It’s been nearly three years since I last talked about financial independence (FI). I’ve been keeping my head down because The Investor threatened to send the boys round to give me a lesson in volatility if I missed another Monevator: The Book deadline.

I was three years into a ten-year FI journey and feeling the pain. The launch party excitement lay in the past. The reality had become an endless trudge through mental Siberia.

Much has changed

I passed the halfway point on my calendar in 2018. I passed the halfway point on the spreadsheet in 2017.

Now I’m three-quarters done. That changes a man.

The FI dream feels real. The way ahead looks like a downward glide. Is it me, or are those milestones spaced a little closer together now?

I can report that:

• Passive investing works.
• Setting big, hairy, audacious goals works.
• Saving a massive proportion of your income works.
• Ditching consumerism works.

The mechanics work. The rest is down to the human.

Nothing succeeds like success

Now I can sense freedom on the wind, I’m as happy as a Bisto Kid floating on gravy.

I’ve stopped worrying about the process. Frugal living is not a chore anymore. Mrs Accumulator and I have absorbed it into our systems like friendly bacteria.

But we’ve also lowered our optimisation guns. We weren’t going to last ten years – much less the rest of our lives – if we pinched every penny.

We planned on a £20,000 per year FI income back in 2013, when we first tried on our FIRE suits.

That amounts to £22,515 in 2018 according to the Bank Of England’s inflation calculator.

But we’re banking on £25,000 per year now. We’ve loosened our belts a notch to allow for a slightly fatter FIRE.

Playing with the numbers

We got another boost through ongoing financial education. The original plan called for a stash of £666,000 to declare FI at a 3% SWR (Sustainable Withdrawal Rate).

The standard 4% rule was and is too risky. But there are techniques to help you manage a higher SWR without inviting disaster.

It’s not a free lunch. They may mean you have to cut spending during rocky periods. You will have to run a more flexible and challenging deaccumulation strategy. I’ll go into more detail in future posts but the pioneering book Living Off Your Money shows you one way to go about it.

The knowledge upgrade means I think a 4% SWR should work for us. Especially as I previously left the State Pension out of our plan. As my free bus pass draws ever closer, it’s probably time to stop overlooking what is likely to be our most reliable source of future income.

Here’s the maths:

Divide £25,000 FI income by 4% SWR
Our stash requirement = £625,000

So that explains how those milestones moved closer together. I converted them to kilometres part way through!

I haven’t spent all my time cooking the books. We originally aimed for a 67% savings rate. We’ve actually nudged over 70% every year, bar a 60% blow-out in 2015.

This. Is. Doable.

Snag party

Our savings have mostly gone into pensions. Problematic!

Our 40s are waning and at this rate we will be theoretically FI – but marooned from our assets for a few years. Diverting new funds to go into ISAs will bridge the gap but also muller our savings rate, so we could still be half a decade from journey’s end at this point.

I’m also finding time to peel back more onion layers from my neuroticism.

What if FI isn’t for me? What if it’s a mirage? What if I find a new laundry list of things to be unhappy about? Except this time they won’t be external problems like getting up on a Monday – rather a bestiary of personal demons like loss of purpose, identity and structure.

The upside of FI is that I’m less worried about a financial deluge sweeping us away. We can’t defend against every risk but at least these days we live in a house on stilts.

The downside is that now I’ve freed up that brainspace, it’s as if I’ve nipped down to the anxiety exchange to see what other troubles are available.

I think the answer here is working on one’s self. The great thing about the FI journey is that it causes you to reexamine everything about your life.

I’ve mostly been trying to find out what really matters to me through books.

Here’s a few I’ve found helpful.

Being a better version of yourself

Man’s Search For Meaning – Viktor Frankl
An incredible book on how to live. Frankl’s insights are powered by his experience as a psychiatrist and Holocaust survivor.

The Road To Character – David Brooks
Case studies of inspiring figures who lived before the Age of Celebrity. Brooks’ thesis is that even the ‘greats’ are not the finished article out of the box. We can become better versions of ourselves as we learn to give more of ourselves.

Meditations – Marcus Aurelius
Wisdom from the most powerful man in the world – in 161AD. The Roman Emperor’s insight stands the test of time nearly 2,000 years later.

Hope for the future

Healthy At 100 – John Robbins
Why old age doesn’t have to mean decrepitude. Inspiring lessons from the Blue Zones: remote communities that seemingly enjoy better health than the West, and whose members often live vigorous, purposeful lives well into their 90s or even 100s.

The Better Angels Of Our Nature – Steven Pinker
The case against the ‘World is going to hell in a handcart’ brigade.

The Righteous Mind – Jonathan Haidt
Why does our society seem so hopelessly split? Can we heal the divisions and build greater tolerance for those who disagree with us?

Staying on course

Midlife – Kieran Setiya
Combating the midlife blues.

The Antidote – Oliver Burkeman
Ya, boo to ‘don’t worry, be happy’ positive thinking. Embrace uncertainty and insecurity with this secular mash-up of Buddhism and Stoicism.

Status Anxiety – Alain de Botton
Advice on resisting the dessert trolley of consumerism.

If this reading list is anything to go by, we’ve known the secret of flourishing for two thousand years. It’s just we’re spectacularly ill-adapted to acting on it.

I’m working on rewiring myself as best I can. I’d love to know if you are too.

Take it steady,

The Accumulator

What caught my eye this week.

I first came across Marie Kondo when a friend’s departing ex left him The Life Changing Magic of Tidying Up as a parting gift.

Quite an intimate detail to share with me, you might say, except he didn’t do so deliberately.

I literally stumbled across the book on top of a pile of about 50 others – surrounded by four or five other such piles – when I visited to see how he was doing.

This isn’t a cute metaphor. He really was a messy hoarder, his stuff was all over the place, and she’d had enough.

My friend eventually got rid of a lot of his junk, but it wasn’t because he rejected consumerism.

Rather he leveled up by buying his own expensive – but not expansive – London flat. He couldn’t fit everything in, so he was forced to clear out.

Indeed I didn’t even think about Kondo in the context of tactical frugality until I read the excellent Reset by David Sawyer. For Sawyer, a critical step towards intentional living with fewer shopping trips was to jettison vast amounts of material from his home.

This does seem to me an odd notion.

I lived my ascetic graduate student lifestyle for many years, and so I never accumulated much expensive flotsam and jetsam.

But the key advantage wasn’t that I could open my cupboards without a crash helmet or dodge choice paralysis when confronted with my barely half-a-dozen pairs of shoes.

It was that I didn’t spend the money on lots of stuff in first the place! Let alone on having to hire vans and skips to take it all away again.

When Kondo’s KonMari method reached Netflix this year, my skepticism returned. Perhaps Sawyer’s readers do find the hard reboot of a spring clean an important step. He’s wrapping it up within a redesigned frugal living package, after all.

But for many Tidying Up viewers, I suspect clearing space in the closet will just leave a void to fill.

According to a (securely paywall-ed) Wall Street Journal article this week, Kondo’s impact is now rippling across the US thrift economy:

A global ‘Tidying Up’ frenzy is burying donation centers with goods that truly, nobody wants.

“We aren’t a place for people to just dump their rubbish.”

Call me cynical, but I suspect many of these new Kondo converts filling their SUVs with unwanted things (a) are signalling how soulful they are (b) showing-off how well they’re doing, perhaps unconsciously, via their rejected excess stuff, and (c) will be restocking before summer is out.

But maybe I’m wrong. Perhaps a retail rout will follow. Time will tell.

I stress again, I’m not knocking the general philosophy. When I was at the height of my minimalist powers in the early 2000s, a visiting friend asked if I’d been robbed.

But has anyone out there used Kondo to jump start a permanent switch from shopping til dropping?

[continue reading…]

Note: I’m a shareholder in Seedrs. Also, if you follow my links to Seedrs and subsequently invest on that platform, you can get £50 for free towards an investment and I may receive a small marketing bonus.

Like dating a soap star, putting money into venture capital might seem fun, sexy and potentially rewarding – but it can be expensive, unpredictable, tricky to get into, and hard to get out of.

My previous article on the pros and cons of venture capital explained why. I also looked at how you might get started – via funds, VCTs, angel investing, EIS, and more – and the downsides that could put you off.

Passive investors in particular will find venture capital (VC) tricky.

VC usually involves expensive funds run by active managers, or else doing the time-consuming work for yourself via angel investing or crowdfunding – and probably having even less confidence in your returns.

I’m not about to reveal a VC index tracker that charges you pennies a year and makes these problems go away.1

However one of the leading crowdfunding platforms, Seedrs, has launched two halfway house solutions.

Or perhaps quarter-way house solutions.

Or maybe eighth-way! You get my drift.

These new approaches from Seedrs aren’t a panacea for would-be passive dragons.

But I applaud the experimentation, and I think they may be appropriate for some sophisticated and adventurous private investors who already have the important financial bases covered.

Wealth warning: Venture capital is a risky asset class. Crowdfunding is a new way of accessing it. The offerings I discuss below are only a few months old. Faced with this triple-threat I hope you can see you should only risk money you can afford to lose here – and first do your own deep research. This article is just a heads-up, and certainly not a recommendation for what you should do.

Automatic for the people

Quick recap: Crowdfunding on a platform like Seedrs or Crowdcube is easy-access angel or seed investing.

Crowdfunding enables you to buy shares in unlisted companies, but with far smaller amounts of money than would be deployed by a typical high-rolling angel – perhaps as little as £10.

You can invest far more if you want to. High net worth individuals regularly put five or even six-figure sums into crowdfunding companies.

But the big attraction is the low minimum investment. In theory, it could make grabbing a sliver of the next Facebook or Tesla or Starbucks accessible to everyone. That might seem far-fetched, but a handful of already highly-valued British firms did get their start with crowdfunding, including Brewdog, Revolut, and Monzo.

In addition there are often generous EIS or SEIS tax reliefs, depending on the firm. And sometimes crowd investors are also offered perks, such as free samples, subscriptions, or discounts. (Fun as a treat, but never a reason to invest.)

The bad news is that companies pursuing crowdfunding are usually startups. This means many (perhaps most) will eventually fail or be acquired for a pittance. This is high risk investing.

As I discussed in my last VC article, there are other issues, too.

There are plenty of flimsy companies raising money on these platforms. Sometimes you suspect they’re going to the crowd because no professional VC would touch them.2

Valuations can be pie in the sky, too.

With a stock market, at least you know the constant buying and selling activity of thousands of investors normally results in some sort of efficient pricing.

In contrast, crowdfunding companies usually seem to raise as much as they can at the highest valuation they can get away with – and there may not be much ‘adult supervision’ keeping the prices sane.3

Finally, just like with all seed/angel investing, crowdfunding unlisted companies typically locks your money away until there’s an ‘exit’, such as a trade sale or public flotation.

(Seedrs is pioneering a secondary market, and Crowdcube staff have told me they’re exploring the same. But unless and until such markets become more liquid, it’s best to assume your money is tied up until an exit.)

Automatic for the people

So – high-risk companies bleeding money, most of which will amount to nothing, some of which are borderline frauds, and perhaps one or two of which will hit the fabled ‘unicorn’ status of $1 billion.

Do you feel lucky punk?

Diversification is vital to try to improve the odds in your favour. That means little old you has to read realms of marketing material and ideally meet management – and still reject 10 or 20 companies for each one you invest in.

And then it will probably go bust, anyway.

For active investing junkies like me, seed investing like this is manna. I read a dozen start-up business plans a month, attend a pitch night every two or three weeks, and enjoy picking the brains of management. Building up a portfolio of more than 30 unlisted firms has been fun, and I’m looking forward to reaching 50.

But most normal people will feel different, and this is where Seedrs hopes its two new services will come in:

• Auto Invest
• EIS100 fund

Both do a similar thing – but they’re implemented in very different ways:

Auto invest

This enables you to invest automatically in firms raising money on Seedrs that meet your predefined criteria. You choose how much you want it to invest in the matching opportunities, and you can cancel an investment if on inspection you don’t like what Auto Invest has put your money into – before that firm’s crowdfunding campaign closes, and for up to seven days after.

Basically Auto Invest expedites the process of investing on Seedrs. The actual investments it makes are just the same as if you’d done it manually by yourself (which means you still get EIS or SEIS tax relief if applicable, of course.)

Seedrs EIS100 fund

Seedrs says “…the EIS100 Fund offers investors passive exposure to the venture capital asset class at scale.”

Yes, they used the word ‘passive’ – but hold your horses, as this is not the same thing as a fire-and-forget Vanguard index fund.

In fact, it’s not really a fund – it’s more like Auto Invest on steroids.

In brief, here’s how it works.

To begin, Seedrs is raising a set amount of capital for EIS100 from its investor base, with a minimum individual investment of £1,000. Once the round closes, the EIS100 fund will start deploying chunks of the money raised into new pitches that fit its predefined criteria.

To be eligible for EIS100 investment, a pitch must already have hit at least 70% of its funding target, it must qualify for EIS relief, and it must have at least 100 unique investors. Like this, the fund presumably aims to benefit from the wisdom of the Seedrs crowd in pre-filtering opportunities.

There are also a few rules as to how much money the EIS100 will put into any particular raise.

The aim is for the fund to invest its money into 100 companies over 12 months across many sectors, though the small print sensibly warns this will depend on what exactly comes to the platform and is eligible.

There will be a 0.25% platform fee, calculated over eight years but collected as an upfront 2% charge. There are no other recurring charges. However on any successful exits by companies EIS100 invests in, Seedrs will charge its usual 7.5% carry fee on the profits – and this is the clue that it’s not really a fund, but as I say more Auto Invest operating at scale.

You won’t see a fund in your Seedrs account. Rather you’ll (ultimately) see 100 or so nominee holdings, as if you’d made all the investments yourself.

This does mean that any exits should involve you getting your profits returned as and when they occur (rather than being rolled up as in a fund, to be invested or distributed at the managers’ discretion).

Similarly you might also be able to sell your individual ‘fund’ holdings via the Seedrs secondary market.

This graphic illustrates how the structure pans out:

Source: Seedrs

Note that in the EIS100 FAQ, Seedrs says it’s not actually a fund. Which makes one wonder why it calls it a fund?

I can see ‘fund’ is easier to market than say my ‘Auto Invest On Steroids’ description.

But I wonder if it will cause confusion, or problems down the line?

Anyway please do see that FAQ for more details – and also read the extensive investment memorandum – and note that the EIS100 round is already over-funding, so head to Seedrs if you think – after the caveats above and to come below – that it might be right for you, to start your research.

Incidentally if more EIS100 funds are launched in subsequent years, then we’ll eventually get annual ‘vintages’ like you see with traditional VC.

What I like about these automated solutions

While the ‘passive deployment’ – as Seedrs puts it – that’s offered by these two services is far from passive investing as we know it, they could make life a bit easier and address a few issues.

• Diversification – Both Auto Invest and EIS100 should see investors who use them end up with VC portfolios spread across a lot of investments. Okay, so it’s possible to override any particular investment with Auto Invest, but at least it’s encouraging widespread deployment. With EIS100, wide diversification should happen automatically. Placing a lot of bets like this is important with VC investing. You need to hit a few big winners!

• More easily capture returns from (the Seedrs tranche of) the VC asset class – Seedrs says it expects to engage with 15,000 firms over the next year. The vast majority of these won’t make it onto the platform, as they will be rejected at some stage of its own due diligence. Of the 500 or so that do get through its filters, it expects about 260 to achieve their funding target. EIS100 would put money into a selected 100 of these. Seedrs claims a platform-wide annualised internal rate of return (IRR) of just over 12% to-date – a figure that jumps to 26% when tax reliefs are taken into account. Now, we could spend hours debating how much of your hat to hang on these figures. Crowdfunding hasn’t been going for very long and few businesses have exited, so this attractive figure must be largely based on subsequent funding round valuations – and no doubt a few out-sized winners. But with that said, it does suggest the Seedrs ‘funnel’ is doing something right. These solutions could help one harvest that IRR.

• Less work for investors – If you believe the IRR figure just mentioned is vaguely credible, then it would be an attractive bolt-on to many portfolio mixes – and even more so with the tax relief. However given all the work involved in traditional seed investing, you might argue it’s still not enough to compensate you for many hours of reading flowery business pitches and so on! These passive deployment approaches do offer to get rid of all that. So you don’t have to (notionally) bill your time against any returns you make.

• Easier access to EIS tax relief – As above, basically. If you want to get EIS tax relief while investing in lottery tickets start-ups, both Auto Invest and the EIS100 could make the process easier (but see the downside section below.)

• A dispassionate robot might be a better investor than you – Studies of mainstream investors have taught us the average person is better off agonizing over the menu at Pizza Express than trying to decide on good individual investments. I wouldn’t be surprised if a rules-based approach to VC does do better than many individual investors who bring their own behavioral quirks and biases to the process. For example, I see far-fetched technical inventions getting funding on these platforms, and I’d bet my bottom dollar they’ve been backed by high IQ engineers, who as I’ve mentioned before in my experience can be among the worst investors. (No offence engineers, you’re incredibly useful for the other stuff you do!) Perhaps a robot would be savvier? I’ve even heard ‘scattergun’ VCs say it’s not worth spending too much time looking out for frauds, because they’re rare and trying to avoid them will only gum up your odds. Maybe Seedrs will prove that just spreading your bets widely can match or beat traditional active VC investing?

Downsides to automatic angel investing

Hopefully that’s given you a flavour of the potential attractions of these new approaches to crowdfunding.

I do see clouds though, too, which I’ll briefly run through.

• Lack of individual scrutiny/diligence – For some in the VC community, the idea of amateur investors piling money into unlisted start-ups is already a crazy proposition. Where is the 100-man years of experience, the MBAs, the legal backup, the broad networks to tap for background information? Crowdfunding fans would dispute those complaints, of course, but they’re not utterly unreasonable. Now add in semi/fully automated investment (albeit via the filters and checks I’ve mentioned) and you are a very long way from traditional VC investing. Too far? Time will tell.

• Funding targets are a moveable feast – Platforms and the firms seeking funding might dispute this, but my observation is companies may set low targets with the aim of achieving a successful raise, and then gathering much more money in during so-called ‘over-funding’. I see this pattern a lot. It’s a debate for another day, but anyway selection filters based around firms achieving a certain proportion of what might be an arbitrarily low funding target will perhaps not prove as robust at weeding out unpopular/unloved ideas as you might hope – especially if the auto-solutions then tip weak ideas into over-funding, which could increase the incentive for a pitch to set a low target.

• Potential Heisenberg-ian issues – To mangle the go-to quantum physics metaphor, Seedrs‘ faith in its filtering and IRR to-date is predicated on data covering funding before either Auto Invest or the EIS100 got going. These new services could distort future returns, for good or ill. While the EIS100 includes a few safeguards to presumably try to avoid it distorting the market (from maximum investment percentages to maximum total money invested) it’s hard to escape the thought that if they take off they could eventually change outcomes on the platform. (The EIS100 has only raised £1.2m so far of the £1 to £5m Seedrs originally expected, so currently this is moot.) Similarly, Auto Invest could negate the ‘wisdom of the crowd’ by automating ‘pile on’ investing. If these solutions became big features of the platform, firms seeking investment might even somehow game for them. Seedrs will need to be alert and adaptive to this potential.

• Lots of detail to tell HMRC to get EIS tax relief – Seedrs says its platform makes claiming EIS reliefs easier – with digital tax certificates accessible on-site – but you will still end up with 100-odd items to declare to HMRC with the EIS100. In my experience, for each qualifying investment you have to open a form, get certain details off it, and put them on a tax return. I do 5-15 a year, and it’s fiddly. You’ll want to set aside some time to do a hundred! (That said, depending on how much you invest it’ll probably be well worth it on an hourly rate…)

• No chance to discover you’re a good VC investor, or to have fun! – As I’ve said before, I was drawn to seed investing because I wanted to expand my investing and business knowledge. If I was worth £20m I’d be doing it via traditional angel investing but I’m not, so I’ve chosen to explore crowdfunding – warts and all – with 3-5% of my portfolio. For me, the learning is a huge part of why I went down this route. If I wanted to outsource VC investing I’d probably look to traditional funds, or even VCTs for the tax reliefs (though the high charges are off-putting).

• Why isn’t Seedrs running its own VC funds? – Seedrs is putting a lot of store on its own due diligence and pre-filters as to why these solutions could be successful. Indeed if that 12% IRR it claims to-date across all successful fundraising on the platform holds up over the long-term, I think it will be a remarkable and impressive figure. So much so, that you wonder why Seedrs hasn’t put its smarts into creating a conventional VC fund? The FAQ cited above claims it wants to give investors in the EIS100 liquidity opportunities as individual firms exit, hence it avoided the traditional fund route, but that’s never been a concern for traditional VC houses. Such funds charge a lot more than 25 basis points a year, too! I suppose Seedrs might argue the crowdfunding platform – and even the crowd of individual investors it attracts, who may go on to promote the funded companies and so on – is part of the secret sauce, and that it wouldn’t expect to see 12% IRR without it. Still any cynic would ask this question, and it often pays to be a cynic in active investing.

Do androids dream of electric exits?

I started this article vowing to write no more than 1,200 words, and here we are with another 3,000 word-sized monster!

No doubt some Seedrs insiders might still think I’ve skimped over aspects of their offerings, or been too glib in my pros and cons. The investment memorandum you can download from the EIS100 pitch page is 78 pages long, by way of comparison. (And I’d urge you to read it if you’re thinking of investing.)

Similarly, I’m sure some of you believe even writing about all this (rather than a 97th article about global tracker funds) is a dereliction of duty.

So I’ll just conclude by saying the answer is to go and do your own research on Seedrs if your interest is piqued, take this simply as an introduction, and maybe continue the conversation (constructively, please) in the comments below.

I’m fascinated by the evolution of this market, but it’s very early days.

Remember, if you follow my link to Seedrs and subsequently invest then you may qualify for a free £50 credit to your account – and I may get a bonus, too. But please don’t consider investing just for this cash! Again, this is high-risk investing where outcomes vary wildly. Do a lot of research before considering investing more than fun money. I also suggest you read Angel by Jason Calacanis for a blunt introduction to seed-style investing.

1. It’s not impossible we could eventually see something – an investment bank could decide to offer some sort of synthetic note that tracks a VC index, for example. But it’d still be a complicated product. [↩]
2. This is called ‘adverse selection’. [↩]
3. With that said, traditional stock pickers need to learn new methods to value early-stage firms. I often see people talking about P/E ratios or even asking for dividends when talking to start-ups about valuations. That won’t get you far in valuing new companies. [↩]