What caught my eye this week.

Just in case anyone was wondering why the price of Bitcoin bounced so sharply off the $15,600 level it hit on Tuesday, I have the answer.

That was the day I sold my Bitcoin.1

Like all degenerate punters most humans, I couldn’t help taking the subsequent bounce a little personally. Even though – equally ridiculously – I also expected as much.

Here’s a snippet of my chat from the morning that I sold:

As you can see, I bring exactly the appropriate level of decorum to my dealings in cryptocurrency.

Though for what it’s worth, this brief salvo neatly summarizes my thinking with Bitcoin.

A bit of what you fancy

I’ve had several messages recently from readers pleased to see the blow-up of crypto exchange FTX, and the stories I’ve been linking to about it in Weekend Reading.

However I’ve had to remind them that (unlike my ever-sensible co-blogger The Accumulator) I’ve not been averse to owning a bit of Bitcoin myself.

A few years ago in fact I made it my ambition to own one Bitcoin. Partly because I was interested in the technology. But also, frankly, to make the FOMO go away. (Or at least to rid myself of the hassle of having to think about whether and when to own it, which had been nagging away since at least 2017.)

I also saw diversification benefits to a small – 1% to 3% – exposure to Bitcoin, writing on Monevator:

I’d say less is more. To match [the market cap] of gold, for instance, there’s still room for a 1% position to grow into a 10% position – or to be trimmed en-route – while not doing too much damage if it bombs.

As things turned out I got to experience both. My Bitcoin sky-rocketed, and then it bombed.

A bit of all right

I first got my Bitcoin holding up to my one coin target during the Covid crash. Over the next 18 months the price went (warning, technical term ahoy) bonkers.

It was something like a nine-bagger at the peak and what I should have done was rebalance. But there were two confounding factors.

First, tax. You can’t yet tax-shelter Bitcoin in the UK. I was sitting on something like a £50,000 capital gain. Worse, I’d already racked up big taxable gains on finally selling down my legacy unsheltered tech holdings. So I sat on my Bitcoin, despite it moving far outside of my target allocation.

Secondly, a fuzzy factor. I wanted to continue to hold one Bitcoin simply because I had come to enjoy owning one of the fabled 21 million that there would ever be.

Obviously that looks even dumber right now than reason one. But there you go.

A bit on the side

On that note, over the past few months – and especially following the FTX implosion – I’ve seen numerous commentators saying “I told you so” and even doing victory laps as prices have slid.

In some cases this is fully merited. Bitcoin and cryptocurrency have not been short of skeptics.

In other cases, however, my elephantine memory reminds me that these people actually did plenty of articles or podcasts promoting crypto, dove into NFTs, or even launched crypto stuff themselves.

Fair enough. The space has been ever-interesting, if nothing else, and whatever crypto’s actual merits or otherwise, people did invest tens of billions and even make millions for a while. Just don’t pretend you never said a peep afterwards. A little intellectual honesty wouldn’t go amiss.

For my part, I mostly remain what the community calls a ‘Bitcoin maximalist’. Which means that in as much as a use case for any cryptocurrency has been demonstrated (debatable), I judge Bitcoin to be sufficient.

As I wrote in the comments to my article:

I wouldn’t hold your breathe waiting for an alternative coin on the grounds it will be ‘better’.

There are probably already better coins out there among the hundreds of candidates.

Bitcoin is valuable because people think it’s valuable and so they own/use it. And the more people use it, the more valuable it gets.

This is not a trivial point. It’s a deep, deep point, although hardly revolutionary. It underwrites the investment case in my view.

To be clear, as I said back then I don’t think you ‘need’ Bitcoin, either.

I don’t believe it goes to the moon and makes all other currencies or assets worthless or any of that baloney.

As I said only this morning to a smart friend who thinks it’s eventually a zero – maybe so.

A little bit crazy

Is this all unsatisfying, vague, non-committal?

Good, then at least it’s accurate.

Because for all the thrills and spills, the Bitcoin story seems to me as uncertain as ever. And I’m as wary of its zealots as much as its sworn enemies.

This doesn’t trouble me. As an active investor, I put money into all kinds of start-ups and growth stocks that could be game-changers or failures. I see Bitcoin just the same.

Of course, the wider crypto space clearly went bonkers in 2020 and 2021. At the least rampant booster-ism, and at the worst fraud. In retrospect – pretty much at the time, to be honest – clearly a bubble. It was one thing to see kids going crazy on Twitter, but even insiders who typically act as gatekeepers to new technology, such as VCs, also seemed to lose the plot, either cynically or because they genuinely were swept up in the mania.

I have a friend who switched their career to live in this world, and I’ve seen the excitement close-up. To me it seemed mostly like an almighty brainstorming session, rather than a sector generating genuinely impactful innovation. Yet with billions flying around just the same.

I’m happy I dodged 99% of that and if you did too then pat yourself on the back.

For few months in 2021 every other Tweet or blog post was about an NFT, a new coin, or another billion ploughed in by the VCs. You can see why people got carried away. As with the meme stock frenzy, there but for the grace of God…

A bit part in your life

Some of you will be fuming by now, as always happens when anyone writes about crypto.

Did I miss the memo about all the fraud and corporate collapses happening all over the place?

No, but what you’re describing is companies failing. And people, too. Not Bitcoin failing.

Bitcoin’s blockchain hasn’t been hacked. The system of mining coins hasn’t been comprised. Like it or hate it, if anything the collapse of centralized exchanges makes the case for Bitcoin stronger.

I’m a pragmatist. There is something revolutionary about being able to create a unique instance of a digital token and to transfer it – without double-counting, or counter-party risk – to someone else.

That one simple thing could yet be used to underpin various forms of digital infrastructure, from financial settlement and title deeds to NFTs.

Or Bitcoin could be digital gold. (Personally, I see almost no chance of Bitcoin ever replacing Visa and Mastercard or similar for everyday payments.)

Or, of course it could well end up as a digital relic that kicks around for $10 a Bitcoin, with occasional and unremarked upon booms and busts.

The spectrum of potential outcomes is probably still interesting enough for me to want to rebuild my Bitcoin position. Not until after the 30-day capital gains tax window has passed, of course.

But I’m in no rush. I’d rather buy something like Bitcoin – where there is probably no intrinsic value, just like with gold – when prices are rising, not falling.

Anyway all this is definitely not investment advice, even more so than usual. Nobody needs to touch crypto with a bargepole! This is just an update for those who wanted it, and digital toilet paper for everyone else.

Have a great weekend all.

From Monevator

Is now a good time to invest? – Monevator

Why the personal savings allowance is suddenly important again – Monevator

From the archive-ator: Do you run a tight ship or are you just a tightwad? – Monevator

News

Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

UK economy to be worst hit of all G7 nations, says OECD – Sky News

The restaurants shrinking their menus to survive the cost-of-living crisis – BBC

Demand for rental property up 23% in a year, as rents hit record high – Guardian

Businesses and unions demand scrapping of planned bonfire of EU rules… [Search result] – FT

…and Brits start to think again about Brexit as recession bites – CNBC

Bank of England deputy governor hints at rate cuts if conditions change – This Is Money

Autumn Budget 2022: what was in the small print? – Which

Government inheritance tax receipts rise ahead of new freeze – This Is Money

More than 100 people arrested in UK’s biggest fraud investigation – Guardian

What matters to investors is not what should matter to investors – Klement on Investing

Products and services

Should you rent out your car with Turo, Hiyacar, or Karshare to earn extra cash? – Which

Average five-year mortgage rate falls below 6% for first time in nearly two months – This Is Money

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Is it time to take the annuities gamble? [Search result] – FT

The problems with Buy Now, Pay Later – Be Clever With Your Cash

Waterside homes for sale, in pictures – Guardian

Comment and opinion

Achieving long-term financial security is about investing adventurously now [Search result] – FT

The worst [US but same difference…] bond market ever – Morningstar

What next for defensive investors in bonds after a torrid 2022? – Behavioural Investment

So you want to own a football club? [Search result] – FT

How bad could it get for the UK housing market? – The FIRE Shrink

Choice is a precious asset – A Teachable Moment

Tail feathers – Fortunes & Frictions

Nine pensioner perks and benefits to boost your income – Which

Who wants to be a billionaire? – A Wealth of Common Sense

The names have changed, but Jeremy Hunt’s budget is more of the same – The Motley Fool

Actively under-performing mini-special

Most active fund managers underperform most of the time, and other SPIVA findings – TEBI

The failure of active management [Podcast] – Peter Lazaroff

Crypt o’ crypto

Will VCs ever profit from the $41bn they poured into crypto over 18 months? – Institutional Investor

Naughty corner: Active antics

The Hustler: lessons from a young Warren Buffett – Neckar’s Minds and Markets

Investment trusts are on their biggest discounts since the financial crisis – IT Investor

The case for splitting Berkshire Hathaway’s Class A shares – Rational Walk

Are you addicted to investment porn? – The Onveston Letter

Kindle book bargains

The Black Swan: The Impact of the Highly Improbable by Nassim Taleb – £1.99 on Kindle

The Fall of the House of Fifa: How the World of Football Became Corrupt by David Conn – £0.99 on Kindle

How Will You Measure Your Life? by Clayton Christensen – £0.99 on Kindle

Your Next Five Moves: Master the Art of Business Strategy by Patrick Bet-David – £0.99 on Kindle

Environmental factors

Why parents are baffled by eco choices – BBC

Saudi Arabia’s green agenda: renewables at home, oil abroad [Search result] – FT

Off our beat

What does it mean if you’ve never had Covid? – BBC

How a Pomodoro timer app helped me regain my focus – The Verge

Bob Iger has to solve the Disney streaming problem he helped create – Vox

The leaf blower parable [Couple of week’s old, but I hate them too!] – Seth’s Blog

And finally…

“Full-time private investors like the fact that even family and friends don’t quite know what they do for a living.”
– Ian Cassel, Free Capital (forward)

Like these links? Subscribe to get them every Friday! Note this article includes affiliate links, such as from Amazon and Interactive Investor. We may be compensated if you pursue these offers, but that will not affect the price you pay.

1. I also dumped the small amount of Ethereum that I had hedging my bets, alongside a few other bits and bobs mostly acquired free from Coinbase for watching educational videos. [↩]

Remember the personal savings allowance? Come on, cast your minds back!

Though I wouldn’t be surprised if it’s a struggle. Most of us haven’t had to worry about paying tax on interest income for ages.

A decade of ultra-low rates relegated fussing over how much we earned in interest into the same category as fretting over Bigfoot.

The personal savings allowance

All that’s changed with rising interest rates, however. Which in turn means the personal savings allowance is making a Mariah Carey-style comeback.

Higher interest rates mean you can now earn much more interest for your money on deposit. And that will mean more savers having to share their spoils with the taxman.

As a reminder, under the personal savings allowance:

• Basic-rate taxpayers can earn £1,000 per year in savings interest without having to pay tax.
• Higher-rate taxpayers can earn £500 per year.
• Additional rate taxpayers don’t get any personal savings allowance.

When rates were low, these allowances seemed quite generous. But rising rates change everything.

They mean that many of us will need to redo our sums.

For my part, though I’ve plucked up the courage to invest more in the stock market in recent years, I still maintain a rainy day savings account for short-notice access to cash.

I regularly contribute to this account and have thankfully have never had to dip into it. Partly because I’m frugal, but also because I’ve fortunately never suffered the hit to my income that my cash savings are earmarked against.

My savings pot has therefore steadily grown bigger, thanks to a stream of regular top-ups.

Of course, increasing the value of the pot in real (inflation-adjusted) terms has been pretty much impossible. And you don’t need to be Einstein to understand why.

When you’re getting no interest on your cash, even low inflation erodes your pot’s real terms value.

But times have changed. The Bank of England has been hiking rates to fight surging inflation – and that’s dragged up interest rates on savings, too.

Savings and inflation

UK inflation just hit 11.1%. That’s the highest level inflation has been at in over 40 years. And it’s been hot throughout 2022.

In response, the Bank of England has hiked its base Bank Rate every six weeks or so.

Only a year ago Bank Rate was a puny 0.1%.

Today it’s 3%.

Okay, so 3% is still a bit ‘meh’, historically. But the rise represents a massive change of direction.

Money is no longer cheap. Savings rates have shot up, as banks are competing for our money again.

This time last year:

• The market-leading easy-access savings account paid 0.66%1 variable.
• The top one-year fixed account paid a pitiful 1.35%.

Fast-forward 12 months:

• The top easy-access deal now pays 2.6% variable.
• The best one-year fix pays 4.36%.

That’s a colossal difference.

Yet before you crack out the champagne, it’s worth remembering even these higher savings interest rates are still well below the level of inflation.

It’s impossible to keep pace with inflation at the moment with cash, but at least looking to have your money in the best accounts helps soften the blow.

Higher interest rates and the personal savings allowance

While tax on savings interest isn’t anything new, the personal savings allowance is very much back in the spotlight thanks to these soaring rates.

For example, last years’ market-leading easy-access savings rate of 0.66% meant a basic-rate taxpayer needed to have roughly £152,000 saved in such an account before they breached their £1,000 savings allowance.

Even higher-rate taxpayers would have needed more than £75,000 stashed away.

With higher rates, however, far less is required to exceed the annual allowance.

Today basic-rate taxpayers need only £38,500-ish in the top easy-access account to breach their personal savings allowance on the interest they will earn.

Higher-rate payers will hit the buffer around the £19,000 mark.

	November 2021 Top easy-access savings: 0.66%	November 2022 Top easy-access savings: 2.6%
Threshold: basic-rate taxpayer	£152,000	£38,500
Threshold: higher-rate taxpayer	£75,000	£19,000

A £38,000 savings pot isn’t chump change, certainly. But it’s not really that big when you consider the standard advice is to save six months of your salary as an accessible emergency fund.

Come back cash ISAs, all is forgiven

I must admit, I’ve given cash ISAs the cold shoulder in recent years. It seemed more sensible to use my ISA allowance to passively invest in a shares ISA instead.

This year though, I’ve allocated the majority of my annual allowance to my cash ISA. This is solely because I’d probably breach my savings allowance on the interest I’d earn if I’d added more money to my standard savings account.

I say ‘probably’ because of the likelihood the variable rate on my easy-access savings account will increase over the next few months. There’s also a (smaller) chance I’ll be promoted at work, which would enable me to put away more cash. Assuming I avoid the temptations of lifestyle inflation!

The appeal of cash ISAs is that while interest rates are typically lower than those offered on normal savings accounts, anything you put in any ISA will be exempt from tax forever after.

This means your personal savings allowance isn’t affected by whatever you earn in your cash ISA.

However you’re limited as to how much you can put into an ISA each tax year. This allowance is currently £20,000 a year.

The best savings rates available

There’s a host of generous savings deals out there.

Easy-access savings

If you don’t want to lock your cash away – or you think interest rates on fixed accounts will soon be even higher – then an easy-access account might be best for you.

Right now you can earn 2.6% variable with Paragon Bank – though you can only make three withdrawals per year or the rate drops to 0.75%. If that’s not for you then app-only Atom Bank pays a slightly lower 2.55%.

Paragon requires a minimum deposit of £1. For Atom there is no minimum.

Fixed-rate savings

If you’re happy to lock away your money, then you can boost the interest rate on your cash. 

Investec currently pays the highest one-year fixed rate of 4.36%. You can open it with £5,000.

Higher rates are available with longer fixes, though locking away your cash for even more time may not be attractive given the backdrop of rising rates.

Cash ISAs

Are you close to exceeding your personal savings allowance? You may wish to open a tax-efficient cash ISA.

But do remember you can only stash up to £20,000 across all types of ISA in a given tax year.

The top easy-access cash ISA right now pays 2.75% variable, via Earl Shilton Building Society. You can open an account with just £10.

Alternatively, Principality BS pays a slightly lower 2.5% variable.

As for fixed-rate cash ISAs, Kent Reliance pays 4.4%, fixed for two years.

Note that you can withdraw cash early from a fixed-rate cash ISA – but you’ll be charged an interest penalty if you do so.

For Kent the early withdrawal penalty is 180 days interest, for instance.

All these accounts are covered by the Financial Services Compensation Scheme.

Are you thinking about the personal savings allowance? Have you opened a cash ISA this year? Share your thoughts and strategies in the comments below.

1. All interest rates on savings products in this article are AER, aka annual equivalent rate. [↩]

With the UK sliding into recession, war ruining Ukraine, and inflation stalking the High Street, now may not seem like a good time to invest.

Perhaps it’d be best to keep your financial powder dry? To wait for better days?

That makes perfect, intuitive sense – until you step back and look at the bigger picture.  

In the long run, equities go up

The bigger picture looks something like this: the most reassuring chart in investing…

Data from JST Macrohistory 1. November 2022.

The chart shows inflation-adjusted, UK stock market total returns2 surging through 150 years of upheaval and periodic catastrophe. 

Despite the regular, tragic punctuation of financial and human carnage, equities kept rising over the long-term. 

And whatever challenges we’re facing now, they’re unlikely to be as disastrous as the devastation wrought by the one-two punch of World War One and the Spanish Flu.

Or the Great Depression followed by World War Two. 

The UK’s worst stock market crash was the -73% real terms decline that played out over 32 months of misery from 1972 to 1974. 

You can see the gouge it tore in the graph above during the years of stagflation in the 1970s. 

But progress eventually resumed. Just as it did after the Dotcom Bust (-44%) and the Global Financial Crisis (-43%). 

Even the recent Covid crash barely registers in retrospect. 

Investing is one damn thing after another

Perhaps our current woes auger the next calamity? Maybe it would be best to batten down the hatches for now?

Time will tell. But the world is always troubled. 

Here’s a catalogue of threats that menaced investors in the years that followed the Global Financial Crisis: 

• 2010 – Greek bailout, The Flash Crash
• 2011 – EU debt crisis, double dip recession, US downgrade
• 2013 – The Taper Tantrum, US government shutdown
• 2015 – Chinese stock market crash
• 2016 – Brexit referendum, Trump election, Fed rate hike jitters
• 2018 – US-China trade war, quantitative tightening 
• 2019 – Inverted US yield curve, Great Stagnation warning
• 2020 – Covid, running out of Netflix shows in lockdown
• 2021 – Covid, Evergrande liquidity crisis, global energy crisis
• 2022 – Inflation surging, Russia invading Ukraine, deepening energy crisis, global downturn

Scares and setbacks continually close in on us like the walls of the Death Star’s trash compactor. 

In fact you could reach back into history and put together a list of cascading crises, dire prophecies, and apocalyptic warnings for almost any year. 

But there’s no point living like that.

On a personal level it would mean never stepping into a car, or dating, or going outside. 

Financially, it’d mean measuring your wealth in prepper stockpiles rather than in the stock market. 

To achieve anything like the (272,700%) growth of £1 shown on the chart, we must accept some risk and uncertainty. 

We can stay the course by keeping our eyes on the prize, not the temporary reversals.

Pain is why you are paid

Many of the market’s biggest opportunities have followed its most dramatic falls. 

Prices rocket when investors eventually realise they overreacted to the last shock. 

But human psychology guarantees you’ll fail to grasp those moments if you don’t upgrade your mental firmware from the basic fear and greed package. 

Greed sucks us into rising markets. Think 19th Century Gold Rush or 21st Century Crypto Bubble. We’re like moths to the money flame. 

Then we get burned. Fear takes over and instructs us to: “Freeze! Just chill for a while. Let’s wait and see what happens.” 

And then all of a sudden the market marches on without us. We miss most of the rally…

…until eventually greed overwhelms our fear again – dragging us back into the action because nobody wants to miss the last train to Fat Stacks City. 

This is the chimp version of scissors, paper, stone. Greed beats fear. Fear beats greed. We flip-flop in time to the market’s beat, but out of tune with the opportunity.

Playing the market this way only increases the risk of buying high and selling low. 

But wading in when your instincts scream: “Danger! Danger!” will increase your odds of buying low and selling high. 

As Warren Buffett puts it: “be fearful when others are greedy and greedy when others are fearful.”

Is now a good time to invest?

Now is as good a time as any to invest because for the vast majority of people it’s time in the market that counts, not timing the market. 

In retrospect, the historic traumas charted above proved brief downward squiggles on the great graph of historical returns.  

Progress is not inevitable, of course. But we shouldn’t lament the lack of guarantees either.

Uncertainty is the gunpowder that propels our future returns. It’s exactly because of the risk of loss that investors demand the prospect of higher returns from equities. 

No-one gets paid for betting on a sure thing. But buying a stake in the continued progress of humanity – and its main engines of productivity – has paid off for the past 300 years.

If you believe the arc of progress bends towards the good then owning a diversified portfolio of equities is a wise investment, alongside other useful asset classes.

Check out our guide on passive investing to see how to make it work. 

Take it steady,

The Accumulator

1. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298. [↩]
2. We’re using UK stock market returns but the picture would be similar if you used the US or the World market. [↩]