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Weekend reading: How are you setting your table?

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What caught my eye this week.

I was stood up last night. Well, my dinner date didn’t make it. There were reasons. But my Google Alert for the Zombie Apocalypse didn’t trigger, so no excuses.

(Obviously in practice I’ve bumbled out Hugh Grant-esque assurances that I understand and it’s no problem and really another time, because I do and it isn’t and maybe. But Hugh doesn’t have to write dramatic blog openers.)

Anyway, as I sat enjoying my slow-cooked Mallorcan lamb for two by myself, I found myself admiring my pretty dining table, the natural grain of the wood, the way it’s lit by the fancy pendants above.

Quite the scene, especially if your tastes run to Edward Hopper.

Two times table

It isn’t a particularly expensive table – it was one of my carefully sniped online bargains secured during my materialism mania last year.

One of the good things about dithering for decades before finally buying your own place though is you’ve got a bit more cash spare to indulge William Morris’ famous dictat:

Have nothing in your house that you do not know to be useful, or believe to be beautiful.

(Present company excepted, of course.)

But there were some unfortunate aspects to my delaying, too.

Specifically: Life moved on.

Much as I like my table, it doesn’t extend. I thought this would be a big deal when I bought it, and agonized as it only really fits six people comfortably. But the truth is I’ve only overflowed off the table twice since moving in.

There were periods – years ago now – when I’d have 8-12 people over for some sort of food and drink gathering every month or so. Even more often when I was in a relationship. But most of my old friends long ago went off to have kids in the provinces (i.e. beyond Zone 6). Or they’ve left the country altogether.

And while I pounce on young people like Keifer Sutherland in The Lost Boys – yes, an ancient reference, chosen for effect – much of the cast of Series Two: The Didactic Years has moved on, too.

So it’s mostly just a couple having dinner with me on my table these days, or perhaps one or two older and similarly loner-ish diehard chums, or maybe a rare married London friend returning from that strange confinement of being responsible for children under five, still nervously watching her six-year old threaten to topple my tree fern out in the garden even as she starts to remember how to rant about politics and rave about mini-breaks again like the old days.

Rentaghost

Does it matter that I had most of my big social gatherings in rented places shared with friends – where many times the conversation turned to when was I finally going to buy somewhere of my own – and that now I do own somewhere, most nights I potter around it alone like someone from a Philip Larkin poem?

No no, don’t be silly. Time and place and all that.

Besides, I remember Douglas Coupland saying something in Generation X about how you lose your ability to make new friends the day you buy your first piece of non-disposable (/IKEA) furniture, so maybe my extended property serfdom garnered me a wider social circle than my scary Myers-Briggs statistics should warrant.

On the other hand, it’d have been nice to have had my own place, and all my own bits and bobs, and to have enjoyed then the theater of playing the host in my own curated home. I saw friends relish it, and thought I would, too.

None of this may be striking a chord with you, but something similar will. Because these are the sort of trade-offs we make all the time when we save and invest for the future.

Of course you try to do the best with today in the meantime. You tell yourself it doesn’t matter that you’re not going abroad with your friends this summer. Press-ups and a pair of dumbbells are just as good as their gym membership. You can live like a billionaire on a supersavers’ budget.

But you can’t have it all, not in one lifetime. You can’t go back, travel like you could, run like you could, be as silly as you could. You might say you can, but you know you can’t. You can’t get your 20s back, and those glorious reckless days of being young.

Now I happen to believe that being young is such a natural state of grace that you really are best off saving your money for when you’re not young anymore. But that doesn’t change the mathematics of time’s arrow, and the consequences.

I often think about that scene in The Godfather, when Michael Corleone has a flashback to the raucous family table from years before he became a cold-blooded mafioso kingpin. Somewhere on the way to the latter, the former died. Perhaps he killed it, or perhaps it was going to die anyway.

There was a moment in my very early 30s when I’d decided not to buy a flat (too expensive) but I hadn’t yet fully caught the investing mania that went on to define me (too nervous). For a while I considered using the deposit I’d saved on moving to the mountains, or traveling. There was even a silly five-minutes when fed up with chasing property prices I considered throwing my frugal persona to the wind and buying an open-topped sports car. (Especially silly considering I don’t have a driving license.)

What I did instead was learn to invest, get addicted to it, put all my house savings into the market, even started a website about it – and life went on regardless of my previous plans.

We shape our buildings, and afterwards they shape us
– Winston Churchill

Tomorrow, tomorrow, I love you, tomorrow

For more on this theme, check out this short new podcast on Abnormal Returns. It’s about balancing your today with what the guest Jeremy Walter calls ‘Tomorrowland’. I also touched on it in Buffett’s Folly if you want more.

This post sounds a bit maudlin, reading it back, but that’s just the wine talking. (And maybe the empty place at the table. Tiny violins. Don’t worry, this site is unknown to her. Our secret!)

I had my reasons for not buying a property sooner. My friends would have had kids and left anyway. I’ve got options today from the delay that I’m not sure I’d trade for a hodgepodge of fading memories.

So no regrets. Just a little shiver of reality.

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Don’t be scared by a share split

Don’t be scared by a share split post image

Christ I’ve been robbed! That was my first thought as I stared at the 80% loss. Eyes on stalks, stomach in knots – I felt the panic rise like mercury in a heatwave.

This wasn’t 2008. This was last Friday1.

I had logged into my portfolio tracking account hoping for a shot of dopamine. Instead I got a stab in the amygdala. The ‘safest’ ETF in my portfolio was bleeding red.

An 80% loss. In one day. WTF?

It’s a short duration UK gilt ETF – Lyxor’s GIL5. It’s not supposed to do this. It’s supposed to be as volatile as a Care Bear.

What happened? Had the Bank Of England raised interest rates 30% while I was napping? Is the country on fire? Had Boris accidentally nuked London?

I tapped the screen like it was a faulty watch. Surely some mistake. I logged into my platform – AJ Bell. God. It showed the same thing. 80% down. The share price just fell off a cliff.

A graph of an ETF losing 80% in one day

This can’t be. I needed a rational explanation like a drowning man needs a life belt. Could Lyxor throw me one?

Its chart said everything’s fine, but the chart ended on Wednesday the 24th. The trouble started on the 25th but it doesn’t have a 25th. Why?

Lyxor's ETF performance graph says everything is fine.

At the bottom of GIL5’s web page – beyond the Passporting Information twilight zone – sits a Corporate News & Events link. There I saw a Notice To The Shareholders. Is this where Lyxor buries bad news?

Dear Shareholder…

It’s a share split. A share split!

I’ve been up to my elbows in ETF minutiae for over a decade yet I didn’t know ETFs split.

Relief at last:

The share split will only lead to a change of the number of the shares you hold but will be without any impact on your investment in the Company.

Every old share was split into five new shares. That was the explanation I needed: 1 / 5 = 20%. Hence the 80% apparent loss madness. My accounts haven’t yet updated the number of shares I own, and each new share is only worth 20% of an old share.

The notice continues:

Indeed, as of the day of the share split, the amount of your investment will only be expressed by a greater amount of shares.

So Lyxor is saying my pie is cut into more pieces but I’ve still got the same amount overall. Still, I’d be happier if everyone’s graphs didn’t show an 80% loss. Wherever I looked – Yahoo Finance, the London Stock Exchange – GIL5 jumps off the ledge.

A specialist site had the explanation. Portfolio Advisor confirms the split and say it’s down to my own platform, AJ Bell:

The Lyxor Core FTSE Actuaries UK Gilt 0-5Y (DR) Ucits ETF has temporarily suspended trading as it splits each stock into five new shares firstly on the primary market on Wednesday and then on the secondary market on Thursday.

The price on the ETF on Wednesday was £92 meaning its price would reduce to around £18 after the stock split.

AJ Bell had pushed for the changes to the ETF, which sits in its MPS [Managed Portfolio Service] range across risk levels one to three and in its lowest risk portfolio in its income range, because it makes it easier for smaller pots to invest.

A little more searching turns up an AJ Bell press release featuring its chief investment officer and Lyxor’s head of UK wealth congratulating each other on how the split shows they’re listening to their clients and small investors.

It’s a pity neither firm thought to clearly communicate to their small investors that the imminent 80% drop in their holding was nothing to worry about.

How hard can it be to write your customers a prominent, jargon-free message saying that contrary to appearances you haven’t been taken to the cleaners?

Quite hard it seems. AJ Bell did send a brief corporate action note but forgot to mention that a split leaves the value of your investment unmolested. How many small investors understand what a share split is and how it works?

That’s clueless customer service but Hargreaves Lansdown didn’t even reach that low bar. Their graph shows an 80% loss but they didn’t send so much as a customer message – or at least I didn’t get one.

If there are Monevator readers out there holding GIL5 (AKA Lyxor Core FTSE Actuaries UK Gilts 0-5Y ETF) please don’t worry. Everyone’s systems should soon update and you shouldn’t be left out of pocket.

To the industry: how about thinking about your customer’s needs and communicating to them in plain English?

Everybody hurts sometimes

For me, it was a reminder not to get too cocky. I’ve previously watched my portfolio sink over 20% and barely felt a thing, but this time was different.

My overall portfolio loss was minor but two things spiked my personal fear index:

  • Any 80% loss in one day is shocking.
  • I couldn’t explain it. There was no story about volatile equities to hang on to. This just shouldn’t be happening to a short duration government bond fund.

I couldn’t believe it and didn’t want to believe it. Without an explanation my imagination could run wild. I put a stop to that by searching my sources but for a moment it felt like having a dizzy spell, googling the symptoms and reading you might have ebola.

This time it was just a drill, but it’s a reminder that the worst that can happen is like nothing I’ve ever experienced.

Which is the reason I have those boring short-duration bonds in my portfolio, of course…

Take it steady,

The Accumulator

  1. July 26 2019 in case you’re reading this in 2031 or whenever. []
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Weekend reading: Pride, prejudice, and passive income post image

What caught my eye this week.

A bookish child – more wannabe poet than would-be Buffett – I first learned that some people could live off their capital from the novels of Austen, the Brontes, and Dickens.

So I was glad to stumble across this piece from April, where the author explores the context of the “£10,000 a year” passive income enjoyed by Jane Austen’s Mr Darcy.

From Pride and Prejudice:

“Mr. Darcy soon drew the attention of the room by his fine, tall person, handsome features, noble mien, and the report which was in general circulation within five minutes after his entrance, of his having ten thousand a year.

The gentlemen pronounced him to be a fine figure of a man, the ladies declared he was much handsomer than Mr. Bingley…”

Even the leanest pursuer of financial freedom wouldn’t consider £10,000 to be a sustainable income these days. I’m not sure it impressed me much as a kid, either, although I’d now respect it as suggesting Darcy boasted a pot of at least £250,000 (presuming he had a flexible withdrawal rate in play).

But 200 years ago, a passive £10,000 a year meant you were fabulously rich.

A previous piece by the same author, Joakim Book, estimated Darcy’s wealth might have a purchasing power of as much as £400m in today’s money!

Consol yourselves

Joakim’s newer article is a wonderfully geeky dive into the history of a particular kind of UK government debt – Consols.

These perpetual bonds were central to the financial planning of well-off families, such as the Bennets in Pride and Prejudice:

Once the Bennet parents pass away, the £5,000 of Consols could be divided equally among her children; Lizzy’s share would be a thousand pounds, which earns her an annual 4% interest return, or £40 (although maybe several year’s earnings for a regular worker, this was a rather small sum for such rich families – in contemplating Lizzy’s sister Lydia’s imprudent marriage, we learn that Mr. Bennet spent almost £100/year on Lydia’s purchases and pocket money alone).

Being liquid financial assets, dividing up the Consols among children was very easy, and their steady income stream ensured that they would have at least some income.

Bar Napoleonic conquest, the interest payment on the Consols would reliably show up year after year.

It was ever nice to be rich, eh?

Still, a 100% allocation to bonds? You won’t find that in any model passive portfolios today…

p.s. Thanks to The Details Man and The Accumulator for covering me for the past two weeks. Even if it was at the cost of their discovering how many hours Weekend Reading takes to compile and edit, and vowing never to do it again!

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Weekend reading: should retirement be retired?

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What caught The Detail Man’s eye this week.

I have long thought that the traditional concept of retirement needs to be put to bed.  So I was heartened to read a thoughtful discussion in the Financial Times on what it means to be retired in today’s world:

If ever there was a word that needed to be retired it’s retirement.

What kind of mental picture does this word conjure up for you — sunny beaches and no longer having to set an alarm clock? Or a stressful feeling about how much longer you will need to work to afford such a lifestyle?

Just as our working lives have changed immeasurably over the decades, so has our concept of retirement — not to mention how our long-term savings are structured. So in my own (very happy) retirement, I have been working hard to try and redefine it.

Retirement has an image problem…

I remember as a young(er) lad following my mother around as she visited old lady’s homes to do their perms. Many, at least in the area I grew up in, lived spartan lives. No central heating, old gas stoves, furniture and furnishings from before the moon landings.  And they were better off than the poor folks in the run-down retirement homes…

So growing up, my image of people in retirement was one of poor health, poverty and often loneliness. It seemed like a miserable existence.

This image is hard to shift.

…Our memories are stuck in the past

I see a similarity to the late, great Hans Rosling’s arguments that our world view needs updating.

Extreme poverty has fallen by half in the past 20 years, but my mind’s eye clings to the vivid images of famines in East Africa and civil war in Sierra Leone. Sierra Leone has enjoyed three back-to-back democratic transitions since 2007. My view needs updating.

Updating our view on retirement

Hans Rosling’s catch-phrase could have been: “Let My Dataset Change Your Mindset

So what does the data tell us about retirement?

It’s good news.  Those aged 65 to 79 are the happiest in society and pensioner poverty has fallen dramatically:

I accept it’s not all sunshine and rainbows. There are still many retirees in poverty and large levels of inequality. Especially between those nearing retirement (and on drastically lower benefits) than the actually retired.

But overall, the financial picture is relatively healthy for Britain’s senior citizens. Back to Don Ezra in the FT:

For starters, few people I know of traditional “retirement age” want to stop working completely. They might want to spend less time working, or do a different kind of work, but they still want to be active.

While more specific, the phrase “life after full-time work” is a mouthful. So I created an acronym for it, using the first letters: (l)ife (a)fter (f)ull-(t)ime (wo)rk, and it came out as LAFTWO. Aha, I thought, that’s how my Texan friends would say “Life Two”. And suddenly three years of assembling thoughts fell into place, and acquired a structure, purpose and much more.

Life One is our grown-up working life. Life Two is what follows. It’s the best part of life, so much so that Life One is just the long prologue that finally gives way to the main event, when enjoyment, happiness and fulfilment peak.

I think Life Two is quite catchy.  What do you think?

P.S. Normal service will resume next week with The Investor back in the seat – so look forward to more Brexit rants and fewer tenuous links…

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