Before the link list, a Brexit update. If you don’t like the odd bit of politics here please do skip down to the articles – there’s plenty else to read this week!

Time heals most wounds – including the self-inflicted – but 15 months on from that vote, we’re still motoring ahead with our great populist mistake.

As Winston Churchill noted in The Grand Alliance Vol. 3:

Governments and peoples do not always take rational decisions. Sometimes they take mad decisions, or one set of people get control who compel all others to obey and aid them in folly.

For those who’ve not been keeping up, a quick recap:

• Yes, we are going to pay a multi-billion bill before leaving the EU
• No, there is no extra money for the NHS
• Yes, subsequent post-vote reporting has confirmed that Brexit is a logistical nightmare, from Ireland to atoms
• No, Frankfurt isn’t too terrible to play home to American bankers
• Yes, the EU is united in dealing with our pathetic tantrum mighty negotiators
• No, the Eurozone hasn’t collapsed. Rather, the economic cycle has continued to turn. (The EU is now growing faster than the UK.)
• Yes, the EU has signed trade deals with Canada and Japan since the Referendum
• No, the UK won’t get a better deal by being a smaller country with less bargaining power
• Yes, clever EU citizens are already being tempted to leave the UK
• No, the French didn’t vote in the fascists. (Our own rash decision – and the other one over the pond – probably gave them pause).
• Yes, we are probably going to keep obeying EU regulations, including via the European Court of Justice, post-Brexit
• No, scaring away skilled EU citizens hasn’t cut net immigration to the ‘tens of thousands’ yet (and Brexit won’t either, because much of net migration is from the non-EU and we never did anything about them before the vote)
• Yes, it’s true our economy didn’t slump in the wake of the Referendum result. (I was wrong footed there, but my bigger fear is for the long-term hit anyway)
• No, there has been no great export boom due to the cheap pound
• Yes, future generations of UK citizens will be unable to live and work anywhere in Europe like their parents and grandparents could by right
• No, there’s no evidence this curtailment will do anything for the disaffected and angry people in slow-growth provincial towns, except reduce the tax receipts that pay for aid and benefits

I could go on, but it’s too depressing. How often do rational people – as opposed to mobs on the streets – get together to decide to do something against their own interests? To negotiate a worse economic outcome? To cede power?

Perhaps in suicidal religious cults. Not much else springs to mind.

About the only good – if unsurprising – development is that things are going slowly. As Tim Hartford puts it in this week’s FT [Search result]:

The British people have dealt the British establishment an unplayable hand: a parliament strung out between several lunatic fringes, and a referendum result that is hard to interpret and even harder to deliver.

With the prime minister powerless, her ministers are showing signs of quiet realism.

Yes, the country is chugging towards a train-crash Brexit, but at least our politicians are tying fewer hostages to the tracks.

To return to the Churchill quote above, what rational people would conclude at this point is that we should get off the tracks.

But at the moment, the democratic symbolism foolishly placed in the Referendum – even by many Leavers – means the best version of getting off the tracks from here is probably some sort of fudge that looks like a Brexit, but that doesn’t walk or talk like one. A fake Brexit.

But who knows? Perhaps if we do drag it out for long enough it might never happen. Better than any alternative, as far as I’m concerned.

Matthew Parris for one says Brexit is dying:

“Brexit is in terrible trouble – and with every month that passes, the difficulties become clearer, and the Remain side of the argument becomes stronger.”

Fingers crossed.

Still crazy after all this year

Of course the fallout from not-Brexiting would now be terrible, too, especially if it was called off any time soon.

That’s because because enough angry people came to believe Brexit would solve problems that are in reality probably close to intractable.

I’ve come to understand over the past 12 months how the Brexit vote reflected genuine anger and disquiet among a chunk of the population who feel that the world isn’t going their way. (Almost inexplicably, in the case of the comfortably off Barry Blimps, unless you go down the identity politics rabbit hole).

But I’ve seen little to show it has much to do with the EU.

What I think took the vote from a minority of committed Eurosceptics to a winning majority were wider forces like globalization, technology, income inequality, urbanization, and fundamental terrorism.

And then was the misinformation campaign that’s been much debated in the subsequent year.

Happily, researchers have found that as we learn to cope better with social networks and their ability to distort reality (and as those networks get better at policing themselves) we might see fewer crazy years like 2016.

As Bloomberg reported concerning one academic deep dive:

The study does offer one positive conclusion: Broad awareness of fake news should tend to work against its success. Campaigns were much less successful when individuals in the model learned strategies to recognize falsehoods while being fully aware that purveyors were active.

This suggests that public information campaigns can work, as Facebook’s seemed to do ahead of the French election in May.

In other words, fake news is like a weaponized infectious agent. Immunization through education can help, but it might not be a comprehensive defense.

Either way, it’s too late for Britain, which could be sliding towards a situation where even the food chain is disrupted.

That’s not me being a doomster – it’s the supermarkets:

Failure to find an agreement on free trade within Europe before Brexit day is likely to result in gaps on UK supermarket shelves, increased waste and higher prices, retailers have warned.

More than three-quarters of food imported by the UK comes from the European Union, but if the UK does not agree on a transitional period or a deal when it leaves the bloc in March 2019, World Trade Organisation rules will apply.

This means that goods coming from the EU will be subject to the same custom checks, tariffs and regulations currently in place with the US, with some 180,000 extra firms drawn into customs declarations for the first time.

Let’s hope that a shortage of Werther’s Originals leaves a sour taste in the mouths of the legions of Brexit-voting pensioners – hundreds of thousands of whom have already left this Earth and their mess for us to clean up.

Harsh? Perhaps, but as Ian McEwan said when he seconded my own observation that the Leave vote was probably literally dying:

“Truly, Brexit has stirred something not heroic or celebratory or generous in the nation, but instead has coaxed into the light from some dark, damp places the lowest human impulses, from the small-minded to the mean-spirited to the murderous.”

Yet on we dawdle, into the pointless maw.

Note: As usual I’ll be deleting anything I arbitrarily and personally happen to think is overly nasty, racist, or intolerant (on both sides) so please watch your words if you’d like to comment. And if you don’t like the sound of that, no worries, there are other places to chat on the Internet. This is a benign dictatorship, not a democracy. 🙂

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Today I’m going to talk about the Rule of 300. This shortcut helps you envisage how much money you’ll need for retirement or to achieve financial independence.

That’s right! The rule of 300 turns an amorphous future you into a flesh and blood creature with their own wants, needs, and bank statements.

Most of us find it difficult to imagine paying for stuff several decades hence. The Rule of 300 handily bends the space-time continuum.

However let’s get one thing straight.

The Rule of 300 is not a scientific law that can’t be broken. On the contrary it will probably always be off a bit. It’s just a rule of thumb.

The assumptions behind the Rule of 300 are open to debate.

Equally, anyone who thinks they can predict exactly what will be on their bill in 30 years’ time – from the cost of robot insurance to the price of a mini-break to Mars – is delusional.

But as always with investing: What’s the alternative?

All forecasting methods have their downsides. Few compensate for them by being as simple as the Rule of 300.

I will return to the caveats later. Once you know what assumptions you disagree with, you can replace them with your own guesswork.

Let’s first outline the rule as it stands.

What is the Rule of 300?

The Rule of 300 is dead simple. To use it you need two numbers, and one of those is 300.

Take your monthly expenditure. Multiply it by 300. The result is how much you’ll need to have saved to keep living like you do today after you jack in your job.

Let’s say you currently spend £2,000 a month.

£2,000 x 300 = £600,000

The Rule of 300 says you’ll need £600,000 to quit work and still pay your bills.

(Or to tell The Man to go hang. Or to safely smirk in meetings. Or to swap your job to do something less boring for money instead. Or to keep loving your job with a safety buffer. You decide!)

Be sure to multiply 300 by your monthly expenditure today. Not by your monthly salary, or a guess at what things will cost in 20 years, or by two-thirds of your income or anything else.

Simply put in your expenditure as it stands, and the Rule of 300 tells you what you’ll need to have saved to keep spending like that from your capital.

Do not include any regular ISA or pension payments. For the purposes of this calculation we’re assuming you stop saving and start spending.

A spartan guide to using the Rule of 300

The Rule of 300 is the easiest maths you’ll ever do in personal finance. But to save you even more bother, here’s a table that shows how much you’ll need saved according to the Rule of 300, based on various monthly expenditures.

Current spend (monthly)	Capital required
£750	£225,000
£1,000	£300,000
£1,500	£450,000
£3,000	£900,000
£5,000	£1,500,000
£10,000	£3,000,000

Source: Author’s calculations.

Depending on your circumstances and penchant for caviar, those numbers may seem dauntingly high or encouragingly achievable.

Are you in the “HOW MUCH?” camp? Then Rule of 300 could be extra useful. It can help you envisage what your various monthly spending habits will cost you in capital terms.

Let’s say you spend £6 a month on Amazon’s music streaming service. Multiply that by £300, and voila – you can see you need £1,800 to keep the music playing indefinitely.

Bargain!

However you may have other more questionable commitments:

Spending	Monthly cost	Capital needed
Gym	£30	£9,000
Top mobile phone	£50	£15,000
Golf club	£100	£30,000
Weekly meal out	£200	£60,000
Fancy car on PCP	£400	£120,000
Monthly mini-break	£600	£180,000

Source: Author’s research (and bills)

I’m not judging. If your idea of retirement bliss is playing golf as often as possible, then something has gone wrong if you don’t plan on paying for club membership.

The point is that by looking through the lens of the Rule of 300, you might be motivated to cut the things you don’t care about so much.

This way you can reduce how much you need to save for financial freedom.

The safe withdrawal rate (aka the caveats)

The maths behind the Rule of 300 is based on a safe withdrawal rate (SWR) of 4% a year.

The SWR is said to be the money you can theoretically spend every year from your portfolio without (too much) risk of running out before you die.

Here’s how the Rule of 300 works: Let’s say your monthly expenditure is £2,000. Over a year that’s 12 x £2,000=£24,000. To find the capital required to fund that with a SWR of 4% we must solve (4% of Capital = £24,000) which is equivalent to (Capital = £24,000/(4/100)) which works out at £600,000. Alternatively, the Rule of 300 says multiply £2,000 x 300=£600,000. Ta-dah! Same!

To say the safe withdrawal rate is controversial is an understatement. It’s the personal finance equivalent of the Kennedy assassination. Different people take it to mean different things, which may even be contrary to the original research.

Some are dubious because it’s based on US investment returns, which have been strong compared to the global average. They say 4% is too high.

Others add that today’s low interest rates mean return expectations (and hence the SWR) must be lowered, too.

Yet others believe that’s too pessimistic. Yields should rise eventually, and anyway the 4% rule was stingy when markets did well so there was arguably a buffer in there.

Newer thinkers even claim the SWR strategy can be improved by assuming variable withdrawals as conditions fluctuate.

Finally, old active investing luddites like me presume we’ll never touch our capital, but rather live off our income. We often coincidentally target the same income yield of around 4%, even though the key SWR research was based on potentially spending everything.

Roll your own Rule of Whatever

I’m not proposing to solve the SWR debate today. Just know that you can tweak the Rule of 300 to suit your own beliefs by reworking the maths above.

• Want to target 5% a year as your withdrawal rate? You can use a ‘Rule of 240’ to estimate how big your pot must be.

• Think 3% is more like it? For you it’s the ‘Rule of 400’.

Personally though, I’d stick to the Rule of 300.

You’ll read all kinds of authoritative sounding comments about what is the best number to use for either the SWR or as a multiplier.

Reflect on them but understand nobody knows because we don’t know how your investments will pan out, how long you’ll live, and nor how much money will really be required in the future for a decent standard of living.

And it is only a rule of thumb. Keep it simple, Sherlock.

Not one rule to rule them all

Despite my rather analytical education, I’m not one for precise modelling in anything other than the underwear department.

Unlike my co-blogger I don’t track my expenses or stick to a budget. I prefer to keep a rough idea of cash flows in my head.

I’m also not one for working out the exact amount of capital to target for some potential retirement in 23 years and three months’ time.

I’ll sometimes look at what’s needed to replace my current income, but only as a ready reckoner. (That method targets pre-tax salary, unlike the Rule of 300’s after-tax spending. Both have their uses.)

Good for you if you prefer precision – I’ve nothing against it. We can all learn from each other.

But even if that’s you, the Rule of 300 takes zero effort to apply in your everyday thinking. You may have a 20,000-cell spreadsheet back home in the lab, but the Rule of 300 can still be a useful shortcut in conversation.

Of course most people out there don’t even have a financial plan on the back of a napkin. They haven’t the foggiest what they’ll need to have saved when they no longer receive a regular pay cheque.

Many are deluded. Some think they’ll enjoy round-the-world cruises on the back of saving £50 a month today. Others believe they’ll need so much money that stopping working is an unrealistic fantasy.

Does that sound like you, or someone you know? The Rule of 300 can be a good start in getting a grip on things.

No, it is not a scientific law. But in terms of revolutionizing how you think about your financial needs, the Rule of 300 could be as significant for you as that apple that fell on Sir Isaac Newton’s head was for him.

What caught my eye this week.

I think sequence of return risk is perhaps the least discussed Most Important Thing about investing.

That’s probably because it doesn’t impact professionals so much.

Big institutions such as pension funds and endowments typically have an infinite time horizon. There’s no cliff edge for them where they move from saving to spending – which is the cut-off point where sequence of returns risk can do the most damage.

Individual fund managers? Well, they do face a related career risk. The best thing for a poor-to-average fund manager is to achieve your great returns early on, in order to attract a lot of assets. You can then revert to the mean with your mediocre-to-bad years later, when you’re earning a fat fee on all those billions.

Of course this is the opposite of what would be best for the average investor in that fund, but that’s a topic for another day.

Anyway Ben Carlson of the Wealth of Common Sense blog published an excellent deep dive into sequence of return risk this week, noting:

The sequence of returns in the markets is something we have no control over.

Some investors are blessed with weak returns in the accumulation phase and strong returns when they have more money, while others are cursed with brutal bear markets at the outset of retirement or markets that go nowhere when they have a bigger balance.

Luck plays a larger role in investment success than most realize since we each only have one lifecycle in which things play out.

Oh yes, that’s yet another reason why we don’t hear much about sequence of returns risk – there are no perfect ways to counter it. Even the good and sensible ones are likely to sap your returns. (Like diversification, however, they can still be perfectly sensible things to do).

See Ben’s full article for some ideas on managing sequence of returns risk.

And have a great Bank Holiday!

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