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Weekend reading: I shopped til I dropped

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What caught my eye this week.

I would have had this post to you much earlier on Friday, but for consumerism. You see I got totally distracted trying to get the best out of my new Sage Barista Express:

Real life: Messy.

Having done a barista training course a few years ago, I improbably fancied myself as pretty hot stuff with a coffee grinder.

I’ve enjoyed flat whites knocked out by a friend on this well-reviewed model many times, too.

But it turns out I didn’t know my friend as well as I thought I did!

I’ve discovered he’s great at making coffee – but perhaps more shockingly that he’s modest about it. (What other talents does he boast, I now wonder? Or rather does he not boast?)

Seriously, I know it takes a while to get the hang of DIY espressos on new kit, so I’m not too perturbed. It’s only eaten a couple of hours so far, and that includes washing the bits and bobs, figuring out how it fitted together, and collecting beans I spilled on the floor.

No, the other reason why I fell behind was because as soon this new toy finally arrived from Amazon, I went out for a three-hour hike around West London.

Did you sign for it, sir?

You see I’ve been in all week waiting for deliveries – and it drives me crazy.

I’m on edge all-day, until the deliveries do (or don’t) arrive.

A laid-back friend who doesn’t understand my hair-trigger control freak personality asked me what the big deal was.

“Imagine waiting all day to be slapped in the face,” I said. “You don’t know when it’s coming, but you will be slapped in the face. That’s me waiting for the door buzzer.”

It’s not even that I can’t do the social interaction bit. It’s worse: I usually talk the delivery person’s ear off. (A common failing among those of us who work from home.)

Rather it’s the waiting and uncertainty that kills me – and the unexpected and unscheduled state change.

Years before the Millennials I kept my mobile on silent always, for the same reason.

A totally unexpected phone call to my mobile feels like being tapped on the shoulder by a suddenly apparating supernatural nosy neighbour. I hate it.

Now at this point you’re either nodding along (a very few of you) or you’re aghast with incomprehension. Which is fine.

(I’ve said before when explaining why I invest actively and nearly everyone reading shouldn’t that I’m wired differently. I didn’t say it was easy!)

Economy class

Anyway, the reason I’m sharing these asides – and the rare from real-life picture above – is to give a quick update on my embrace of consumerism.

The story so far: You’ll remember I bought a flat, I still haven’t written up why, and I set about spending some of my 20-odd years of winnings (well, savings and winnings) to make it fancy.

This got off to a good start. I’ve always loved nice furnishings and so on – from afar. But by the middle of the hot summer I was bored of spending money.

I’d lost enthusiasm, I’d lost my girlfriend (she said she didn’t like my sudden interiors obsession, but perhaps she just didn’t like the sofa I finally selected?), and I’d lost (/spent) more money traded for matter than I’d spent on things in the previous two decades combined.

I didn’t even go crazy! It’s just that living like a graduate student even as your earnings multiply is pretty low-rent.

For most of that long era I used to opine to my more normally spendy friends that buying stuff only produced problems. Which in my experience was almost always true.

Stuff didn’t work, or you had to upgrade something else, or it broke, or you felt guilty, or you had to wait in for days to get it delivered, or you were worried it’d get nicked when finally you did get hold of it – or any one of a dozen other woes that people who buy stuff all the time think is just the way the world is.

Only two things hit the spot for me without fail when I splashed the cash. Black cabs – which I almost never took, and felt so luxurious in those pre-Uber days – and the first beer with two poppadoms and all the sauces and other gubbins.

Obviously I did a gazillion other things over the decades. I didn’t just taxi around London from curry house to curry house! And often it was money well spent.

But never reliably so.

Well, this whole flat buying and furnishing thing has proven my younger self right.

Through the keyhole

Don’t get me wrong. It’s coming along. It looks beautiful, to me if not my ex. I feel lucky to live among all these things I chose in my still-new flat, even while knowing luck is only part of it.

But, oh! I guess I secretly thought the universe would notice The Investor Is Finally Throwing Money At The Problem and the rules would change. But they haven’t.

Stuff comes broken. Trades people don’t show up. Some of them are great, but some are – well – yet to find their true calling. Deliveries don’t arrive. I made a final push to finish my flat before Christmas, and caned the Black Friday offers. But only three of the seven resultant purchases that were scheduled for delivery have actually made it here so far. A new record of rubbishness.

Coffee machines are harder to use than you expected. Analine leather sofas stain if you sneeze near them. Complete automatic watering systems require add-ons to water completely. Your boiler is already up for a service – and that’ll be £100+ with VAT please.

I feel sometimes like Robinson Crusoe, finally back on the mainland after a long sabbatical away catching fresh fish with his hands and brushing his teeth with a fragrant root. I can confirm 2018 has a lot of gorgeous stuff on offer – but as we all know it comes at a price and doesn’t really solve anything.

Still happy I did it, but pleased I’m mostly buying things that will last.

Once I’m done the hedonic treadmill is going back into storage!

Note: Yes, it’s an expensive coffee machine (though one of the cheaper good ones). I’ve always liked a few quality things in life, I’ve just tended to get them cheaply. I saved about half my income for 20 years, so while the Frugal Police are welcome to give me a caution, keep in mind that I wrote the (racier) pages of the book you’re throwing at me. 😉 And beware Buffett’s Folly.

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Weekend reading: New investing game has Stax of potential

Weekend reading: New investing game has Stax of potential post image

What caught my eye this week.

When my co-blogger The Accumulator told me about a new investing game, Build Your Stax, I was excited.

This educationally-minded simulation features all the asset classes – even individual stocks – and runs over a 20-year period.

A review by Allan Roth made it sound like The Matrix for money nerds:

Players will see high-flying stocks and learn that some may continue to fly while others will crash and burn.

They will encounter bull and bear markets, and learn the emotions and responses that accompany each.

Exciting! Would I be so bowled over I could swap my risky hobby of active investing for the virtual version instead?

Stax includes assets other than just shares, so it promised to be more than just a ‘pin the tail on the riskiest company’ paper money game.

Stacking the deck

Sadly, Stax didn’t live up to my hype.

Because you live through 20 years of market returns so quickly, you don’t really experience the emotional highs and lows of losing even fantasy money, as Roth suggested.

In fact it’s hard to even follow which assets are doing well, beyond a stark profit or loss line.

The individual stocks part is especially silly. There’s no data on the companies, and their prices whirl around seemingly randomly. I accept share moves might look that way if you’re not following companies closely, but whether a company – or its shares – does well is not random over the long-term, it’s related to earnings.1

That said, one neat aspect to Stax is it uses real-world data sequences for its asset classes returns – and it doesn’t tell you what time period you’re living through in advance.

The share prices aren’t really random, then, although they might as well be because you’re given no information about the companies.

More importantly, at the asset class level sometimes (usually!) a simple index fund beats everything. But sometimes you’ll wish you stayed in CDs (basically the US equivalent of our fixed-term savings bonds).

I did beat the computer, but I didn’t feel that proved I was the new Warren Buffett.

Oh, and this screen took the biscuit for me:

I’ll take my chances on a bear market, but I can’t envisage ever letting a marriage imperil my wealth.

For all my moans Build Your Stax is a fun way to spend 20 minutes. Give it a go and let us know what you think in the comments below.

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  1. The reason even those who study companies and their prospects closely can’t beat the index is not because share prices are a lottery. It’s because the market mostly does a good job at figuring out the earning’s outlook for different firms, and what to pay for them in advance. And the reason stock price moves can be described as ‘random walks’ is because the current price supposedly encapsulates all the known information about a company, making the next piece of information – and price move – in theory a crap shoot. []
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How to buy and sell index tracker funds

Previously we’ve run through how to open an online broker account and how to buy and sell ETFs.

Today we’re going to look at purchasing an index tracker fund.

Next stop, the world – muhaha!

[Editor’s note: I think he meant to write ‘Next step, a globally diversified passive portfolio’. Or at least I hope he did.]

What is an index tracker fund?

An index tracker fund is typically an Open Ended Investment Company (OEIC).

In normal-person speak, this means a tracker fund is set-up as a company that you can buy and sell shares of. Index trackers are ‘open-ended’ because the number of shares in the company will rise and fall when investors buy or sell them from the manager of the fund.1

Some tracker funds are still set up as Unit Trusts. This means they are structured as a trust rather than a company, and investors buy and sell units in the trust. Like OEICs these are also ‘open-ended’.

From an everyday investor’s point of view, the two flavours mostly amount to the same thing. We’ll focus on OEICs, which we’ll refer to simply as index funds from here.

Pricing

Before you buy anything it’s important to know how the market works.

Index funds are priced based on the value of their assets using a set formula. Unlike ETFs or shares, there is only once price for an index fund for all buyers and sellers.

This price is calculated once a day, at a set time (called the valuation point).

Index funds are typically traded at the end of the day (called the market close). To trade on a given day, you need to do it before a particular cut-off time.

If you place your order after the cut-off, your trade will go through at the next valuation point.

I’ll trade yer!

First we need to locate the fund we want to trade. We find it by searching for its fund code – a unique letter string given to every fund, which you’ll find on its factsheet – or else we can search by fund manager.

Below we’ve typed in ‘VVFUSI’, which is the code for one of Vanguard’s FTSE All Share trackers:

Here we can see there’s no ‘active’ price for fund. Instead, we’re given the last closing price (as at 1/10/2018).

We’re then taken through to the following confirmation screen:

(Click to enlarge the small print!)

You’ll notice we’re only confirming a total order value for our trade – £1,000 in this example – and no price. As discussed above, an index fund is only priced once a day. We won’t know the exact price we paid until the deal is done.

Because OEICs have a single price there’s no bid-ask spread, unlike with ETFs. Transaction charges are ‘hidden’ within the price. (Unit Trusts do have two prices, like ETFs.)

Aside for geeks: Most index funds use what’s called ‘swing pricing’, where the asset value of the fund is adjusted based on the volume of buyers and sellers to cover transaction charges. Historically, Vanguard used something called a Dilution Levy, which was an upfront transparent charge. This was used to cover trading costs, so that long-term investors weren’t charged for short-term trading. It was terribly misunderstood and Vanguard gave in to pressure and moved to swing pricing.

Most good brokers don’t charge a commission for trading index funds, or they charge a lower commission. This usually makes them cheaper to invest in than ETFs, where dealing fees are typically applied. No fees is a nice benefit for long-term investors looking to keep costs low, especially when you’re starting with small sums. Have a look at the super-duper Monevator Broker Comparison Table to compare charges.

When we’re happy with our order we click the appropriate boxes and send it through. After that it’s just a matter of sitting back and waiting for it to be fulfilled. The buying is done.

As with our ETF purchase in the previous article, we have to wait a while for official settlement of our trade2 but in practice you’re now invested in the fund. Your broker should supply you with a contract note for your records.

That’s it!

Buying and selling index funds is easier than trading ETFs, if only because you don’t have the pressure of a countdown and there’s no need to worry about spreads.

True, you do have to wait to know the exact price you pay with index funds, unlike ETFs.

But for long-term passive investors putting money into broad index funds, that’s no great disadvantage. Price fluctuations on a day-to-day basis are essentially random. We’re growing our investments for decades.

Inspired? If you’re after ideas about what index tracker funds to buy, check out The Accumulator’s overview of low cost index trackers.

Read all The Detail Man’s posts on Monevator, and be sure to check out his own blog at Young FI Guy where he talks about life as a financially free twenty-something.

  1. In contrast, an investment trust is ‘closed-ended’, and has a fixed number of shares that you trade on a stock exchange. []
  2. Usually T+2. See our article on trading ETFs for more details. []
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Weekend reading: The best money and investment reads from around the web post image

What caught my eye this week.

Out of sympathy with those who can take no more of the national pantomime, I decided to run my Brexit-themed introduction as a separate article this week.

(There’s a pretty good conversation developing in the comments, so you might take a look if you only tend to read us via email.)

Fewer than six weeks to Christmas!

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