Duvet day here at Monevator as we update our asset allocation quilt with another year’s worth of returns.

The resulting patchwork reveals the fluctuating fortunes of the major asset classes across a decade, and invites a question…

Could you predict the winners and losers from one year to the next?

Asset allocation quilt 2024

The asset allocation quilt ranks the main equity, bond, and commodity sub-asset classes for each year from 2015 to 2024 from the perspective of a UK investor who puts Great British Pounds (GBP) to work.

We’ve also squeezed in money market funds this year. These can be thought of as cash-like, if not quite as safe as money in the bank.

Here’s what you need to know to read the chart:

• We’ve sourced annual returns from publicly available ETFs that represent each sub-asset class.

• The data is courtesy of justETF – an excellent ETF portfolio building service.

• Returns are nominal1. To obtain real annualised returns, subtract the average UK inflation rate of approximately 3% from the nominal figures quoted in the final column of the chart.

• Returns take into account the Ongoing Charge Figure (OCF), dividends or interest earned, and are reported in pounds.

• Again, these are GBP results. If our numbers differ from yours, check that you’re not looking at USD returns. (It’s either that or our minds have been obliterated from staring too long at the crazy pixel explosion above.) 

Shady business

While our chart may look like the worst pullover pattern ever, it does offer some useful narrative threads.

For starters we can see investing success is not as simple as piling into last year’s winner. The number one asset in one year typically plunges down the rankings the next. A reigning asset class has only once held onto its crown for two consecutive years – broad commodities achieving the feat across 2021 and 2022. 

Long periods of dominance are possible – see US equities. S&P 500 returns have only dropped into the bottom half of the table once in the past decade (in 2022), and stand head and shoulders above the rest in the ten-year return column. If you started investing after the Global Financial Crisis then you have US stocks to thank for the bulk of your growth. 

The danger is such patterns gull us into thinking it will always be thus. Whereas in reality, the asset allocation quilt for, say, 1999 to 2008 would have looked very different. US stocks lost 4% per annum over that ten-year stretch.

I suspect S&P 500 tracker funds were a touch less popular back then!

Indeed, US stocks have fallen behind the rest of the world many times over the last century. 

And credible voices warn we can’t expect US large caps to rule forever. Albeit such commentators simultaneously acknowledge that they cannot predict when regime change may come.

(We’ve written more about this problem and what you might do about it.)

The golden thread

Gold looks attractive as the leading non-equity diversifier in our chart. Its ten-year return of 10.2% is incredible for an asset class that theorists claim has no intrinsic value. 

It’s volatile stuff though. When we first created this asset allocation quilt in 2021, gold’s ten-year return stood at zero after inflation 

I remain personally ambivalent about gold.

If you’re a young accumulator you don’t really need it. However aging wealth-preservers may be grateful for gold’s ability to improve risk-adjusted portfolio returns.

And the yellow metal may mitigate sequence of return risk as part of a portfolio designed to cushion the downside. 

A chequered past

It’s notable how a truly awful few years can completely contaminate our perceptions about an asset class. 

Bond’s ten-year returns were perfectly satisfactory back in 2021. But they have taken a drubbing since.

Now UK government bonds (gilts) look like a liability by the light of the last ten years.

Yet higher bond yields are almost certain to deliver better returns from bonds over the next decade, provided inflation is tamed and the global political outlook doesn’t go from bad to worse. 

Over the long run, ditching a key diversifier like bonds is likely to prove a mistake. Splitting your defensive measures between nominal bonds, index-linked bonds, cash, commodities, and gold does make sense though. 

Getting defensive

A major Monevator theme over the past couple of years has been to improve our coverage of the defensive asset classes – delving deeper into how they work, when they work, and what the risks are. 

Take a look at:

• Why bonds aren’t enough 
• Defensive asset allocations
• Cash versus bonds
• Money market funds
• Inflation hedging
• Is gold a good investment
• Why commodities belong in your portfolio
• Decumulation portfolios: The No Cat Food portfolio and the All-Weather portfolio 

I appreciate that’s a lot of links. But the more you know, the less the disco dance floor of asset returns in our chart above will cause you a headache. 

The colour of money 

The bond crash has caused many investors to simply replace bonds with cash.

We think of cash as an asset class like any other and so we’ve introduced it to the table, using a money market ETF as a proxy. 

More than any other asset class, cash (here our money market ETF) lurks in the lower half of the table. 

That’s no surprise. The job of cash is to be liquid and stable, not to make lurching advances and retreats like the more temperamental asset classes.  

On the ten-year measure, cash looks okay. But over the long-term it’s delivered only about half the return of longer bonds.

Material matters

Commodities have crept up the ten-year rankings every year since we began the asset allocation quilt. Now they’re up to fourth place and stand in line with their expected real return of about 3%. 

Commodities present a fascinating dilemma.

They’re the one asset class that positively thrives when inflation melts bonds and equities. Commodities are also a tremendous diversifier due to their lack of correlation with equities, bonds, and cash.

 But you’ll need testicular fortitude to live with the volatility of raw materials.

Commodities have inflicted losses for five out of the last ten years, but redeemed themselves with spectacular 30%+ gains on three occasions – most critically when inflation lifted off in 2021 and 2022. 

Commodities had a surprisingly quiet year in 2024, delivering a decent 7% return thanks to a late comeback in the final quarter.

Our asset allocation quilt suggests they’re rarely so moderate. Most years you’ll love or loathe them. 

The missing link 

Inflation-linked bonds still make sense despite their desperate showing in 2022.

We’d been warning for years before that mid to long duration UK linker funds were badly flawed. But even our preferred short-duration inflation-linked funds haven’t kept pace with inflation, due to the massive hike in yields that accompanied the 2022 bond rout. 

One solution is to hedge rising prices with individual index-linked gilts which – if bought on today’s positive real yields and held to maturity – will protect your purchasing power against headline inflation. 

We’ve recently written about how to do that: 

• See the Using a rolling linker ladder to hedge unexpected inflation section in our post about deciding whether or not you need such a ladder. 
• How to buy index-linked gilts demystifies how to purchase individual linkers. 
• See our step-by-step guide to constructing your own index-linked gilt ladder if you do want to do it yourself. 

Note that to get ten years worth of returns, our asset allocation quilt currently tracks Xtracker’s Global Inflation-Linked Bond ETF GBP hedged. This is a problematic mid to long duration fund, as discussed!

Stitch in time 

However you weave your response to the challenges of investing, the asset allocation quilt makes it plain that the best way to anticipate the future is to be ready for anything. 

Buy your asset classes on the cheap after they’ve taken a kicking, grit your teeth while they’re down, then reap the reward when their day – or year – comes around again. 

Finally, as uncertainty abounds, let’s be thankful that if you banked on the default position of global equities then you did just fine.

In fact, more than fine over the last decade. That 11.5% annualised return – 8.5% in real terms – is excellent.

Take it steady,

The Accumulator

1. That is to say they are not adjusted for inflation. [↩]

What caught my eye this week.

There’s a mildly titanic battle going on in the beleaguered UK investment trust space.

Everything from the rise of index funds to the 2022 reset in interest rates to steady outflows from all UK equities – not to mention lousy performance in many cases – has left the sector littered with sub-scale funds trading on huge discounts to net assets.

Kicking the boot in were disclosure rules that made often high fees look ever higher. That prompted wealth managers to abandon the sector in fear of fiduciary regulation violations.

But it’s probably the unstoppable might of an S&P 500 tracker fund – or even just a global equities ETF – that has done the most damage.

Why own an old-fashioned investment vehicle with a board of directors and odd assets from all over the place when the simplest ETF has trampled your returns – and with less volatility for good measure?

No wonder even a bluest of the blue chips trust like RIT Capital Partners has traded for as much as 30%-off in recent times.

Or that I’ve been drawn like a moth to this bin fire for multiple Monevator Moguls articles – and with many more to come I’m sure.

My precious

Now if everything I just wrote made no sense to you then (a) congratulations, you’re hopefully a passive investor in cost-effective index funds and (b) you’re part of the problem, from the other perspective.

You see, investment trusts were the original collective vehicles, invented more than 100 years ago to enable everyday investors to get exposure to much wider pools of assets at a far lower cost.

They were the global trackers of their day. But the problem is that the global trackers of the day these days are, well, global trackers.

Even worse, attempts to recalibrate trusts towards more sophisticated investors by offering more exotic exposures have also come a-cropper.

In theory, investment trusts are the perfect vehicles to enable the ownership of more illiquid, unlisted, or esoteric assets, whether that be music royalties, wind farms, or warehouses for the logistics industry.

Investors don’t really need these in their portfolio, but a case can be made for all of them.

Yet they’re about as popular right now as a glass hammer in search of a nail. And as soon as their underlying assets face a problem – such as more competitive yields from government bonds – it seems investors dump these trusts. The discount widens and a potential death spiral begins.

So again, the dispassionate reading is these vehicles have outlived their usefulness. The market is telling us that.

As Brandon Lee said in The Crow: “They’re all dead. They just don’t know it yet.” 

They have a cave troll

Well maybe, but I’m an investing romantic. Where you see a bunch of overpaid fund houses peddling unwanted products to a disinterested market that’s moved on, I hear J.R.R. Tolkien.

One phrase keeps coming to mind from The Lord of the Rings. The ‘last alliance of elves and men’ that united to defeat the dark Lord Sauron, who in Tolkien’s mythology represents brutish and ugly modernity.

And conveniently, in the last year or so we’ve been able to put a face on this fanciful clash. One Mr Boaz Weinstein of Saba Capital, an American hedge fund manager turned supervillain in the UK Investment Trust Cinematic Universe for his attempts to roll-up and extinguish seven of their number.

Weinstein is – conveniently for scriptwriters – a brash American, who dubbed his targets The Miserable Seven amongst much else. It’s fair to say both the press and the trust industry returned fire in kind.

Critics point out that Weinstein can see what many of us can see – that trusts trading at big discounts to their net assets are pregnant with value – only he wants to unlock it more for himself and his wider business aims.

Ironically, such discounted value has always been underwritten in investment trust lore by the potential of an activist to come along and liquidate a fund to release it, even if the possibility might often have seemed more theoretical than red in tooth and claw.

Yet now that Weinstein has set about doing it at scale, it’s a different story.

To quote another suitably-geriatric screen legend: “They don’t like it up them Mr Mainwaring.”

All that is gold does not glitter

I see and acknowledge everything above.

But as I said, unlike my purely passive co-blogger The Accumulator I’m an investing romantic.

And so I mentally punched the air this week when the first of these seven battles was resolved – with shareholders voting overwhelmingly to reject Saba’s takeover of the Herald Investment Trust.

A whopping 65% votes went against the hedge fund manager. Exclude Saba’s own 35% stake and just 0.15% of shareholders sided with the enemy at the gates.

A last alliance of fund managers and ordinary investors indeed. Hargreaves Lansdown – which, like other platforms, has publicised and facilitated the votes – said such engagement was ‘unprecedented’.

This, my friends, is the shareholder democracy that some say is being destroyed by passive investing. Active funds that (ideally) strive to allocate money towards the best prospects, and engaged shareholders who (you’d hope) care how and where their money is invested and managed.

Even the very wise cannot see all ends

Of course the Monevator house view is that most of us shouldn’t bother with any of this active malarkey.

That’s because index funds can more cheaply hitchhike on the price-discovery efforts of active managers – or parasitically exploit them, if you prefer – and active investing is a zero sum game.

The result is the average investing pound will do better in an index fund than in an active fund. Any big picture consequences are moot when it comes to growing your own wealth.

As for engaged shareholders, long-time readers may recall the research that claimed it was the investors who checked their portfolios the least who saw the biggest gains – with the actually-dead doing best of all.

This house view hasn’t changed. I’m having fun on Moguls with some like-minded souls, but as our motto says Moguls is not for everyone. Me and TA overwhelmingly believe that until proven otherwise, passive investing will be the best approach for the vast majority of individuals. There may eventually be issues if everyone invests passively, but game theory says until then do what’s best for you.

And so this resistance to the supposed barbarian at the gate of the trust realm may really be a last alliance. A generation of likely older fuddy-duddies getting uppity about someone coming for their trusts – before the sector is flattened anyway by the inevitable victory of ETFs and index trackers.

Why fight it? They’re all doomed.

Well, maybe. But I’m an investing romantic and I was rooting for Gandalf and the gang outside the gates of Mordor. There’s room for everyone, and I’d miss these trusts were they to disappear.

One battle down. Six to go!

Have a great weekend.

[continue reading…]

Most of the original financial independence blogs have long gone the way of final salary pension schemes. But stalwart Monevator commenter Ermine’s Simple Living in Somerset has been standing strong since 2010 – albeit with cross-country and domain name moves – and so is nearly as ancient as we are. Known for his iconoclastic views on property, compound interest, and retirement, and for his inimitable rants at modernity, I’m delighted to have Ermine pull up a chair to give us the bigger picture.

A place by the FIRE

Hello! How do you feel about taking stock of your financial life today?

Odd one out! I started very late. No Slow And Steady progression here. And there’s little learning value in this tale, because it’s from half a working lifetime ago.

My story begins in 2009, when I saw a bat signal go up over the smoking wreckage of the Global Financial Crisis (GFC).

How old are you?

When I started the journey 15 years ago I was in my very late forties, so you guys can do the maths! Mrs Ermine is ten years younger, and is of independent means in her own right. I speak solely on my behalf and on my numbers. Not as a couple.

We’ve been married for nearly 13 years, though we were together a little before then.

Do you have any dependents?

No, child-free by choice. Both sets of parents have passed.

Where do you live and what’s it like there?

In a town in rural Somerset. The nearest city is Bristol. We were drawn westwards by the closer proximity to the hills and prehistoric sites of the west. Plus it is easier to join the motorway network from here than it was in Suffolk. This matters when you are retired. Travel is often a larger part of what you do.

Housing is cheaper than where there are well-paid jobs. Though Londoners do seem to get out and they are lifting prices – as well as improving the restaurants!

When do you consider you achieved Financial Independence and why?

Technically in 2012, but it was a fragile FI.

My job went bad as a result of HR consultants targeting older employees to save money. Yet I had more than 10 years to bridge from when I started in 2009 to my being able to draw the company pension.

It took me three years to get out. Looking back, if I were air traffic control I would not clear my younger self for take off. But hindsight shows that while you wouldn’t file the flight plan, tailwinds came my way.

Low stock market valuations in the GFC helped. Then in 2016 Osborne changed the pension regime so you could take a SIPP at 55 without buying an annuity. That meant I could convert defined contribution (DC) AVC1 pension savings into a SIPP and burn that to the ground – mainly under the personal allowance – over eight years, preserving my defined benefit (DB) pension.

Like this the DB pension was reduced by the fewer years accrued but not through drawing early.

Combining my redundancy, the profits from a maxed-out Sharesave 2009, and the SIPP, I was able to fully fund my ISA across the gap to the DB pension and to live off the non-ISA funds over seven years.

Why did you retire?

In 2009 the GFC was in full swing. American consultants were engaged to reduce costs. They installed a new broom at the top. My own boss said my utilisation was down after a project was canned. He threatened me with moving me to the bench and a performance improvement plan (PIP)2. I applied for other internal jobs, but hardly anything was happening due to the credit crunch.

Late in March 2009, two weeks after I saw that bat signal, my boss called me in and said he was putting me on a PIP. I figured I had a year maybe before they could force me out.

Using salary sacrifice into AVCs as a higher-rate taxpayer, for every £58 net I gave up I’d accumulate £100. Most retail investors were scared witless by the stock market during the GFC. But I figured that I could eat a lot of loss if 42% were underwritten by HMRC.

I filled 2008/9’s ISA – split cash and shares – and told the company to salary sacrifice a significant lump of the salary before the tax year-end. And then to do the same in the next tax year.

This must have all been a tremendous mindset shift?

Well, once that boss showed me I was out of options I saw that I was a supplicant. It was about power, and I wanted out of the trap. Financial Independence (FI) and Retiring Early (RE) would free me.

I could not un-see the worm at the bottom of the glass I’d ignored all my working life – first through necessity, then through complacency. If you need to work you are owned.

How did this go down at the office?

I passed through another six months of intimidation. Then three months off sick with stress.

I recall a phone call at home from one odious higher punk who started off telling me times were hard, but he had a great offer for me.

Three month’s gardening leave – no redundancy.

I asked him clearly: “Are you threatening me?”

He concluded the call and I never heard from him again.

I got a telephone recording coil soon after. Things like that should be taken down in evidence and used against this sort of lowlife. Apparently it’s called constructive dismissal. 

Then the internal job I had applied for using a legacy skill for back of house video networks for the London 2012 Olympics came through. My ex-boss tried to hide it so he could hang my pelt to his score of people offed, but that division had money and they went up the chain to override him.

I was shepherded and shielded from the intimidatory Success Factors performance management system by two line managers who needed their project delivered on time. I saved them a lot of money from errors and price gouging. On my last day I was in London resolving a problematic optical trunk.

How did the shift affect your lifestyle outside of work?

I effectively left the middle class soon after that meeting with my boss in 2009. I lived on a little over minimum wage, decanting the rest of my gross salary into AVCs, my Employees Savings Investment Plan (ESIP), and net into Sharesave.

The power of a desperate old git on a decent wedge saving full bore should not be discounted. The depths of winter sometimes hold an invincible summer if you look hard enough.

I’d lost a lot to negative equity buying my first house at the 1989/90 market high. Where most generally consider houses a money tree, I see a Hellmouth that devours every third generation’s leveraged dreams. I wanted free of leverage before the Hellmouth opened again, and so I paid down my mortgage to all but £1,000 – 20 years after stupidly signing for my first.

Living on a shade over minimum wage is a lot easier when you’re paying just £5 a month as a mortgage. After that, nobody was going to foreclose me like I saw happen to neighbours in the 1990s. 

How did Mrs Ermine’s financial independence affect your own decision to get out?

It didn’t at all because it wasn’t the case in 2009. It took her until just after the pandemic to get there…

Assets: Perma frosty

What is your current net worth?

My investible assets are a bit shy of £1m, to which could be added the net present value of the income flow of my DB pension, which would take it over £1m if rated at 16x the net annual payout. (This is how HMRC used to qualify the lifetime allowance.)

What makes up your net worth? Any mortgages?

No debt or mortgages. I pay my credit cards in full as they fall due.

As for assets:

• ISA: Approximately £400,000 spread over three accounts
• General Investing Account (GIA): £300,000
• SIPP: £5,000
• Premium bonds: £50,000
• Index-linked Saving Certificates: £20,000
• Cash, various accounts: Over £200,000

Some of my cash is deposited via Mrs Ermine since she doesn’t pay tax on cash interest. The deal is she takes the interest and spends it on spas and nice things and I get to access the cash should I need it – perhaps on the A.I. crash that’s yet to come!

I’ve tried to shift to a Permanent Portfolio spread of assets. That means far too much cash, in my view. But valuations are high – and Harry Browne3 would still give me stick for my over-heavy equity allocation.

My GIA holds a lot of gold in ETF form.

I hold no bonds because I view the DB pension as very bond-like. My bond allocation is in the Permanent Portfolio ballpark if my pension is valued at 16x net.

What’s your main residence like?

Three-bed detached house, owned outright. I’ve heard too much of other people’s kids and dogs and TVs through party walls, and Mrs Ermine wanted more garden.

Do you consider your home an asset, an investment, or something else?

After my rotten experience early in life with residential property, I consider it neither an asset nor investment. And it does not appear in my listing of net worth, because I have seen property value disappear like summer rain.

My home has use value but I am not clever enough to tally it in financial terms. 

Earning: Salaryman

What was your old job?

Technician, BBC studio engineer, Electronics research engineer, software design, optical transmission network design, leading an international research team – that sort of thing.

I switched companies in my twenties to go up the value chain. Internal promotions after that.

What was your annual income?

The Bank of England inflation calculator tells me it was about £70,000 in today’s money. 

How did your career and salary progress over the years?

I earned about three times as much in real terms at the end of my career relative to my first real job.

Why did you not change job in 2009?

Ah, you confident young high-flyer, you! There weren’t equivalent paying jobs nearby at that time. I would have had to go to London or Cambridge. Or eat a significant loss in salary.

Your options close down at nearly-50. Also the GFC was a terrible time to look for a job because money had seized up.

Once I had taken the first nervous breakdown the die was cast. Long empty days when nothing works, nothing makes sense, there is no point. You fall back for weeks and hope the fire restarts.

I retained some intellectual capacity but I struggled to maintain drive. Once the mainspring is broken, it can never be made whole against the cause of the break. You can patch it up, and it sorta works. Then it flashes over in erratic ways reminiscent of the original issue.

All this limited my employment options. Also, I remembered what happened so some of my colleagues in that age group. I was better off flinging my residual resources to become free of the hamster wheel than jumping to a slower one where freedom would be further away.

I declined part-time for the same reason.

Did you learn anything about growing your career and income you wished you’d known earlier?

Again, I was never one of your high-flyers. Most salary wins come from changing firms. I didn’t do that after 30, though I rose a few levels up the greasy pole. 

Do you have any sources of income besides your main job?

I had a small multimedia operation that did web design, when there was money to be made in that. Pin money – something to learn the ropes.

Why did you never go into contracting?

I’ve been a full-time employee all my working life. I’m an introvert who hates hustle. I didn’t know how, and I didn’t want to do it.

Many people make a success of contracting and good luck to them. It’s not me. And it still suffers from the worm of the power balance in a different way. I would still be selling my time for money.

Did pursuing FIRE get in the way of your career?

I guess it drew it short – that’s retiring early for you! But I was burned out anyway.

Saving: Just don’t do debt

What is your annual spending? How has this changed over time?

Mine is probably £30,000, including half the bills. It’s up of late. People near to me have had health challenges so it has been a spendy year as a result.

Spending rose when the floor of the DB pension came online. Before that there was a splurge on the house move, which I write-off. The leanest years were 2009 to 2016.

Do you stick to a budget or otherwise structure your spending?

No. The ‘don’t borrow money’ principle was good enough while I was earning. If you’re borrowing then you’re overspending. Simples.

From 1998 I used the software Quicken to add my numbers up. I looked in the rear view mirror every month. Was my net worth falling or growing? I tried to adjust course as I went along to stop it falling.

That was okay when I didn’t hold investments, but the variation in market valuations would turn that into insane noise month to month. 

What percentage of your gross income did you save over the years?

Not much until I decided I wanted to retire early, quickly. Then it shot up to 60-70% depending on how you compute salary sacrifice.

I also have the defined benefit pension which is deferred pay. So there is an argument I was saving from when I was 29.

I’m living proof that the old saw about Sensible Susan who saves from 21 to 30 and then stops to let compounding carry her to 65 is not universal. She does not beat out all Johnny-Come-Latelys.

What’s the secret to saving more money?

Two rules, inherited from my parents. Don’t borrow money other than for a house. And when I replace a car, I start saving for the next one, in a savings account. I’ve never bought a new car. I buy them cash and run them a long time.

Also, you must want freedom more than you want the consumer doodads, holidays, and services you give up to get it. Start with Wilkins Micawber

At the bottom end, earning more is probably the way. But I started on the FI/RE track when my earning power was fairly well-defined.

Do you have any hints about spending less?

Don’t live in London unless you earn loadsamoney. I grew up in London and went to university and began work there. I had a decent career progression but it didn’t compound due to the high cost of living.

London’s a great place to be young in, but some of the attraction palled as I got older. I recall one fateful late-1980’s lunchtime in the BBC Broadcasting House bar. Surrounded by people yammering on about how much their houses had gone up, I sank pints of ESB, trying to drown out knowing that in the evening I was going to get on my bike and cycle along the Westway and then up to Hanger Lane to go back to my rented Ealing bedsit with a Belling-Lee pie heater and a meter that ate 50p coins.

I started looking for work outside London the next day.

Nowadays spending less means getting the attention economy out of your face. Don’t view the world mainly through a smartphone screen.

Also, if a great idea involving you spending money comes to you unsolicited, bin it. Doubly so if it is an investment idea. If you didn’t seek it out then you can live without it.

How has your spending and saving changed in retirement?

Someone who runs across a bridge that falls behind them never yearns to run back over it.

In the early years after retiring, I earned sporadically. About £15,000 over seven years.

I did not trust these earnings. All I did was either invest it or give it away so that it would not trap me into working. If I was going to throw my lot in with ratty intermittent income then it’d be in the stock market.

For me FI without RE is valueless. All of us are running out of time 24 hours every day. I can think of better ways to use those hours than working.

In Healing the Soul through Creativity, Jungian writer David Rosen postulates that in times of a crisis the impasse can be resolved by ‘egocide’. That is, destroying the old form of the persona – part of the ego that presents its face to the world – that no longer serves, or is maladaptive to the changed situation.

I’ve seen many people retire from professional jobs, only to suffer a loss of identity and meaning. I was spared this existential crisis because I surrendered my work persona in 30 minutes with my boss in 2009.

In my 40s I saw some colleagues in their late 40s and 50s manifest stress in cardiovascular problems. Strokes, heart attacks. These people looked fit to me – runners, cyclists and walkers. By my early-50s I’d already stood by several little mounds of earth summing up the life and times of a colleague.

It seems men4 lose resilience to stress in that final decade before retirement.

You can’t buy health – or maybe I did by getting out of the workforce ahead of time.

I’d put on a lot of weight through stress and excessive drinking. As an early retiree I shook that off. I’m not yet the weight I was at 21 but I’ve covered three quarters of the distance!

Any other tips on a successful transition?

We had a community farm at the time – a passion of Mrs Ermine’s. I gained a non-financial return because I was doing things with other people.

That softened the transition from work. For men work can be a large part of their social life.

Having said that I’m going to Suffolk to celebrate one colleague’s 70th and then to drink beer with some other guys from work. It doesn’t all have to disappear, but it will probably thin out.

Do you have any passions or hobbies or vices that eat up your income?

Photography and tools – what is now called ‘maker’ stuff.

A camper van to see interesting and out of the way places.

I guess travel should be added. But I’ve done much less international travel than my working self foresaw as I’ve grown to detest the increasing aggravation of air travel.

FIRE dreams are made of this: Callanish Stones on the Isle of Lewis, by Ermine.

Investing: Actively passive

What kind of investor are you?

In the Dotcom boom and bust I was the classic active retail muppet that Pete Comley talks about in Monkey With a Pin. I burned about £7,000 – £13,000 in today’s money – perpetrating every stupid mistake you can make and then some. Churn, chasing momentum, technical analysis, the lot.

In hindsight I was too emotionally invested in the result. Concentrating on what I wanted and not listening to the song the market sang. I was looking for a way to get out from under the negative equity in my mortgage. And I had a tendency to overthink things that persists today. 

The gap between the Dotcom bust and 2009 helped me gain perspective. I brought my mortgage down by overpaying the residential property Hellmouth until it was sated.

When the student is ready the master appears. I came across The Investor, the investing ju-jitsu tutor that is our host here. He was more useful to me in the early days when he dared talk active investing. Sometimes I just read between the lines and used Monevator as a tip sheet which the small print explicitly tells you not to do. (I am Ermine, I answer to none, not even TI!)

This gradually piloted my embryonic ISA through the GFC wreckage, at that time focusing of getting income because that was what I was trying to replace.

I worked out that my AVCs should be as global as possible. For me that was a 50-50 split between Global and the FTSE 100. As opposed to 100% FTSE100 or money market funds, the other options.

So you were making tactical allocations decisions?

Yes, and I stayed unashamedly active in the early days. I was too old and too poor to get from there to here any other way. Having said that, part of the reason my job went bad was the GFC, which improved valuations. That was pure situational luck, for good and bad.

The post-GFC lift was very kind to neophyte investors because of the benign starting valuations. But as the market stabilised, it got more boring. I read Lars and he gave me a decent place to park equity funds, so I am also a passive investor. I retained the high yield portfolio – but didn’t add more – as income was important to me.

Retail investors must keep the faith. If you jump on a fast horse that you can’t stay on, it will not end well.

Ten years later I was faced with a mortal threat – Covid – which was a higher risk for my age group. The economic clouds darkened as fear possessed the world, and I shorted parts of my ISA, then letting go as it started to race back faster than any bear market I’ve seen. I was eventually buying VWRL in the GIA opened with the proceeds.

That all helped me catch up with VWRL on the networth chart below

Everyone says that market timing does not work but it served me twice. Of course you should not infer the general from the particular. It could be pure luck.

The problem with timing is that the only measurable signal is valuation, but you must listen to sentiment too, without losing yourself to it.

The opportunities are rare. The vast majority of the time, you are best sitting in a global ETF like VWRL. If you can follow TA and Do Not F’ing Sell when all around you are losing their heads, you will generally be all right in three to five years’ time.

Provided you don’t become a forced seller. For example, if you lose your job. My GFC experience shows there is a positive correlation between the market and job security. In a crash they fall together.

I don’t think we’ve had anyone explicitly sing the praises of market timing before.

Through experience I’ve learned that I had zero company selection advantage. I am a retail schmo who has never worked in finance.

But I learned to listen to the heartbeat of the market. The Investor gently taught us that by sharing his thinking – and the uncertainty in it, something finance pundits very rarely do.

I learned the sound of collective capitulation in the GFC. I was a dispassionate observer with what I thought was a stable job, and no skin in the game. That helped me to hear – sort of – when to short Covid and when to stop. And my ISA built up in the bull run removed some of the emotion from shorting by being a counterweight.

In theory if you short assets you own, you lock the price in. I had participated in the collective capitulation of the Dotcom crash so I knew what it felt like. But the bat signal showed me how to think differently about a crash. You can’t fight that feeling but you can choose your reaction to it. Run towards fire.

As Warren Buffet said, the “economic clouds darken and the skies rain gold” only for fleeting weeks or months, about every ten years. I have only got one self-defined timing strike at that to my name. It could be sheer luck. There are only one and a half data points5. Most of the time I hold and let capitalism do its work. 

As I say, I’ve shifted away from 100% equities towards Harry Browne’s Permanent Portfolio multi-asset spread. Another truism from Warren Buffett about the bright sparks behind LTCM: “But to make money they didn’t have and didn’t need, they risked what they did have and did need.”

I am not a multigenerational endowment fund. De-risk when you have enough. You will give up return, but you will sleep easier. 

What was your best investment?

Buying gold in stages before 2016, on the principle that Brits would not commit economic hara-kiri by voting Brexit but if they did I wanted to preserve GBP assets until I could work out which way was up. And then buying more before the recent run-up to try to get to Harry Browne’s Permanent Portfolio split.

That was again situational luck not skill. I was diversifying as I had reached enough, and US valuations give me the creeps. I’ve already been through one tech ‘it’s all different now’ in the Dotcom bust.

In terms of pounds gained, it would be buying the Vanguard World Tracker ETF (ticker: VWRL) across many years. I’ve never sold it other than in the GIA, swapping for HSBC’s HMWO equivalent to harvest capital gains6.

Shorting bits of my ISA in Covid gave me a valuable lift to catch up with VWRL on the net worth chart despite my spending over seven years. But there’s no one investment associated with that.

Any notable mistakes?

I thought the US was overvalued coming out the GFC. It was but it was also exceptional, so I gave up some return. Luckily the GFC was broad and deep enough that you didn’t have to be right with what you bought, you just had to make yourself buy. I’ve course corrected the ISA into VWRL as time has passed. 

I made lots of mistakes in the Dotcom boom and bust but apprentices must pay their dues.

Buying a house in 1990 was the biggest financial fail of my life. It blighted a decade

What has been your overall return, as best you can tell?

Below is my net worth chart from Excel:

The chart shows my inflation-adjusted net worth7 – blue line – rescaled to 2023 and normalised to ‘1.0’ in 2023.

This includes my spending across the seven years when I had virtually no income from earnings.

The run up from 2009 shows the power of Saving Hard as well as investment gain. The fillip in 2012 was the redundancy money, and Sharesave coming onto my books.

The other two lines are also inflation-adjusted.

Yellow is what would have happened if I’d taken all I had in cash and flung it all into VWRL in 2012 when I left work and sat on it, living on the dividends and thin air.

Green is where I’d be if I stuffed all the 2012 net worth into cash under the mattress on retirement and slept on it, spending nothing. 

A lot of my GFC gain was in my AVC/SIPP, which I ran down between 2012 and 2019. This is all gone now. But it contributed to my ongoing net worth, as part of it went into the ISA. 

So I can’t tell you the overall return – hence the indirect net worth approach. This rolls all of the gains up, depreciated by my spending when I wasn’t earning from 2012-2019. And income returned from end November 2019 when I started drawing my DB pension, which roughly balances my spending. 

It’s sampled every year at the end of March to be close to the end of the tax year. Nominal net worth is derived from Quicken which marks investments to market about every two weeks. VWRL is not total return, though you can’t live or die on its 1.5% yield. Some net worth went off my books moving from a semi to a detached house in 2017. I do not have a line for house value, so my part of the difference will appear as a net worth loss. That’s easily enough to wipe out about £15,000 earned in total between leaving work and drawing the pension.

Note I inherited some money after the Covid short. This and any gifts I made from it have been excluded from the chart. It is included in the assets above, less the outgoing gifts. It’s a notable change but doesn’t dominate the total, which is mainly the fossil record of my human capital, amplified by the market after it faded to zero in 2012.

The catchup is partly shorting in Covid, but mostly drawing my DB pension from late-2019 stopped my spending denting returns.

We should remember that this is a bull run very long in the tooth. Not all of this is real.

How much are you able to fill your ISA and pension contributions?

Fully, since 2009 – ISA and SIPP via AVCs. It’s easier now to fill a SIPP as a non-earner when you can only put in £3,600 a year.

To what extent did tax incentives and shelters influence your strategy?

They dominated until 2019. I still use them fully and will do for several years hence. I have a much shorter run due to the late start.

How often do you check or tweak your portfolio or other investments?

I automatically download stock prices and update Quicken, say once every two weeks, and only look at the change in net worth.

I change things with events – Reeves’ reversal of the tax wisdom of income in the ISA and cap gain in the GIA caused shuffling between ISA and GIA.

Wealth: Managing with money

How have you kept hold of so much money?

Spend less than you earn! For most of my career my plan was quite pedestrian. Work until 60 and retire in the normal way. Then in 2009 I had to grab hold of the big red ejector handle and pull that sucker.

On retiring I’d earned all the money I would ever earn. It was uncomfortable in my 50s to slowly surrender net worth over years. You see that suck-out in the net worth graph. I had the benefit of the lift out of the GFC but that starts to fade after 2015.

I did not know what the future held and hindsight shows I underspent. Perhaps by a lot. But I won back eight years of my life that I didn’t watch the world go by through the office window.

Free time is the ultimate consumer good. They’re not making any more of it for you. I saw ancient stones, played, and learned. Those things you planned as to do as a kid when you grew up – before you signed up for a job and a 25-year mortgage to make sure you stayed there.

Which is more important, saving or investing, and why?

Initially, saving. Three years from a standing start to outta there makes compounding irrelevant. You need ten to 20 years accumulation for compounding to show.

I do see it now, after 15 years. It’s one reason why in real terms my net worth hasn’t reached the inflection point of starting to turn down.

Was financial freedom a goal with a timeline?

I saw I had three years to clear the workplace. If I could have done it in one or two years I’d have gone for it. I sliced and diced Excel spreadsheets every which way but I could never bring that number down.

Eventually I had to take my chance. 2012 was the year partly due to how much more workplace I could stand, and partly the natural cutoff of the last project.

Did anything get in your way?

The GFC. Its winter face was the shattering of my career. But the summer face was the broad reduction in valuations – a benign environment for me to re-enter the fray with a pilot leading the way while I shook out some of my excess muppetry left over from the Dotcom days.

Are you still growing your pot?

I’ve never drawn from the ISA. I front-ran it with the old AVCs as a SIPP, and drew the DB pension six months shy of the normal retirement age of 60 when the SIPP ran out.

Then pandemic hit. The DB pension covered my needs and wants in the pandemic, and a while after.

I shorted some of my ISA, but I left much of the ISA itself to its own devices. Most of it came good. I built up a GIA balance with the cash from shorting.

Some time after that I inherited some money from my mother. (It did not involve paying inheritance tax!) I gave half of it away to improve a rotten situation for someone and since then I have used more to improve people’s lives a bit. I didn’t need it – by then it was reasonably clear I was FI.

The residual amount leftover increased my risk tolerance. It’s one reason why I have twice the amount of equity allocation at today’s nosebleed valuations than the PP dictates.

Do you have any further financial goals?

I’d like to clear £1m in investible assets!

On spending I just about clear the 4% safe withdrawal rate (SWR), ignoring both the DB pension and the State pension, which is still a while off. I’m probably FI with the pensions providing a floor

I’m not looking to hit it out of the park. My lease on life is well past its halfway point. I’m lucky enough to have good health, but I have seen infirmity steal other lives. So I want to appreciate having enough and to share some of the good fortune.

What would you say to Monevator readers pursuing financial freedom?

The halfway part of the journey is the toughest. So much resource committed, not much to show for it.

Keep on keeping on – but moderation in all things. You’re only young once, and the things you regret when you look back are often the things you didn’t do.

Life is a dance between opportunity and threat. If you’re going to YOLO every day or borrow more and more money then you’re probably overspending. But if you’re stuck in your counting house not going out with your mates then perhaps look for more balance.

In general financial freedom is a marathon, though in my case it was a sprint.

In the weeds

When did you first start thinking seriously about money and investing?

Late in life. I thought I’d got it about right: I worked to live, not lived to work.

I was okay with what I was doing and pursued interests outside work. (Though a project with an ex-girlfriend took us touring the States for a while, and the problems of not having enough holiday leave started to make itself felt.)

I was an average guy in a reasonable paying job with a decent work-life balance. I dallied with the market in the run-up to the Dotcom crash, making all the usual mistakes. The education was cheap, there are some things you cannot learn any other way. I packed it in after that – other than doing Sharesave.

Then some unknown pundit quoth thusly, “If not now, when” and two weeks later I found my back against the wall and figured it was worth a long shot

Did any particular individuals inspire you to become financially free?

Two, in quick succession.

One was that ex-boss with the PIP – ably abetted by the odious gardening leave git.

The other was your good self, keying up your dark transmission over the wreckage of the GFC.

I heard “if not now, when?” and decided in 30 minutes it was now.

Can you recommend your favourite resources for anyone chasing FIRE?

Other than Monevator, I can’t think of any. Many of the ones I followed have gone. I started my journey half a working lifetime ago.

Post-GFC, FIRE aspirants believed we could achieve FIRE by saving hard through frugality and investing into the stock market at valuations that could support a 5% SWR.

But today’s market is not that gentle one blowing wind beneath our wings. The frugalistas were run out of town as SWRs dropped with valuations drifting up.

FatFIRE became the in-thing, because fewer ordinary folk could take the falling SWRs.

What is your attitude towards charity and inheritance?

Be no King Tut. Don’t be buried with your gold. You really can’t take it with you.

Give the money to people that matter to you while you are still alive. It also helps with IHT, plus you get to see it in action.

One caveat: give without let or hindrance. If you don’t want to see it spaffed away then choose the character of your recipients well. Then let them live by the light of their own lamps.

What will your finances ideally look like towards the end of your life?

I’m older than some of your FIRE-Side subjects but I haven’t given this much thought.

Yes, I will live higher on the hog. I will monitor the net worth chart. I’m not averse to throwing it over the wall to an adviser at a later stage.

An age gap means I would expect Mrs Ermine to inherit anything left over. That makes this easier for me.

At the end of your life when you look back it won’t about the money you made or lost but about the people whose lives you touched.

Despite how much we differ on key fundamentals – property as an asset, the wisdom of fully retiring, the utility of compounding – I always learn from Ermine’s writing and this interview was no different. Long may it continue! Please add your thoughts in the comments. Remember that while Ermine is more battle-hardened than most of our FIRE-side chatters, baring your life takes guts and so please keep your feedback constructive. Personal attacks of any sort will be deleted. Read our other FIRE case studies.

1. Additional Voluntary Contributions – AVCs – were DC pension savings associated with a defined benefit scheme. Readers can safely translate this as SIPP. There are some details that only make sense in connection with a DB scheme but I did not use that facility. Salary sacrificing into this meant that even for basic rate tax I got £100 for every £68 I gave up – a still useful gain of 47%. [↩]
2. I have since learned that this is a standard modus operandi for professional service firms trying to constructively dismiss or kick people out without paying redundancy. But it was new to me. [↩]
3. Harry Brown came up with the Permanent Portfolio. [↩]
4. I worked in an engineering facility, these tended to skew very heavily male. [↩]
5. The GFC is the first data point but only counts half because I happened to start there, I did not choose the time of battle. But I did start investing [↩]
6. I did functionally short VWRL in Covid using an index as a proxy. Purists may regard that as selling. I’ve sold it and HMWO in the GIA to re-buy VWRL in the ISA but that’s no net change. [↩]
7. Inflation adjustment uses data from the Bank of England inflation calculator. I asked it what would £10 in any given year cost in 2023. I then modify my net worth value number for that year by the appropriate Bank of England figure to reference it to 2023. [↩]