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.[↩]

What caught my eye this week.

Now it seems like we were dreaming. The huge tax cuts. The dash for growth. The chancellor telling Laura there was more to come.

That strange Push-Me-Pull-You Mini Budget that blew up the gilt market, threatened pensions and banks, and sank yet another Tory prime minister.

Was it really only two months ago? Have we all done a Bobby Ewing?

Because if you happened to emerge from an all-consuming illness on a hospital ward this week to tune into the latest chancellor’s Autumn Statement, there wasn’t a whiff of any of it now.

Instead of tax cuts, the UK faces the highest tax burden (at just over 37% of GDP) since World War 2.

And about the only thing forecast to grow is the length of a recession that’s already underway.

Tax and don’t spend

Anyone who is interested will have heard the main points from Jeremy Hunt’s Statement by now.

More people paying the highest-rate taxes on more of their money. Frozen income tax thresholds that will mean all of us will pay a higher share of our income as tax, even as our wages are inflated by inflation. An axe taken to capital gains and dividend tax allowances. The pension triple-lock held.

Just in case you did sleep through it though, the main points from a personal finance perspective:

• The Autumn Statement: item by item – This Is Money
• Autumn Statement: What it means for your money [Search result] – FT
• How the Autumn Statement will affect various households – Guardian
• What you need to know about the Autumn Statement [Podcast] – Which

There was also the usual hodgepodge of measures to do with business, regulation, and investment. They amount to fiddling at the edges.

The result makes grim reading. Real incomes per person are forecast to fall 7% over the next two years – the biggest decline on record.

And then just when we’re dusting ourselves down, Hunt’s planned spending cuts will start to starve State spending.

Those cuts don’t kick in until 2024, either to give the Conservatives a chance in the General Election that year, or else because if they were front-loaded along with the tax cuts – and in the midst of a recession – then the economy might really fall off a cliff.

Probably a bit of both.

More pain, no gain

The only good news is the market is calm. Gilt yields have come down since Hunt took the reigns, and fixed-rate mortgage rates are following.

And I can entirely understand the logic of this Autumn Statement, especially in the light of what we went through under Liz Truss and Kwasi Kwarteng.

They showed the UK cannot afford to be reckless when it comes to market confidence. We’ve borrowed far too much for that, with our economy too dependent on the kindness of strangers.

Yet as I pointed out at the time, Truss and Kwarteng also correctly identified the UK economy is going nowhere as things stand, with stagnant real wages, no productivity gains, and barely-there economic growth.

Even with Hunt’s fiscal retrenchment – worth about £50bn, or about 2% of GDP – the Government’s payments on debt interest are still forecast to be £100bn a year by the end of the forecast period.

That’s more than we spend on any single public service except the NHS, says the IFS.

It adds that by the end of the period we’ll still be borrowing about £69bn a year.

Remember, that is additional debt, on top of a tally already sat at c. £2,500 billion.

If this is Austerity 2.0 then it’s worse than the original. At least George Osborne told us his cuts would be worth it to move the UK back into balance.

It all adds up

Indeed it’s hard to find any reasons for optimism about Britain for the next few years. Hunt is like a 19th Century doctor who promises he can save your life, then reveals the bone saw he’s going to use to cut off your leg.

Yet does he have any choice?

If the energy crisis hadn’t blown up and inflation hadn’t skyrocketed then things wouldn’t be so bleak. Obviously the vast spending during Covid to pay people to stay at home didn’t help either.

And if Truss and Kwarteng hadn’t frightened the horses then we wouldn’t now need to be trying to gee them back through flapping stable doors.

Oh, and there’s obviously the small matter of Brexit permanently impairing our economy. That hit is likely worth about £40bn a year to state funding – around the size of the hole Hunt is aiming to fill.

At least we voted for that one.

Things can only get better worse

Some readers hate gloomy posts. You come to an investing blog to be inspired, not dispirited. I can understand that.

But the best I can suggest is you continue to read us and pay even more attention to your finances. If anything, it’s more crucial than ever. Look after the pennies, and invest for the future because on the face of it the economy isn’t going to make it easy for you.

The only inspirational call here must be to control what you can, not be knocked off-course by what you can’t.

Who knows? Maybe Putin will look at his kids one morning and decide to pull out of Ukraine. That would be helpful.

But as things stand, there’s no getting around it. Britain is an impaired asset. It is run by old managers who triple-lock their incomes and shout at the telly while sat in properties inflated by vast windfall gains and collectively voting to make things worse for their grandchildren.

The country thinks it is richer than it is, confused by the reality of a successful top-tier (which includes the average Monevator reader, to be clear) and ancient visions of Empire.

In 2016 it decided to make things even worse on the back of a hissy fit. There was no upside.

And I’m truly sorry, but now we have to suck it up.

Enjoy the weekend regardless.

[continue reading…]