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Good reads from around the Web.

I have relished the resurgence of board games over the past decade or so. As somebody who turned over a few Monopoly boards as a kid and eventually ran out of people who would play with me, it was a second chance to be a better sport.

But more interestingly to you, while I’m still sadly a relatively poor loser (or perhaps not a sufficiently consistent winner) the games too have evolved to be less infuriating.

Many of the classic new wave titles like granddaddy Settlers of Catan are superbly balanced. You’re never quite out of the running in Catan, and while there has to be a winner, for some reason the defeated tend to feel a little less like losers.

The equally brilliant Dominion isn’t so fabulously balanced – an early misstep or bit of bad luck can hole your chances. But the rhythm of play with this deck-building masterpiece is so engrossing you probably won’t even notice, unless you’re a card-counting genius.

Dominion even taught me to be a better investor. (Handy given that there’s a long list of drool-worthy expansions to stump up for).

Both Catan and Dominion are still available for delivery for Christmas from Amazon. I predict they will deliver far better hourly bangs for your bucks than almost any other gift out there.

Board games are so sociable, too, especially compared to video games or the telly.

More great games to get you started

Have I tempted you into playing something different this Boxing Day? Great! Here are five six seven more new-ish games I’d recommend:

Spyfall – One of you is a spy and the rest aren’t. The non-spies know where they are and what they’re doing. The spy knows nothing except he’s a spy. You all ask each other questions and try to discover the truth first. Hilarity ensues.

Codenames – This is an old-fashioned word-based social game in the clothing of a new wave offering. So again you’re spies, but really you’re getting down and dirty with some nuanced vocabulary. Great for families.

Cards Against Humanity – Not great for families. Not great for a lot of people, actually, but if you like it you’ll love it. An underground guilty pleasure for years, it seems to have gone mainstream recently. Perhaps being despicable and mean has fitted the tenor of the times? The Voting Game is a sort of friendly redux.

The Resistance – A lot of modern games pivot on deception and bluster, which is what makes them so social. I’m diabolical at them; my sister identified me as a government agent in The Resistance before the missions had even begun and on her first ever play. But I keep coming back because it’s so simple and it always delivers. Good for bigger groups.

Skull – A beautiful bluffing game, sort of like poker without the chips, stetsons, and complexity. A gateway game to entice skeptical friends into play.

Risk Legacy – The classic board game Risk reworked into a one-shot adventure where you permanently deface your board over multiple games, renaming countries and revealing new paths and closing others through successive victories and defeats. Beware that this is a game that makes people angry. Even my game-hardened friends have fallen out over a well-timed oath-breaking military betrayal with this one. (Not that the shouting stopped the victor putting a toxic waste dump outside their bitterest opponent’s eponymous capital city for all future games to come, mind you…)

Cosmic Encounter – This is more of gamer’s game, so it could be a good purchase for that D&D playing niece or nephew in your life. Wildly capricious, it’s not my favourite but I have friends who think it’s the best thing since chess.

The difficulty with board games is getting people to play them with (and, as my teenage self discovered, keeping them!)

But I’ve seen a few newbies get the habit over the years – often including their partners. These are grown-up people with great lives, kids, careers and so forth, incidentally, so don’t dismiss the idea out of hand, especially not because of some dated just-for-kids prejudice.

Dominion is far less nerdy to play than its backstory and artwork suggests, and it’s arguably at its best with only two players. Start there and build your own gaming renaissance!

As for Monevator, we’re now off until January.

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Reasons to rent a house instead of buying

Hermit crabs rent their homes. Sort of.

The following guest post on the reasons to rent a house instead of buying is from Graeme Pietersz, the man behind Moneyterms.

That it’s better to buy a house rather than rent is deeply ingrained in the British psyche. But the argument as to whether it is better to rent a house or buy is far from one-sided.

The core of the argument against renting is that rent is wasted money that you could instead save and invest in a house.

The flaw in this argument is that your entire mortgage payment is not an investment.

A mortgage payment is two payments combined:

  • One is the repayment of the amount you borrowed: this is an investment.

If paying rent to your landlord is a waste, then so is paying interest.

Rent a house or buy? The true cost comparison

You need to compare the cost of rent to the cost of paying mortgage interest. You cannot just compare rental yields to mortgage interest rates. You need to look at where both are likely to go over the lifetime of the mortgage.

For future interest rates (beyond any period for which mortgage rates are fixed) you look at a yield curve and add the spread over it that you expect to pay.

The amount you need to add is obvious for tracker mortgages, but the principle is the same for any variable rate because banks approximately follow market rates.

The Bank of England provides some nice graphs for UK rates. Similar data is available in other countries.

Model behaviour

The bad news for buyers is that it looks like we can expect yields to go up. Your mortgage payments will probably be a lot higher in five years.

To forecast future rents, the safest assumption is that they will, like house prices, roughly follow income growth over the long term.

By now you may be feeling that you are being asked to do a lot of financial modeling to decide whether to rent a house or buy. Sorry, but this is an important decision that does not have an obvious answer. It demands at least as much analysis as buying a share.

And we have not finished yet! There are more costs to be taken into account – and we have not even talked about risk.

Other costs of owning a house

Mortgage interest is not the only cost of owning a house:

  • If you own a house, you have to maintain, insure, and furnish it. Doing this costs you not only money, but time as well.
  • You need to take care to ensure that you maintain valid insurance (I know people who have happily paid for policies they did not realise were not valid).
  • You have to find plumbers and builders when needed — and pay them.
  • You have to replace old furniture, even if it has only suffered ‘fair wear and tear’.

So you need to add an estimate for all this to the cost of owning a house, and compare that number to your rent. Buying a house is probably looking a lot less attractive by now.

It looks worse when you consider the risks.

The risks of buying a house

The most obvious risk is that house prices will fall. In the long term, this risk is ameliorated by economic growth, as house prices have had a fairly stable long term correlation with incomes. The question is whether you have the will and means to last through crashes.

Also, the risks of owning a property are not just the risks to the property market in general. There are risks specific to the area you buy your house in, and to the particular property itself.

House prices do not follow the same trends all over a country. There can be huge divergences between regions. In addition, there are risks attached to your local area. It may become more or less desirable as an address.

Local facilities (schools, transport, shops) may improve or deteriorate. Changes to rivers or flood defences may make your house prone to flooding. Similar risks exist in areas vulnerable to erosion.

We touched on one of the risks peculiar to a particular property: the cost of repairs. There are a whole range of risks that can leave you badly out of pocket, from dry rot to fire. Some will be covered by your insurance, some will not be covered at all, and a good many will be inadequately covered. Regardless of who pays, it still costs you time and worry.

The price risk is far worse than similar volatility in any other investment, because most people borrow to buy a house — very few borrow to buy shares. Buying a house with a mortgage is therefore a massive margin trade

Buying a house also ties you down. If you rent a house and you are offered a job in another city, or even another country, you can be there in a few weeks. It may cost you a few months rent, but it is quick and easy, and the cost is predictable.

So, rent a house or buy?

There are times when it is obvious that buying a house is a good decision, often in the wake of a crash.

When house prices are low enough that you can pay the mortgage and also other costs with the equivalent in rent, you can’t really lose. Such high rental yields are a strong sign that prices are too low.

Most of the time it is much less clear that you are likely to benefit financially.

If house prices rise rapidly it may turn out to be a mistake to rent a house – but so would buying if they fall or stagnate. So why not keep your options open and your expenses predictable?

Note: I have updated this post from the archives because the core reasons to rent a house versus buying haven’t changed, even as various parameters have arguably become more stretched. Be aware that some of the older reader comments might now be dated, however. On the other hand, that does provide interesting context to this timeless back-and-forth!

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Reasons to buy a house instead of renting

UK houses are usually expensive to buy

The following guest post on the reasons to buy a house instead of renting is by Tejvan Pettinger from The Mortgage Guide UK.

The UK has one of the highest property owning rates in the world. No matter how many boom and busts we have, the British like the idea of buying their own house.

Part of the attraction is not just financial, but the sentiment of owning your own house, not worrying about having dodgy landlords, and being able to paint your walls whatever colour you want.

Owning a house does bring more responsibility. But unless we are frequently moving around the country, most people would buy if given the opportunity.

Yet, for first time buyers, the ratio of house prices to earnings means that it is very difficult to buy – unless you can borrow from The Bank of Mum and Dad or be helped by the UK State.

Is it really worth the effort, or are we better off renting? Does our sentimental attraction to buying our own castle make sense?

Let’s first consider the advantage of buying a property.

The end is in sight

A mortgage may last for 25 or 30 years. But there will eventually be an end to the mortgage payments, which means the hope of being able to live rent-free for your remaining years.

In this way, paying off a mortgage is similar to saving for a pension. If market rent is £800 a month, then finally paying off your mortgage will be the equivalent of saving that cost of renting.

With rising life expectancy, people are living longer. Therefore the benefit of paying off your mortgage is increasing, too . The old saying that ‘rent is dead money’ is true.

Of course, it depends how old you are, and how long you imagine you may live.

If you are 40-years old, getting a 30-year mortgage may not seem to give much benefit. But, if you live to 90 years, that would still be 20 years of rent free accommodation.

Rents also rise with inflation; often in the UK they rise faster than inflation.

What about fluctuating interest rates?

Interest rates are currently exceptionally low. The most likely scenario is for rates to increase to 5% in the medium to long term, though it is not a foregone conclusion – Japan has had zero rates for over a decade.

Clearly, affordability is being helped by these record low rates. When buying however you need to budget for rates of 5%, and bear in mind that rates have risen to over 10% in living memory.

You can experiment with a mortgage repayment calculator to see how the costs would vary with higher rates.

It may seem the prospect of base rates jumping from 0.25% to 5% would dramatically increase cost of mortgages, but many lenders have not passed on the full base rate cuts onto consumers. If base rates rise to 5%, the actual mortgage payment you pay is unlikely to go up as much.

As a rule of thumb, look at the cost of the longest fixed rate mortgage and not the variable mortgages.

Housing as investment

There are two types of house buyers. One type buys a house to live in rather than rent. The other type invests in property – usually via buy-to-let – hoping for an equity gain.

The first type, the average householder, is less affected by fluctuations in house prices. The key thing is the cost of mortgage payments and the other bills.

In contrast, the buy-to-let investor is much more concerned with gaining equity in addition to income. And that requires rising prices.

Forecasting UK house prices is a tricky business. The professionals often get it wrong, and some have actually given up trying to make house price predictions.

  • On the one hand, house price to earnings ratios are very high compared to previous decades and also compared to other countries.
  • On the other hand, the UK has a shortage of housing that is unlikely to be solved anytime soon. This shortage of housing compared to the number of households means property could continue to be attractive for the medium to long term.

Conclusion

It is worth looking at your local area, and considering how much you pay to rent versus how much would mortgage payments cost (assuming a good fixed rate mortgage).

In my own experience of living in Oxford in 2005, I tried very hard to buy. The reason was that renting was very expensive – around £800 a month plus bills. So I though why not pay £800 a month on a mortgage?

I borrowed from my parents and got a dodgy 2005 style self-certification mortgage. It was the best thing I ever did.

I couldn’t face prospect of paying £800 a month rent (that will continue to rise with inflation, if not more) when I retire, whereas mortgage payments will become a smaller percentage of income.

If I was an investor, considering whether to buy a second home, I would be much more circumspect. Equities or the bond market may offer a better rate of return.

Note: I have republished this post from the archives because the core reasons to buy a house versus renting haven’t changed, even as various parameters have arguably become more stretched. Be aware that some of the older reader comments might now be dated, however. On the other hand, that does provide interesting context to this timeless back-and-forth! 🙂

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Weekend reading: Five things you need to know about active funds post image

Good reads from around the Web.

You know that most active funds fail to beat the market. I know that most active funds fail to beat the market.

And all our fondly farewell-ed readers who got the message, bought a one-shot passive indexing product instead, and then went off to read about 20 Stars Who You Won’t Believe Commune With The Dead Using A Ouija Board knew it, too.

But plenty of people don’t, so I guess we’ll keep repeating it. It’s a bit late to change lanes!

So here’s the same message in a new video featuring Professor David Blake from Cass Business School, courtesy of The Evidence-Based Investor:

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