealth fund, the Government Pension Fund Global (apparently the world's richest fund) dropping some of its shares in fossil fuel funds.
This wasn't an "ethical" move, as such, but one that was driven by the belief that the fund was in danger of being invested in companies who would be unable to realise expected profits without breaching legislation outlawing the removal of the remaining fossil fuel reserves. This move is:

 "part of a fast-growing campaign...over $50bn in fossil fuel company stocks have been divested by 180 organisations on the basis that their business models are incompatible with the pledge by the world’s governments to tackle global warming. But the GPFG is the highest profile institution to divest to date."

However it still invests heavily in fossil fuels and has since reinvested some of those resources into oil and gas. The general trend, though, is encouraging and the pressure on large investment bodies to reassess and justify where they put their money is definitely growing.

Part of this pressure comes from warnings such as that made by Mark Carney (Bank of England governor) back in October that "most carbon fuel is unburnable". His argument is supported by evidence from studies into the concept of the Carbon Bubble which conclude that the shares of companies involved in fossil fuels are overvalued due to the fact that their value is calculated with the "assumption that all fossil fuel reserves will be available to be consumed". Whereas in fact:

"... A series of analyses have shown that only a quarter of known and exploitable fossil fuels can be burned if temperatures are to be kept below 2C, the internationally agreed danger limit. 

The divestment movement is growing in response to this realisation. Members of several large Danish pension funds are to be asked to vote on divestment and, closer to home Boris Johnson has been called on by the London Assembly to "change the city's investment policy to exclude fossil fuels."

Now, it will be no surprise to anyone out there that I am a Guardian reader but I make no apology for the number of references to the paper as a source for this post. The current editor (Alan Rusbridger) is stepping down over the Summer and, when looking back over his career he finds that he few regrets 

...  except this one: that we had not done justice to this huge, overshadowing, overwhelming issue of how climate change will probably, within the lifetime of our children, cause untold havoc and stress to our species. So, in the time left to me as editor, I thought I would try to harness the Guardian’s best resources to describe what is happening and what – if we do nothing – is almost certain to occur, a future that one distinguished scientist has termed as “incompatible with any reasonable characterisation of an organised, equitable and civilised global community”.

My last quote given below comes from a particularly powerful article which makes a key point by questioning the effectiveness of relying on broader reasons to persuade investors to divest due to one of the key characteristics of the typical investor -  how they are prone to isolate the process of investing from the actual purpose of money and the part it plays in their lives.

 "Indeed, investors often fetishise monetary returns without thinking about the world in which those monetary returns will have to be spent. This is partially due to misunderstanding the nature of money, which is best thought of not as an independent “thing”, but rather as a claim upon society. What is the point of amassing such monetary claims if the society in which I can use them in has become a lot less liveable?"

So many people worry about inheritance tax. They go through all sorts of loops to pass on their pensions and property and preserve their assets for their children without even acknowledging the truth that none of this will be of much help to those children in a world completely destabilised by climate change. Logic should now dictate the course of action to both institutions and individuals. No-one should need persuading any more. In the case of climate change I fear we have already got past the stage of fiddling our way through the burning and it's now just a matter of how much damage limitation we can plaster over the wound.

This particular issue is very close to my heart but the quote about the way that investors "fetishise" money also sparked my interest in a more general way. I see it in myself, the slavish obsession with tweaking spreadsheets, calculating strategies to claim back and avoid paying tax (incidentally something I'm beginning to feel more and more uncomfortable with - I have a feeling that I should be examining my own "fetishistic" behaviour in this particular arena and comparing it with the kind of world I actually want to live in), fiddling about trying obsessively to lower charges and generally spending lots of my valuable "free" time doing things that I have not "costed" against the returns.. maybe one for a later post.

Graphic via Wikipedia

The Mystique of the Market and the Common Man

I started this blog about a year ago now so I thought I'd take another look at the "theme" I chose when I did so - the idea that investing is a dark art accessible only to the select few. The slant I took was, of course, a little tongue-in-cheek, but there is a serious side to this issue. The proportion of the population who invest in the markets (other than in a "second hand way" via their pension funds - and in this case many people don't even realise this is what is happening) is very small.

The Stocks and Shares ISA, which is the most accessible and widely publicised route into investing, is still a very poor relation to the Cash ISA and this trend has changed very little despite the very poor returns of cash ISAs in recent years. Statistics show that Cash ISAs consistently form over 70% of the total takeup.¹
This disparity is also reflected in the PF blogscape and on sites such as MSE. There are still relatively few UK investment bloggers, and the majority of these are people who work, or have worked, in banking or financial institutions, so cannot consider themselves ordinary mortals :-). (The situation in the US seems to be a little different where Dividend Investing is more popular).

Despite the relative lack of involvement in investing in the UK there's certainly no lack of interest in money itself, evidenced by the vast amount of Budgeting, Saving and DebtFree blogging and forum participation going on.

Why should this be?

Looking back at my own journey I can understand the reticence people feel. For most of us money is hard earned and we are very loath to "play" with it. I believe that this is a pivotal point. Money, for the majority of people, is something that is tied tightly to work. We earn it. It is not something that can be grown. It really does not "grow on trees". However, the select few who grow up in a culture of inheritance see things from a very different point of view. For them what essentially makes money is money itself, compound interest is their biggest friend and volatility holds no real fear. There's a whole different mindset involved and it's one which it is difficult to introduce to people who actually need what they've got and would really struggle if it was lost.

Putting a little away in a savings account and watching it grow slowly is one thing, but tossing it into the seething cauldron of the stock market feels very much like losing control. In the eyes of the general public investing still has that impenetrable fence of, danger, magic, and privilege surrounding it. You need financial qualifications and "insider" knowledge to be able to invest, or you need to be able to pay someone who does. It's much safer to stay on the other side of that fence.

This apprehension is gradually being addressed by the increasing availability of advice and information on the Internet forums such as MSE, blogs such as Monevator, and the DIY platforms themselves. Helpful "Investing Made Easy" books are readily available and understandable. I have used of a lot of this material myself over the last year and I'm really grateful for the time taken by the authors and participants to help and inform. But all this help should be making more inroads than it is.

I suppose we could ask why does it matter? If the majority of people are not comfortable with investing then why should they be encouraged to do so. This might be a sensible response in a world where not so much lay at the door of the individual. In the days of the Defined Benefit pension and co-operative financial institutions such as Building Societies personal finance didn't need to be quite so personal. However many sensible people these days are not even including receiving a state pension in their financial planning. It seems that, (sadly in my opinion - and dangerously too) the state is "letting go" of its responsibility to be mindful of the financial well-being of all its citizens.

Earned wealth is dropping and "grown" wealth is growing. This makes it even more important that ordinary people (what used to equate to the working and lower middle class) start to see the benefit of investing their money. Maybe the newer types of "investment" that don't carry the old fear factor - things like peer-to-peer lending and crowd funding might be a less daunting way into the whole process for some people. Despite the fact that they are often inherently just as risky, they do seem more transparent than the whole cult of "Wealth Management", with its performance charts, asset allocation, diversification, ETFs, Bonds and a multitude of other incomprehensible terms, rules, calculations and acronyms.

All in all, I have had a very interesting year teaching myself the ways of the dark art. I have learnt a lot and although I know that I still have a lot to learn, I have found the whole process incredibly satisfying and engaging. What worries me is that most people don't have the time, inclination or interest to do the legwork, nor the money to pay someone else to do it for them. This fact will do nothing to halt the growing trend towards wealth inequality.



Investing still isn't simple enough, probably because it isn't in the interest of the industry to make it so. This is something we should all be concerned about.

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1 HM Revenue and Customs ISA Statistics^↩

Starting With the Woman in the Mirror

By the end of a week in which it became increasingly difficult to maintain any faith in the possibility of integrity and banking being at all compatible, I finally took the plunge and joined the Green Party.

This wasn't an easy decision. I was born and brought up in South Yorkshire and both my father and grandfather were miners so socialism has been in my heart and soul since birth. A degree in Philosophy didn't dislodge it from either, but rather settled it deeper, as did having children. I haven't given up on the ideas, I just don't think Labour are coming up with the goods at the moment.

The Greens haven't a hope in hell of getting anywhere in my constituency, but then neither have Labour, so I'm won't be doing anything significant by shifting my vote, but it will certainly make me feel better. Whilst reading their website to double check I knew what I was getting into, I came across the moveyourmoney initiative and their current campaign "Divest" encouraging people to withdraw support from banks that invest in fossil fuels, which is pretty much all of them as far as I can see, with HSBC being the biggest offender (surprise, surprise). My own bank is up there too.

What struck me the most about all this was the fact that I simply hadn't put 2 and 2 together as regards my recent investment in oil with climate change and the importance of creating a sustainable energy policy for future generations. I suppose I'd been telling myself that the amount involved was so small that it didn't make a difference where I put it, and that I probably had money in all sorts of things I don't approve of without even knowing it, so it was pointless being sniffy about this buy. Well in this particular case I do know and it does make a difference, so this morning I've sold my BlackRock World Mining Trust shares, taken a bit of profit and set up an account with Abundance which is a crowdfunding platform that allows you to invest in renewable energy projects.

Abundance Generation. 

I'm really interested in the current project they have under offer which involves putting solar panels into social housing in Berwickshire. I just need to check that I understand the investment properly as it's something called an Income Growth Debenture with an IRR of 7.5%. Further details state:

This is the first project on Abundance to issue an Income Growth Debenture. An Income Growth Debenture is a long-term unsecured certificate that gives the holder the right to receive a defined amount of interest income each year (for Oakapple Berwickshire 3.3% for the first year - excluding the 0.4% Pioneer Bonus), which increases annually (for Oakapple Berwickshire by 3.3%) for the life of the investment. The amount paid out is not linked to the amount of energy produced and is paid in addition to repayment of your capital in the form of regular Cash Returns.

I'm not quite sure how this all fits together. If anyone can throw any light on it please do leave a comment. Although debentures are meant to be held for the long term you can sell via a bulletin board on the site and they do state that all sales so far have been "positive" - ie have made a profit. There is obviously some risk to all this but the amount I would be investing would be quite small (£1,500), in fact you have to confirm that you won't invest more than 10% of your assets on the platform when you create an account, and I really like the double whammy of sustainable energy and social housing.

The events this week also prompted me to look at where I hold my current account, and, as a result, I've decided to switch to NationWide which come out with a MoveYourMoney score of 64/100. On top of that their Flex Account pays 5% interest on up to £2,500 for a year so we'll be setting up two (one joint for our everyday banking and one in my name to manage the rental income) and closing down everything we have with Halifax. Now I just have to work out what to do with the bulk of our cash which is sitting in a Santander account.

It's been a busy weekend but I feel better for it. I've done a lot of reading that has given me back hope that despite the events of last week, there are plenty of people out there who are working hard to give us opportunities to invest, save and use our money in a positive way so that we can secure not just our own future, but the future for us all.

I hope that at some time I will feel that I can also re-invest in the Labour Party and see it as the Party of the future but at the moment this isn't the case. Time will tell..

Labour? It is in transition. It knows the socialism it used to champion no longer functions: it knows neoliberalism does not work either. It experimented with Blairism, which for all its electoral success did not address the fundamental weaknesses in the British system. It knows it is a party for the mass of Britain, with roots that must remain in the workplace and the day-to-day life of ordinary people. It is dedicated to their flourishing, and to the justice that must underpin it. The country at different times in its history has looked to its left and right traditions to do the correct thing. It now needs Labour to complete its transition, to pick up this programme, or something like it, and implement the change we need to show how good we can be. "

Will Hutton, extract from "How Good We Can Be: Ending the Mercenary Society and Building a Great Country".
http://www.theguardian.com/business/2015/feb/11/british-capitalism-broken-how-to-fix-it