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Weekend reading: Does saving still pay?

Weekend reading

Good reads from around the Web.

I have half-written several posts over the years about how ordinary savers have been shafted by the aftermath of the financial crisis, while the reckless were rescued.

While we still hear angry complaints that the bankers were bailed out by the Government1, the big winners were the millions of middle-class consumers who over-stretched to buy houses they couldn’t afford in the boom and then saw interest rates fall to near-zero levels – and who have since enjoyed bubble-like returns from property in London and the South East.

Many Monevator readers are homeowners who got lucky on interest rates. But before you get too indignant I’m not castigating everyone as fortunate chancers.

It’s those at the extreme end – who would have got their comeuppance in a typical recessionary purge – that should be glad things got so bad it saved their bacon.

Similarly, it’s not cavalier risk-tolerant active investors like me who’ve suffered from low interest rates.

It’s more normal successful young people who earn say £30,000 a year and who have saved what would have once been considered a heroic £2,000 to £3,000 a year towards a house deposit, but whose savings have (relatively speaking) gone nowhere while prices – at least in the South East – have gone into orbit.

The new normal

A young couple who bought a two-bed flat in Tooting in 2007 when prices were already high, using a £25,000 deposit from his grandmother and a four-times multiple of her salary, because they had to start somewhere, they wanted children in five years, and they needed to get on with their life – they were pragmatic, not reckless, as I see it.

In contrast, the 10th decile who paid 6-10x their income for their properties, who employed self-certification to make up their income anyway, those who created deposits from credit card advances, and those who had their parents remortgage the family home to enable them to buy a ritzy flat in Fulham where they couldn’t afford a bicycle shed – they are the ones for whom the financial crisis was like a windfall Monopoly card that reversed the normal run of recessions.

  • Those who had bought a second or third buy-to-let property at the peak of the bubble.
  • Those who had paid a year’s salary for a brand new BMW, on credit.
  • Those who acquired a holiday flat in Paris by re-upping their mortgage in Westminster.

All saved by a situation so dire that interest rates went to 300-year lows.

Now, I can already hear some of you loosening your fingers to bash out an angry defense of these buccaneering go-getters…

  • Perhaps I’m just seeing through my own circumstances?
  • Hasn’t the stock market or even bonds been fine for investors – bad luck for those dumb enough to stay in cash?
  • Was the Bank of England supposed to sink the economy for the sake of moral hazard?
  • And so on.

True, these points all have some reality behind them. The older I get, the more I realise there are three sides to every argument – my view, your view, and the truth – and the less tolerant I am of those who believe they have a monopoly on two of them.

Alas, the Venn diagram of those who believe they are always right and those who comment on blogs is very large, too – even among our readers, who are in general about the smartest and most sensible in this sphere that I’ve encountered.

And to be fair, perhaps the overlap is large among those who write blogs, too.

“The first principle is that you must not fool yourself – and you are the easiest person to fool.”
Richard Feynman

The result is I’ve avoided too much crusading about all this over the years.

But maybe that was a mistake, given the magnitude of these shifts.

Sinking the marshmallow test

While I muse on whether it was wisdom or cowardice that has so far prevented me climbing more frequently into the bully pulpit, I will point instead to an article on the virtues of saving by Gaby Hinsliff in The Guardian of all places.

Despite writing for a paper that has never seen a consumer that doesn’t deserve compensation or a family that isn’t hard-pressed, hard-working, and yet let down by Government, Hinsliff has written eloquently on the dangers of not rewarding those who get by under their own steam:

Saving teaches self-discipline, impulse control, the ability to forgo instant gratification in exchange for future reward – all the things famously measured by the Stanford marshmallow test, in which four-year-olds were offered the choice of one marshmallow now or two if they could bear to wait 15 minutes.

What makes the experiment so famous is that those few kids who resisted temptation didn’t just grow up to get higher exam scores, but were also still leading more successful lives four decades later.

But what if it had all been a con, and there hadn’t been a second marshmallow?

What happens when you save and save for a whole lot less reward than expected?

For eight years I’ve written a blog based on the belief that a second, and a third – and fifty more – marshmallows will come to those who do the right thing.

We’ll see.

Is this the best we can do?

Now, perhaps you’re alright, Jack. (As I am, as it happens). You bought your flat in 1997 and didn’t go on holiday in that year, and anyone who says the current system is distorted is a hopeless whiner.

But even if you believe that, if you’re reading this blog presumably you believe in the power of incentives?

And to that end, don’t we want to see more marshmallows instead of:

  • Homes located where people want or need to live looking permanently out-of-reach to everyday successful young people?
  • Kids lumping around great tranches of debt acquired from often pointless university degrees instead of starting to save for the future?
  • Saving and investment to pay better than borrowing and betting?

As for the expected upcoming changes to pension tax reliefs (featured in two links below, and I could have included another half-a-dozen) I appreciate this is a tricky issue for various reasons we all understand.

But should we too readily swap a level playing field for one that looks set to be made massively less generous to those responsible middle-class higher earners who save for an increasingly uncertain future, compared to the perks enjoyed by previous generations?

We’ll pay for this

We had a financial crisis driven by debt – yet so far those with debts have won the day.

In fact the single best financial move of the past 20 years was to skip university, scrape together all the money you could from rich relatives, lie about how much you earned to get a dodgy mortgage, and then take a massive punt on the biggest house you could buy in the priciest part of the country and cross your fingers.

When even a Guardian columnist understands we have a motivational problem when it comes to striving to do better for yourself, you know we’re in trouble.

Note: It seems the new tracking tool we highlighted on Tuesday might not be as great as it first appeared – please see The Accumulator’s latest thoughts in light of his further findings (aided by you guys!)

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: Paying 3.2% on money locked away for five years makes Milestone Savings a table-topper, according to ThisIsMoney. But there’s a catch – the rate is ‘expected profit’, not interest, and it may vary.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2

Passive investing

  • Where’s the payoff for active investing? – Morningstar
  • US investors can pretty much own the market cost-free – Morningstar
  • Beware of Wall Street’s proprietary indices – Bloomberg

Active investing

  • We’ll never see another Warren Buffett or George Soros – Marketwatch
  • FTSE fallout ‘hurts’ UK investment trusts [Search result]FT
  • Why I’m hanging on to resource stocks [Search result]FT
  • Tech’s “frightful five” will continue to dominate – New York Times
  • The golden age of private equity wasn’t so golden – Bloomberg

A word from a broker

Other stuff worth reading

  • Morgan Housel: Why does pessimism sound so smart? – Motley Fool US
  • Protect your pension before March Budget – ThisIsMoney & Telegraph
  • Merryn: 5 reasons London house prices will crash [Search result]FT
  • The 3% stamp duty surcharge might apply to overseas homes – Telegraph
  • Stories from the UK’s 20-year-old house price boom – Guardian
  • 25% of alcohol sold goes to the 5% who drink too much – Guardian
  • How Denmark’s Odense city cycled its way to success – Guardian

Book of the week: I watched Into The Wild last night. It’s a movie about a young man who turned his back on consumerism and walked into the woods of Alaska to live off the land. As I watched it, I found several echoes of the early retirement movement, albeit expressed in a more adolescent context perhaps – which is worrying, considering (spoiler!) the very bleak ending. Apparently the book it’s based on – Into the Wild – is a US bestseller and popular set text in schools. Surprising.

Like these links? Subscribe to get them every week!

  1. Tell that to long-term Northern Rock, HBOS, RBS and even Lloyds shareholders. []
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 88 comments… add one }
  • 1 Felice_Pazzo January 23, 2016, 1:51 pm

    Well reasoned, Monevator. Don’t let the trolls stifle your right to tell it as you see.

  • 2 Ben January 23, 2016, 2:01 pm

    The UK doesn’t work, it’s a system for wealth creation extraction in exchange for unredeemable banker tokens.

    Just look at yourself. Go back to your blogs from a few years back to this.

    My advice: get a qualification that’s in demand in other countries and actively pursue emigration.

  • 3 Retirement Investing Today January 23, 2016, 2:17 pm

    100% behind you TI. An absolutely fantastic post, possibly your best ever!

  • 4 Neverland January 23, 2016, 2:19 pm

    Well reasoned rant. I couldn’t agree more with the analysis of the root causes

    The only sustainable way to stimulate growth is to make structural changes to improve growth

    However that involves taking on vested interest groups

    In Spain and Portugal two right wing governments took selected vested interest groups (their opponents natch)

    They both lost office (or about to in Spain)

    Prognosis: prospect for change is bleak

    Eg we can’t even agree in a third runway for Heathrow

  • 5 The Investor January 23, 2016, 2:21 pm

    @Ben — I’d argue that a few years ago house prices looks to be moving back into balance and everyone – even the most bearish – believed zero interest rates would not last. But what’s happened is what was arguably a boom in property has turned into what’s more or less beyond doubt a bubble in London, and interest rates have been at emergency all-time lows for seven years.

    As someone much smarter than me said: “When the facts change I change my mind. What do you do?”

  • 6 Gregory January 23, 2016, 2:24 pm

    @ Has factor-based investing stopped working? [Nerdy] – Predictive Alpha “Why are traditional equity factor models not producing alpha to the same degree as the period 2000-2009? ” The writer of the article should study the history because there were very long periods (20 or more years) when factors like value underperformed. The 2000-2009 period is nothing.

  • 7 Matthew January 23, 2016, 2:46 pm
  • 8 Ben January 23, 2016, 2:48 pm

    Yes I’d agree it’s worth changing your mind. I just think that it’s not possible to rationalise it, that’s all. We are all at the whim of central planners. Will they do QE? Go for shares. Will they raise rates? Sell to rent. Will they extend help2buy? Buy land.

    What will their next move be? Not possible to say. All you can be sure of is your labour will be taken. The UK is reduced to a game where you try to get between the state and the worker to siphon off some labour yourself. Right now the way to do this is via land.

    Do I want to have a nicer car and join in this exploitation chain? No I do not. I’ll retrench. I’ll spend less, work less etc.

    Or of course one can emigrate.

    The rest to me feels pretty disgusting. I realise that will be hard for most in the UK to fathom as it’s morally bankrupt well before it becomes actually bankrupt.

  • 9 Ben January 23, 2016, 2:51 pm

    Sorry forgot to add: that’s not to have a go at you – you are clearly a hard worker and as much a victim as I. It’s just to point out the contrast between when you started this blog to now. I feel like this is a good post from someone who’s very disillusioned with the system.

    My quote now 🙂

    “you can’t change the system but you can change the system you are in”

    It took me a while to realise this, being an idealist, but I’m glad I did.

  • 10 The Investor January 23, 2016, 3:09 pm

    @Ben — Since we’re having a rare moment of detente ( 😉 ) in our relationship, I shall ask the next logical question.

    What country did you move to? And can really you be sure that the forces that you believe you have identified here will not take route there?

    I am not persuaded yet that the UK situation is anything like as bleak as you suggest (or at least that it’s got massively bleaker than it was — I suspect from your writing you wouldn’t have liked the 80s or 90s much, either) but I will concede that either through policy or unintended consequences it has been traveling in the direction of your scenario for the past few years.

  • 11 Ben January 23, 2016, 3:18 pm

    Canada, Quebec. The forces are here, but weaker. Because they decay with distance. The absolute centre of world evil being “The City” in London.

    Let’s hope the US raise rates sufficiently to finish the UK off, then this might generate the political will for an uprising in the UK. However I won’t hold my breath, hence getting on with life elsewhere.

    Off ice-skating now.

    ps great to see Liverpool are ahead as it’s upsetting Ed Balls which can only ever be a good thing, with apologies to Norwich fans.

    pps crush the rentier and long live Henry George (even though he’s dead!)

  • 12 Ben January 23, 2016, 3:20 pm

    And just again to re-iterate: playing the system by joining the rentiers is to have died already. Consume less instead. Do not join them in their game of land exploitation.

  • 13 The Investor January 23, 2016, 3:26 pm

    @ben — I visited Montreal a couple of times in the late 90s and loved it. A very creative mix. I hope that’s survived!

  • 14 The Investor January 23, 2016, 3:46 pm

    Hmm, I missed the p.s. Obviously I don’t agree with all this rentier stuff you always come out with. But moreover it just seems rude and deliberately disruptive to keep posting it here. Once, perhaps, fair enough. But clearly it’s antithecal to the overall message and subject of this blog, which would appear to hold no interest for someone with your views. Therefore it seems to me it is just trying to cause arguments.

  • 15 Jumper January 23, 2016, 3:50 pm
  • 16 Peter January 23, 2016, 4:09 pm

    Having saved hard for 10 years, we are planning to buy our first house this spring. I get the feeling I will yet again buy just before the crash…

    At least having saved for 10 years we will have a very small mortgage. It wasn’t the sensible route (uni friends who bought 10-15 years ago are laughing to the bank), but I don’t like risk.

  • 17 Topman January 23, 2016, 4:09 pm

    Absolutely nothing personal TI but I detect more than a hint of Londonitis in y0ur post. As for emigration, hurrah; winners stay, losers leave!

  • 18 Neverland January 23, 2016, 4:41 pm

    @ Topman

    Actually it’s more my experience that luck and risk appetite more than hard work generates positive outcomes

    In the UK we have a preponderance to tax hard work more than luck; we also quite content to bail out people who take outsize risks, usually with future taxpayers money

  • 19 The Investor January 23, 2016, 4:50 pm

    @Topman — Hi, think it was your who previously challenged me to go a month without talking about London? I might be wrong… 🙂

    The fact is I live here, a whopping 40% of Monevator readers do too, incidentally, according to Google Analytics, it’s our capital city and one of the handful of world cities, and finally what happens here hugely influences the rest of the country. If anything I probably under-discuss it!

    Not citing you here, but in general there’s often a “Twas always thus” tone to discussions about London. But I believe there’s been an order of magnitude change in the various issues compared to say 15-20 years ago.

  • 20 Minikins January 23, 2016, 4:57 pm

    Fantastic post TI and one that I think will probably be referenced frequently in future times.

    It does conjure up the image of a stoic, lone and embattled investor standing (still) amidst the debris of fallen investments and rising tax bills thinking “Is this it?” (perhaps with that Strokes tune in the background) whilst in the distance people who never really gave too much thought to their futures cheerfully put another log on the fire in their homes. But maybe that’s just my imagination doing gymnastics again..

    I completely agree though. Any old fool could have bought a house in 1997 (1995 in my case) but it could easily have gone either way. I remember my mother’s 15% mortgage rate. But ignorance is very forward, as my grandmother used to say and on this occasion fortune has favoured that. The problem is that that fortune is now misunderstood to have come from wise foresight boldly acted upon. I could be more cynical and interpret the turn of events as a political pacifying the masses. But we none of us know the so called “unknown unknowns”. Speak with the many but think with the few..

    In the early noughties I had plans to emigrate to Vancouver and went there to take some further professional exams so I could practice there. I passed and was all set but the political and economic situation changed quite suddenly so I didn’t pursue it further.

    I am surprised you didn’t go to see The Big Short, maybe that’s for later. No spoilers from me, but on the whole I liked it for its endeavours to explain what led to the 2008 crash using some great back stories in the characters which I would have liked to have been more detailed. The characters played by Brad Pitt and Christian Bale (Ben Rickert and Dr Burry) were particularly interesting but all four lead characters were bursting with their own stories that were swallowed by the overall plot. I found it almost word for word similar to the superb explanation on the This American Life podcast on the housing crisis. Just goes to show how difficult it is to see the truth sometimes. Best quote from the film: ‘The truth is like poetry..And most people f***ing hate poetry”

  • 21 Planting Acorns January 23, 2016, 5:17 pm

    @Peter … I bought in inner London in September 2007… felt a right Wally in 2009/2010 after my neighbour stopped paying the rent and her flat was sat on the market for 20 k less than I paid for mine for 11 months…

    Worked out alright in the end though. And whilst the prices might dip, we need to live somewhere…

    @TI and others… I most certainly don’t think its acceptable for people not to be able to buy homes. But I disagree London is in a bubble… people need somewhere to live. Whilst there are jobs to come to, people will live four to a room if they have to. We need to build more homes, or prices will continue to rise. To my mind, it matters little what happens to house prices, I intend to spend the proceeds of the sale of my home on another home when the time comes, I’m just pointing out prices of homes can’t fall whilst there are so many people needing roofs over their heads.

    @TI … I was ‘rescued’ from myself by ultra low interest rates and high rents (I take a lodger in) …BUT I only used debt to buy my own home. So many of my friends have taken out their increased equity to put doen deposits on BTL or in one case two golf course apartments in Spain (and a Rolex)…It’ll end in tears, but whether its the tears of the borrowers or the tears of the poor workers who rent their whole lives remain to be seen

  • 22 Financial Samurai January 23, 2016, 5:18 pm

    300 year lows… That’s a great stat.

    Mate, not sure 2,000-3,000 pounds a year in savings is heroic! That’s just standard for the masses!

  • 23 The Investor January 23, 2016, 5:36 pm

    @Minikins — Cheers, and I love the way your imagination works… (I’ll have to explain how I mentally envisage my active portfolio sometime… That should scare off a few sensible readers! 😉 )

    Can’t wait to see The Big Short. Will go as usual when the cinema is completely empty! Maybe 3pm on a Wednesday… Me and Michael Burry…

    @Planting Acorns — You may well be right, certainly I have been wrong about London property prices for so long anyone would be foolish to bet on me. 🙂 However I don’t buy your theory at all I’m afraid. 🙂 People have forgotten London prices crashed by 20 to 30% in the early 90s, and more in real inflation-adjusted terms. Prices crashed in the US. Prices crashed in Japan. People still need to live in all these places. That said, I will grant you that relentless immigration and absolutely no extra housebuilding in response has supported/bumped up London prices to-date.

    @Sam — Hi! Average savings ratio in UK is 4.4% of net household income, so about £1,000 for the person on £30K, assuming they live alone, off top of my head. In reality I would say still more heroic than 2-3x average because at 30K every day costs are a big chunk of your outgoings, especially in the south-east in the UK, and I presume the wealthy skew the figures. To further complicate things, if I recall correctly mortgage repayments count as savings too. 🙂

    http://www.tradingeconomics.com/united-kingdom/personal-savings

  • 24 magneto January 23, 2016, 5:53 pm

    We like all other UK citizens take an unhealthy interest in house prices.
    One way to look at house prices is to compare with RPI as per the following sampling of Halifax House Price Index and RPI adjusted relationship to long term real price average :-

    Dec 1986 £42,262 31% below average
    Dec 1988 £65,442 about average
    Dec 1995 £61,544 33% below average
    Dec 2007 £197,244 52% above average
    Dec 2012 £163,845 8% above average
    Dec 2013 £173,467 11% above average
    Dec 2014 £188,858 19% above average
    Dec 2015 £208,286 30% above average

    and those figures are for UK wide not the rampant South East!
    Think Merryn may be right at last. Something has to give and maybe soon. Merryn must surely be right eventually?

    “Hasn’t the stock market or even bonds been fine for investors – bad luck for those dumb enough to stay in cash?”

    Yes whoever passes such remarks seems unaware (forgive this repeat) that the FTSE100 is still below the giddy levels (6930) of 1999!
    And again (forgive the repeat) that means 40% plus below 1999 in inflation adjusted/purchasing power terms. Only rebalancing and dividends would have kept a UK only investor ahead.

    It’s a difficult world out there and for those of you working hard to make ends meet, the deepest and sincerest sympathies. Perhaps emigration or “piracy is the answer”.

    Good Luck to us All

  • 25 Planting Acorns January 23, 2016, 6:29 pm

    @TI … I expect we’ll both prove ourselves right, depending on the timescale we use as measurement ;0)

    The government have ‘doubled down’ on the tax attractiveness of residential properties by singling it out for a Inheritance Tax break…whilst it looks set to hammer BTL and pensions out of existence… Why would any higher rate taxpayer contribute to a DC pension if relief is at 25pc?? The higher rate threshold has been more or less static since 2010…at this rate we’ll all be higher rate taxpayers in retirement !! They’ll be after our ISAs next.

  • 26 The Investor January 23, 2016, 6:52 pm

    @P.A. — Hah. 🙂 As I said last week though, I already consider that I got London property wrong, so I’ve definitely been wrong once. Now I’m just doubling down on wrongness!

    Interesting point re: the relative attractiveness of assets in the presumed new pension tax relief era.

    @Magento — Interesting, though if I recall correctly RPI includes a measure of housing costs within itself, so that might skew things. I think this came up when the BOE switched to CPI, but I forgot the detail, it’s a long while since I felt the need to finesse my point of view with respect to London property! 😉

  • 27 Richard January 23, 2016, 8:11 pm

    Why are second and third BTL owners singled out? Surely anyone who has bought a speculative investment on credit at the top of the market deserve to feel the impact of a ressesion – even those with a single BTL.

    Leveraged investments always comes with risks, never more so than during a downturn. BTL is not really any different.

  • 28 Jed January 23, 2016, 8:11 pm

    Well we all know that London property is in bubble territory whether to buy or not is a personal choice. I bought at the top of the market in 1990 and suffered the consequences. However on a brighter note as a basic rate tax payer it looks like i will benefit from the new flat rate gov. pension contribution. Nice one George

  • 29 Planting Acorns January 23, 2016, 8:50 pm

    @Jed…

    I don’t agree London house prices are in a bubble but as I’m not currently buying I don’t have to put my money where my mouth is ;0)

    But let’s say they are, and they are set to fall by 30pc over the next five years. If someone buys today… Would that really be so much of a disaster ? Banks won’t lend in falling markets so they’d otherwise be paying rent for those five years…and a five year fixed rate mortgage can currently be had for less than 2pc !

    If the property has a spare room, it is possible to rent the room out for a good part of the interest cost of the credit…

    I don’t see there’s any way of timing the property market any more than the stock market and whilst I don’t want to buy a second place, I wouldn’t be put off buying a home in London

  • 30 The Investor January 23, 2016, 9:05 pm

    @Richard — Because as I say, I’m not concerned with pointing fingers at everyone who bought a house and saying they ‘deserve’ to feel the impact, especially as I’m mindful of my own biases. I am saying that those who took (for the sake of argument) the *biggest* risks would normally have felt the consequences, and didn’t, and I think that writ large has distorted the incentives.

    Related: We only know the top of the market years after the event. I took part in spirited debates on bulletin boards full of very clever people well over a decade ago speculating on how the dominoes would fall now we’d surely seen the top of the London property market. Well, prices doubled and perhaps even tripled. We weren’t all dumb then and clever now. Some humility is in order.

    In short, I think there’s a middle ground of reasonableness.

  • 31 Learner January 23, 2016, 9:14 pm

    If we all knew it was a bubble, it wouldn’t be a bubble. (Unless “we” refers to enthusiasts such as those commenting!)

  • 32 theRhino January 23, 2016, 9:22 pm

    Good stuff

    It does seem like theres little justice in the winners and losers of the last 2 decades

    but on the other hand it reminds me when sometimes my lads say ‘its not fair’

    and I usually say ‘the worlds not fair’ (I’m a real laugh-a-minute parent)

    probably unwise to expect anything different, but at the same time we should all probably ponder ‘thank god it isnt’ as well if you know what i mean

    not that I’m religious or anything

    on a tangent, a tolerance of descenting commenters does deliver a more lively and robust debate – Its good that you keep it up as it must be tiring, just deleting everything but the sycophants would be easier but probably not better..

  • 33 Richard January 23, 2016, 9:47 pm

    @TI

    I agree with regards to top of the market, I was referring to the point you made in the article. Really what I am saying is leveraging to buy an investment is risky. Most people would say you would be mad to do this on shares and would have limited sympathy if you lost it all (even though this done in an index tracker may be a great investment). Unless those with one BTL have a model that can absorb market downturns that those with more than one cant. The only thing I can see is size of leveraging, which I think is the point in your response.

    It just read to me as if single BTL owners were not ‘saved’ by dropping interest rates (they would be fine regardless), which I find hard to believe. So in a sense I felt you were unfairly pointing the finger at those with more than one buy to let (though they may shoulder more blame, but then regarding sentiment, what % of BTL owners have one property and what % have more than one?)

    Note I am not suggesting BTL is a bad investment, but it is a leveraged investment usually which comes with risk (that most will have no memory of).

  • 34 Jaygti January 23, 2016, 10:40 pm

    Savings ratio includes mortgage payments!

    That’s made my evening. Mines gone from a measly 19% to a much more pleasing 42%.

    By the way, any married man earning £30k, with a wife who doesn’t work, and couple of children, would be doing very well to save anything at all.

  • 35 Planting Acorns January 24, 2016, 12:15 am

    @Rhino

    Funny isn’t it, all parents retort ‘life’s not fair’, but when you join the adult world you have to learn it all over again !

  • 36 Meglinson January 24, 2016, 12:22 am

    I can’t help thinking that if Ben had ‘cracked’ it in Canada he wouldn’t bother ranting on here. You give yourself away.
    Great blog post Monevator.

  • 37 The Investor January 24, 2016, 12:30 am

    Retorting to any questioning of the status quo by saying “life’s not fair” and pointing out kids do the same only gets you so far, and to me isn’t wildly convincing. To go all reductio ad absurdum on yo ass, as Tarintino might put it, according to that logic we might as never well have bothered with the magna carta or universal sufferage because “hey life is not fair, as any kid has to find out.”

    Our social fabric is best held in balance by nudges in one direction and then nudges back in the other, in my view — otherwise we tend to get something altogether worse when it becomes untenable! 🙁

    @Richard — Not sure whether we’re really disagreeing, but anyway I think a fair proportion of buy-to-letters owning one home didn’t need rates to drop to near-zero, no. The rental population stayed up and from memory there was no widespread collapse in the cost of renting (I think it dropped a little). So most BTL-ers with one property and a good slug of equity built up would have been fine, I’d wager. On the other hand, those who’d repeatedly withdrawn equity and levered up to buy a few properties right up to the wire…

    But anyway we’re talking hypotheticals. If the article made it sound like I was giving any sort of specific parameters for who precisely would and wouldn’t have survived, then that’s unfortunate. I think most of us can agree there’s a spectrum of risk, reward, and recklessness. What I am saying is even those borrowers on the far right hand side of the bell curve — the most reckless — didn’t really suffer in supposedly the biggest financial crisis since WW2. To me, that strongly suggests capitalism wasn’t able to do what it does best to its booms in the subsequent bust. We don’t need every BTL-er, every homeowner, etc — or even half of them — to be stretched for that. It’s the excesses that needed to be exposed and corrected, and largely weren’t, in my view.

    Heck, even PPI compensation has been another big handout to homeowners who didn’t pay enough attention.

    @TheRhino — I dissent about dissenters, to some extent. This blog is blessed by good commentators, partly because I think we write long waffle-y articles that attract a certain sort, but partly also I think because I *do* delete. Like most normal people, I simply cannot read the comment sections on mainstream sites any more, since they’re a cesspit of bile and nastiness of the most cowardly and un-constructive sort. It might lead to a livelier conversation the first few times, but soon the whole site is dead.

    That said I happily don’t have to delete comments much (discounting racist/sexist/nasty stuff, I only delete a very few per week, if that) and I agree debate can be great, when it’s polite and going somewhere.

  • 38 The Investor January 24, 2016, 1:11 am

    @therhino — Actually, not sure we really disagree about comments anyway. And cheers for noticing the effort! 🙂

  • 39 Martyn January 24, 2016, 1:12 am

    My view has always been a house is not an investment unless you have two. I didn’t buy for investment reasons, even if I had known I would lose money I would still have bought.

    I needed somewhere to live. If I rented I would always be 6 momnths away from having to find new digs. I want to keep pets, my call. Rent only seems to rise, I would have been gambling on it not rising faster than my salary. Rent is also a cost that connot be easily projected into retirement. A mortgage though can (it’s paid off). Anyone who looks at buying a house solely from an a accountancy perspective falls into the old trap of knowing the price of everything and the value of nothing.

    Moreover I love my house, I have no intention of selling no matter what the price does. I suspect I am rather typical. The laws of supply and demand are therefore not truly manifest in the housing market. Looking at them in the same way as one looks at shares is in my view a mistake.

  • 40 Learner January 24, 2016, 1:45 am

    @Martyn, that’s my thinking too. I’d like to buy simply to avoid renting. I have a fantasy spreadsheet that doesn’t make any assumptions about rising values and that’s just fine. I despair every time I read another article that talks a housing “ladder”.

  • 41 Mathmo January 24, 2016, 1:50 am

    Thanks TI for a great round-up and in a week when it might be all to tempting to focus on market mayhem, actually a lot of thoughtful articles in the weeklies and a jolly good rant on top of them, and some thoughtful comments below.

    That said, of the articles, AWOCS is well worth the time to read — his thesis that risk is not an intellectual exercise, but that thumping in your chest when the screen goes red for days on end. You have to live through it to understand your appetite for it. I must say that my response to hearing that we’d dropped 20% this week was one of surprise — it’s so very hard to hit the top of the market, that it doesn’t seem to exist for me. My lizard brain thinks the FTSE was around 6,500 for most of last year, so to see it at 5,900 feels like a 10% drop. Of course, the real numbers are different, but the lizard is the one who panics and I’m not telling it the real numbers. I’ve tried to drive discipline into my allocations by running it all through a spreadsheet, complete with cells that turn red when my rebalance thresholds are hit. Be disciplined when others are greedy or fearful is my mantra. So it’s with some embarrassment that I have to report I lost control and shoved a load more in when 5,500 was breached on Weds. While that looks good today, the loss of discipline isn’t. Augustinian prayer to the rescue: give me investing discipline, but not yet, oh Lord.

    TEA is firing on all cylinders this week. It won’t surprise you to learn I love his numerical approach and the numbers are indeed relentless. Save early, cut fees and reduce expenses. It’s too late for us to wind the clock back, but those of us dragging another generation behind us can at least have our genes do better next time. Jnr had his SIPP set-up before his 1st birthday. And TEBI joins the chorus against the fees of the City. These voices are a throng, but the power of this juggernaut to roll on is incredible — the pensions solution that the Treasury has come up with is a timely reminder that the industry is shaping the future, not the government or the people — the move to pensions ISAs would cut their fee-base at a stroke and you can see the effect of their lobbying engine in full force. I do wonder what all that money flooding into pensions before the Budget will do to the market. A little rally before March, do we think? Is the amount big enough? Still if anyone needs a little schedenfreude, one of my gloomy the-world’s-going-to-end City chums was gloomier than usual on Friday (as the markets rallied). Apparently he’d lost rather a lot of money when it didn’t. Never mind, I consoled him, most of it wasn’t yours.

    The Reformed Broker this week had a real insight that failed to land a punch. His idea that we all turn into price junkies in a panic is a great insight, but so what? I caught myself saying that I thought 5,500 wasn’t the bottom unless it went back over 6,200 in reponse to an assertion it would go down to 4,400. Are we all chartists now? What else is there to cling to? Discipline would seem even more important.

    I enjoy a good rant as much as the next commentor. And I think 2016 is the year of the commentator: Merryn starts the year with two posts on gold and one on house prices — she must be trying to set some kind of January record for comments with subject like that. Guaranteed comment-fodder. And now TIs moderation policy is revealed (some judicious pruning), I hope my thoughts will survive to the final cut.

    Is wealth a moral measure? I see no reason that it would be likely to be. So should we be surprised that people who choose what we perceive to be the “wrong” or “irresponsible” thing successfully outpace us? This is a little more than “life’s not fair” — it’s simply that money isn’t a measure of being good. If you’d like to console yourself, TI, how about considering another measure — that of happiness. Those who are sweating it out in over-leveraged London property will worry considerably more than Merryn may finally be right than you will. Or perhaps London property isn’t in a bubble after all — in USD terms it’s barely budged in price for years and if it is a truly global city, what right do we have to imagine that its property should be priced in our flimsy little currency?

    Finally Feynman is one of my heroes. That quote being about rigor in the scientific method — observing the facts and fitting the theory to those rather than fitting the facts. It cuts both ways. If you observe that those successful in investing are those who took advantage of the inevitable slide in interest rates and leveraged up, backed the government to do the things that it had to do and got rich in the process — who are we to say that we aren’t the reckless ones? Never bet against the central bank: our central bank will be deflating the Govts staggering debt burden by keeping interest rates low, printing cash and devaluing the currency. If you think the London house-buyers are reckless, take a look at the Big House in the middle. Perhaps owning property isn’t quite so silly after all.

    But life’s too short to argue about it — or so Paul Graham’s wonderful life-affirming article tells us. We’re all going to die. But not just yet. It’s the most optimistic thing I know.

  • 42 dearieme January 24, 2016, 2:00 am

    An owner-occupied house is an investment: the income stream is the rent you don’t need to pay.

    Bring back Schedule A.

    https://en.wikipedia.org/wiki/Imputed_rent

  • 43 Learner January 24, 2016, 2:50 am

    Along the lines of ‘Tech’s “frightful five”’ in the NY Times, this performance by Prof. Scott Galloway from NYU is a wild ride:

    https://www.youtube.com/watch?v=bedEz4qHGnk

    On Google, Facebook, Amazon and Apple’s market dominance and potential paths to a $1T market cap.

  • 44 theRhino January 24, 2016, 10:19 am

    @TI – well, whatever is going on behind the scenes, I think you are hitting a good balance on the comments – you get a good lot of pros and cons for the arguments presented in each article. The net effect is that it provides a level of scrutiny that gives the whole enterprise more credibility.

    No moderation and like you say – the signal is drowned by the (bile) noise. Too much and you just develop a cargo-cult or deliver a thinly veiled sales pitch if theres something you’re trying to flog off the back of the blog.

    talking about signal and noise, I’m currently ploughing through nate silvers book, not massively impressed so far but i think i’ll see it out to the end just in case there are some nuggets hiding. Tetlocks next on the list.

  • 45 Richard January 24, 2016, 10:25 am

    @TI,

    We are probably not disagreeing. I am probably just bitter that I don’t have a BTL and feel like to get in now is pretty risky with markets soaring, rules changing and economies teetering (and redundancies all around). So I won’t (I am somewhat risk averse), but it is difficult to watch all those making tidy sums of it, many of whom either had much better conditions when they started or should have been forced out during the crash. Then again, perhaps I am mad and should just jump in and do it…..

    The ‘bitterness’ is probably a generational thing, I look at my parents generation for example with their DB pensions they paid 5% into and look at what I have to pay in today to get the same. But so is life and we do the best we can :)!

  • 46 theRhino January 24, 2016, 11:13 am

    @Ben the Mountie – I wouldn’t be too down on the UK, its easy to forget how awesome it is. Notes from a Small Island by Bryson is a good reminder. Is that a picture of Dr. Strangelove as your avatar?

  • 47 John from UK Value Investor January 24, 2016, 11:37 am

    What surprises me is that those who are most hurt by the high cost of housing (young people) haven’t affected the political landscape; i.e. voted, in huge numbers, for whichever party promises to build the most houses (and decent sized houses, not these stupid proposed “affordable homes” rubbish).

    That’s what I did last time round, and I’m an old-ish codger.

  • 48 Kraggash January 24, 2016, 11:46 am

    A lot of complaining about the way the UK is, but are there any realistic near-term solutions? Interest rates looked set to rise but (currently) China will probably prevent that. Followed by the next crisis.

    @Investor: Just as a devils advocate: you have frequently said a well-diversified portfolio is the most certain/least risky way to FIRE. You have also said that you did not buy a house or invest in property because prises were too high (too risky to invest). And we know that taking higher risk can lead to higher rewards…. Perhaps you (we!) are not so risk-tolerant as you think.

  • 49 Minikins January 24, 2016, 11:51 am

    @Mathmo Great comments and insights, thanks for the Mathmo filter on the reads, very helpful when pushed for time. As for wealth and morality…intention is the crux, that and one’s ability to shake off guilt. St Augustine is a perfect example, Tolstoy too.

  • 50 Neverland January 24, 2016, 12:02 pm

    The noticeable thing is a post on house prices gets 50+ comments but a post on index investing gets less than 10…

    …all of the money Joe Public has that the government doesn’t nudge/snatch from them goes on residential property

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