What caught my eye this week.

There’s a story in ThisIsMoney about what’s apparently the first-ever retirement interest-only mortgage that’s ‘fixed for life’:

The over-50s deal from Hodge features a fixed rate of 4.35 per cent with no term limit, meaning the borrower will never need to remortgage, or risk falling onto a standard variable rate.

The unique deal is a type of retirement interest-only mortgage, a relatively new type of home loan that lets a borrower take out a mortgage and then only pay back the interest each month.

We could have a spirited debate about the pros and cons of this innovation, but it actually sparked another thought.

These retirement interest-only mortgages have been a bit of a flop. They were introduced as a way to help stop the many people who took out interest-only mortgages in the housing boom from having to leave their homes because they’ve not actually been saving the capital required to pay off their mortgage.

Apparently only a few hundred people have signed up to them so far, even though there are tens of thousands of people who would appear to be in need.

Perhaps even 25 years isn’t long enough for some people to have a lightbulb moment – or maybe they all have a cunning plan?

Not all oligarchs

What I found myself musing on though is whether financial services firms will similarly start innovating for people at the other end of the spectrum – modestly financially independent and asset-rich early retirees?

I’ve already explained how hard it was for me to get a mortgage, despite my technically not needing one. I was an ultra-low risk for banks, but they wouldn’t look at me because I didn’t fit their profiles.

Similarly, blogger ermine has explained that as an income-poor early retiree he might as well not exist in the eyes of many financial services companies.

The financial independence community sometimes ponders what would happen if it became mass-movement. Would the capitalism that makes it possible fall over?

I wouldn’t hold your breath for an empirical answer to that question. But on the level of day-dreaming it’s fun to wonder how financial services might be reshaped by a widespread shift to extreme-saving and ultra-compounding.

If you were granted one wish from the financial services industry for something for the likes of us, what is the first product or service you’d ask for?

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Among all the foes I’ve faced on the road to financial independence, status anxiety has been the craftiest of assailants. Like a shadowy footpad it avoids frontal confrontation but knocks you off your stride with stealth attacks.

A few encounters spring to mind.

There was the neighbour who offered me some old furniture bound for the skip. “Please don’t be offended,” they said. “I thought it might help. We know you don’t have much money.”

I wasn’t the least offended. The offer was sincerely meant but that blunt assessment of our apparent financial state popped my ego like a party balloon.

Had our high saving rate turned us into the local raggedy rascals? Were we letting the side down with our rust-bucket on wheels?

That question answered itself when I thought of the time I strayed too near the window of an upmarket restaurant. The maitre d’ immediately activated his anti-riffraff countermeasures – swell to bouncer size, advance to block entrance, adopt a “You shall not pass” look.

I gave him mocking lip curl in return, channeling John Lydon for all I was worth. I think we both know who won that one.

More troubling than the judgement of others though is self-judgement. The pang I sometimes feel when a sleek German car slides out of the corporate car park as I get on my bike.

Increasingly the flashy motor is driven by someone younger than me.

Where’s my German car?

I don’t care about German cars. Or expensive restaurants. Or clogging Instagram with a show-reel of success.

That stuff doesn’t make me happy. I tried it.

Yet not spending hurts. It hurts my ego. It hurts my standing in the eyes of my peers and neighbours and society. Or at least I’m conditioned to think it does.

You can’t achieve financial independence without facing down status anxiety1. I can rationalise lifestyle inflation away by claiming convenience, comfort, and YOLO – but how much of our spending is actually explained by the need to assert our position in the tribe?

Our public financial statements are encoded in the language of shoes, clothes, cars, postcodes, holidays, labels, schools, clubs, watches, haircuts, and social circle.

Can you withstand the fall in your personal stock when you’re the living embodiment of a value investment?

Can you live with being an unfashionable, dogeared, and tatty-looking outfit whose real worth is apparent only to those prepared to give you time to show your true colours?

I try to. The less susceptible I am to worrying about status, the quicker I’ll reach financial independence and the more secure the rest of my life will be.

More to the point, the less I engage with that unwinnable game, the more time I’ll spend doing things that contribute to my well-being and the happiness of the people in my life who really matter.

Finding your truth

The answer that’s emerging for me is to create a counter-conditioning programme.

Society bombards me with false advertising. And as any smart propagandist knows: if you repeat a lie often enough, it becomes the truth.

The actual truth is buried under a daily downpour of bullshit.

I need a personal filter bubble to deflect as much of the toxic waste as possible whilst enabling me to access the good when I lose sight of it.

My bubble is lashed together from different materials. A simple starting point is to create a happy list.

What the Jeff is a happy list? It’s a list of the things that make you genuinely happy. It’s not a list of goals, or lifetime achievements, or perfect moments – it’s simply the things that reliably make you glad.

On my list:

• Going for a walk with Mrs Accumulator.
• Staring at the sunset.
• My cycle ride home.
• Helping a colleague at work.
• Losing all sense of myself in a game of football.
• That moment I finish a Monevator post and it isn’t a pile of old toss (TBC).
• The thrill of learning new ideas.
• Filling my nose with the scent of trees.
• The end of a long journey.
• Catching up with an old friend.

A happy list sounds like a cheap mind trick but it’s very revealing. Most people’s list is full of simple joys, not the stuff of high status. It’s a great way to uncover your truth and to retrieve it again when you forget who you are.

You’re booked

I didn’t always have much confidence in my truth though, so I recruited some cultural heavyweights into my corner.

Books are the foundation of my filter bubble.

Nothing imports strength into your life better than communing with great minds from the past, as well as modern thinkers who can translate humanity’s accumulated wisdom into contemporary language.

I’ve talked before about some of the books that have made a difference to me.

There are many more, but how much they speak to you depends on where you are in life. (Let’s bat some good book ideas back and forth in the comments?)

Renewing your faith

Read enough good books and eventually you’ll discover that you and the greats approximately agree on the essentials of human flourishing.

It’s just you keep forgetting them. Or forgetting to believe in them.

That’s where ritualising your truth comes in. Like a god-fearing creature in a city of sin, I can only maintain my faith by habituating it and by stiffening my resolve with regular brain-hackery.

Gratitude is the simplest and most amazing technique I’ve learned. Briefly recalling three things in my life which make me happy is a fantastic circuit-breaker that reconnects me with what counts.

The power pose also works. Not because it makes me feel powerful but because it makes me laugh. It’s wonderfully silly, sends up the need for status, and reminds me not to take myself so seriously. Try being Wonder Woman or The Hulk. Raargh.

Keeping a momento mori of my past spendy life is also useful.

I’m not naturally frugal. I used to blow the lot. Now that reminder of that amazing car we once owned reminds me it was nothing but trouble. Maybe I should also frame an old letter of a promotion and remember how good that felt for five minutes?

Checking in with my favourite financial independence writers is another important ritual. There’s little new to learn about the mechanics, but plenty of value in spending time with others who swim against the mainstream.

Keeping good company is another reason why no matter how many books I read on living life, I always like to have one on the go. I don’t think I’ll ever completely subdue status anxiety but returning to an old favourite or hearing ancient ideas reinterpreted by a new voice often helps me patch holes in the filter bubble.

The lightbulb moments flashed all the time when I first started this journey towards financial independence. The problem was keeping them switched on!

Storing the illumination in a repository of values has helped with that. For me, that’s a flow chart of the ideas, ideals, habits and behaviours that represent the life I want to lead. It’s charted because I wanted a visual that I can easily recall.

I revisit it often and in my mind’s eye I see it as a web of connections that link me to what really matters.

Take it steady,

The Accumulator

1. Certainly not if you’re on a modest income and want it done in a decade or less. [↩]

What caught my eye this week.

I am sure that with barely a glance at the clicks generated by its last story featuring Michael Burry dissing index funds, Bloomberg has returned to the well to quote him saying more scary-sounding things:

Burry, who made a fortune betting against CDOs before the crisis, said index fund inflows are now distorting prices for stocks and bonds in much the same way that CDO purchases did for subprime mortgages more than a decade ago. The flows will reverse at some point, he said, and “it will be ugly” when they do.

“Like most bubbles, the longer it goes on, the worse the crash will be,” said Burry, who oversees about $340 million at Scion Asset Management in Cupertino, California. One reason he likes small-cap value stocks: they tend to be under-represented in passive funds.

A few readers kindly forwarded the story to us for our views, and I sighed. Can’t we keep the passive indexing is a threat to capitalism bust-ups to a maximum once-a-month rotation?

Look, I’ve got as big a man crush on Burry as any active investor who has seen The Big Short three times. But comparing mainstream index funds to sub-prime CDOs is specious.

It’s true some ‘liquid-alt’ passive funds might hit some choppy air in a sell-off, but that’s hardly a secret – it happened in the flash crash, for example – and even then it probably wouldn’t have any long-term consequences for passive investors, who shouldn’t be holding anything too wacky, let alone be dumping them in a 20-minute moment of market madness.

As for the bigger picture, if markets are pumped up to irrationally exuberant levels then it’s true many people will take a hit if they sell in a subsequent downturn.

But that’s totally normal. Most people invest where most people invest, by definition. Doing so may involve index funds in the 21st century, but fear, greed, boom, and bust are as old as markets.

Luckily I don’t have to write more this week because the ever wonderful Ben Carlson has taken one for the team. His long post on these silly passive scare stories covers everything you can think of.

I particularly liked the emphasis in Ben’s post on the matter of practical choice for investors:

Are index funds perfect? No. They give you all of the upside of the stock market but also all of the downside. And indexes can go nowhere for years on end just like individual stocks. They can become overpriced and underpriced. They own the good stocks and the bad stocks.

But that’s nothing new. That’s the stock market for you.

Someone will occasionally point out an edge case where active managers are able to gain a few bucks at a passive fund’s expense – or they might make the case like Burry that a vanilla index fund doesn’t give you sufficient exposure to what he considers better value stocks.

But these things don’t matter to everyday investors, whose alternatives are expensive active funds with market-lagging track records, or else taking the opportunity to lose to the market picking stocks for themselves.

As Ben notes: “Index funds never lever up your holdings. They never receive a margin call. They don’t put 30% of your holdings in Valeant Pharmaceuticals. And no index fund has ever closed up shop to spend more time with their family.”

Boom!

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