A few Mondays ago I was enjoying drinks at a friend’s book launch in Bloomsbury.

I know!

A friend who published a book! Drinks on a Monday!

Bloomsbury!

You can see where the title of this article came from, right?

Actually I’ve more to say on that, but first let’s set the scene.

Before my time

The people I knew at the book launch were old friends or acquaintances. In many cases they knew me best 20 years ago.

The talk turned, as it always does, to what we’re all doing now. There were no huge revelations this time – no journalists turned landscape gardeners, or women turned men – but my obsession with investing came up, and it provoked 15 minutes of light banter.

“What the 20-year old you would think of you now,” sighed one old friend. “The bohemian who became a banker…”

I protested, but people were more interested in fun than the facts.

And who can blame them?

The table was big and round, there were candles, and for a moment it felt a little like we were drinking on a school night in Les Deux Maggots or at the Algonquin Hotel.

Vive la revolution

When I made most of these friends, I was a student with hair down to my shoulders, working my way through Marx, Chomsky, and Robert Nozick’s Anarchy, State and Utopia.

That memory was what drove the bohemian/banker quip and the resultant comedy outrage.

Never mind that having long hair and being a bit of a lefty at 20 is about as unconventional as listening to Bob Marley and sticking Matisse posters up on your bedroom walls.

Even Dave ‘Call Me PM’ Cameron was a fan of The Smiths at Oxford.

No, as far as my friends are concerned, when I was young I was a free-spirited outsider, and now I’m a penny shuffling accountant to The Man.

And in some ways it’s true. If you’re not a communist at 20 you haven’t got a heart and if you’re not a capitalist by 30 you haven’t got a head, and all that.

Also, they were obviously kidding around.

On the other hand, I know how they see the world.

To generalize, if you believe everything in The Guardian, hate Thatcher, and work in the media, arts, or the public sector, you’re an authentic human being.

If not, you’ve got more work to do.

Bourgeois bohemians

I think they’re wrong, but I don’t want to overdo my imminent defence.

Authorship of Monevator alone would probably grant me First Up Against The Wall status should Jeremy Corbyn turn out to be the new Lenin.

Still, I think my friends were exhibiting their usual tribal prejudices that have them living as consumers and exploiting all the fruits of capitalism, while moaning about social injustice on Facebook to make themselves feel like Nelson Mandela locked on Robben Island from the comfort of their cubicles1.

See my thoughts on Margaret Thatcher’s childish children for more on that.

Returning to the bohemian/banker debate, a definition from Google:

Bohemian
/bəʊˈhiːmɪən/
noun
1. a native or inhabitant of Bohemia.

2. a socially unconventional person, especially one who is involved in the arts.

synonyms: nonconformist, unconventional person, beatnik, hippy, avant-gardist, free spirit, dropout, artistic person; informal freak

“he is a real artist and a real bohemian”

And Wikipedia:

Bohemianism is the practice of an unconventional lifestyle, often in the company of like-minded people, with few permanent ties, involving musical, artistic, or literary pursuits.

In this context, Bohemians may be wanderers, adventurers, or vagabonds.

I’ll immediately concede one thing – I am not a native of Bohemia.

But when it comes to the other traits, while I am no wandering minstrel sleeping in churches and living on bread exchanged for charcoal sketches, I think I’m at least as bohemian in spirit as my Monday night friends.

Why is this relevant to you?

Because I think it reveals how the quest for financial independence via knowing how money works and exploiting it to your advantage is hard for many people to grasp.

Instead they see money as evil (despite chasing it for 40 years in their careers), they cling to old stereotypes, and they plod along the status quo.

And that’s fine if it’s what they want to do.

However I do get frustrated when people pigeonhole investing as something for other people, when it could be the key to their own greater freedom.

For me, investing was first a means to an end.

It’s clearly become more than that – I’m only a couple of script rewrites short of Dustin Hoffman in Rain Man when it comes to multiple obsessions – but that’s my problem.

We’ve shown many times how passive investing can yoke global capitalism to your cause with barely an hour’s effort a year, if you can get beyond Sixth Form thinking about good and bad.

I say again, my friends are not penniless iconoclasts who might be excused their position.

They are just normal middle class consumers who for some reason think knowing about the stock market means you must have secretly done time in the Bullingdon Club.

Banker or bohemian?

Let’s do a quick quiz to see how me and my stock market-shunning mates compare on the bohemian scale.

Involved in the arts: A win for my friends. A good two-thirds of those present that Monday work in creative pursuits – the author, of course, but also journalists, a film festival organizer, some publishing types, a musician, a couple of video game creators. Whilst I sort of make my money in the media and I’d argue Monevator is a creative pursuit, I’ll concede this one.

Bohemian-o-meter: Friends 1 / Me 0

Unconventional lifestyle: Note I said my friends ‘work’ in the arts. Most if not all have traditional jobs. In contrast, I’ve worked in full-time employment for barely four of the past 20 years. The rest of the time it’s been a self-made mishmash of short and long-term projects and ad hoc freelancing, working out of my own home or a nearby cafe. Added to some other traits we’ll get to shortly, I win this one.

Bohemian-o-meter: Friends 1 / Me 1

Few permanent ties: Nearly all those friends who find my interest in shares so mercantile and Conservative own their own homes. (Many have pensions that hold shares, too, but let’s set that aside). As I’ve lamented written about before, in most cases their homes have doubled or tripled in value, giving them multiple six-figure windfalls that they choose not to see as real money because “you have to live somewhere”. This is nonsense, but in their eyes a 10% gain on my portfolio makes me a blood-sucking banker and a £500,00 gain on their two-bed flat makes them free spirits who happen to own a property. Anyway, I rent and I sometimes do move on a whim.

Bohemian-o-meter: Friends 1 / Me 2

Nonconformist: Once we’d finished talking about how I’d metamorphosed into a member of the (un)landed gentry, we moved on to talking about foreign holidays, kitchen extensions, schools (yawn), the state of their various marriages, and how most need more money because they’re “skint”. In contrast I’ve never married, I’ve had several full-on two to five-year long relationships, I don’t want kids, I have friends 10-20 years younger than me, I’ve saved 30-50% of my income for decades instead of buying tat, and I live like a well-off PhD student.

Bohemian-o-meter: Friends 1 / Me 3

Wanderers, adventurers, vagabonds: If all goes to plan, within the next few years I’ll achieve financial independence on the terms I’ve set myself. I don’t know exactly what I’ll do then (I don’t rule out a house in the suburbs and 2.4 kids because I’ve seen that happen often enough) but I’m presuming I’ll do about half as much paid work as today (I enjoy what I do), maybe try to write that novel, and possibly try both while roaming the world for a few years. In contrast, it is nailed-on my friends will still be working and paying off their mortgages; they have kids, often only one working spouse, and most have little in the way of non-pension savings to speak of.

Bohemian-o-meter: Friends 1 / Me 3.5 (I haven’t done it yet)

Is interested in the stock market: I think being involved in the stock market through two bear markets and an anti-capitalist backlash makes you a free-spirited independent thinker – that’s pretty much my point with this piece. Not to mention the buccaneering spirit required to see your entire net worth lurch in a month. Still, I’ll not argue the toss. They can have this one.

Bohemian-o-meter: Friends 2 / Me 3.5

By my reckoning, I’m nearly twice as bohemian as my friends, in terms of living an unconventional lifestyle that I’ve created for myself, and the potential freedom it offers.

I win! Mine’s a double absinthe and soda.

The left banker

You might say who cares what my friends think, and I agree (although I’m only human, so I do care a bit).

Mainly I’m just having fun – and this is all half tongue-in-cheek.

On the other hand, I do think it points to the silliness of our age – that people working 9-5 for other people to pay their mortgages, spend nearly all their earnings on material goods and holidays, and who buckle up as middle age approaches to do another 30 years of the same thing feel on solid ground accusing someone who a visitor from space would have trouble distinguishing from a 1960s dropout of having sold out, just because he knows what a dividend is.

The truth is in this free-wheeling capitalist society of ours – the one these particular friends so despise, despite being up to their necks in it – you have options.

You can choose to try to live differently – you can choose to avoid taking on the Joneses car for car or handbag for handbag, to not have to fear you’ll be downsized or outsourced at 50, and to do more than just slave for decades so your heirs can do the same.

But if you want it, you have to go out and get it.

Seize the power

Finally, I realize bohemian is a loaded word.

Many of you probably can’t imagine anything worse than the sort of aging art student turned dinner party bore it brings to mind.

I’m just using it because my friend did (and, okay, because I have a soft spot for clever people who don’t show up at an office every day, and also for Czechs.)

The irony is the original Bloomsbury bohemians were pretty much aristocrats.

They could afford to run about baring their ankles, wearing trousers, and painting each other as drowned Greek nymphs because for most of them, a job was optional.

They hadn’t earned that freedom. They inherited the wealth to do as they pleased whilst living on 3% from the family estate.

Good for them – they still broke fresh ground – but as I always say when arguing for massive inheritance taxes, most of us are not so fortunate.

We have to create our own trust funds and pay for our chosen lifestyles ourselves.

And if you’re under 50 and trying to achieve that without using the stock market, then you’re not a bohemian – you’re just boneheaded.

1. Does anyone actually work in cubicles anymore? It’s years since I saw one… [↩]

The hardest part of investing for me was learning how to save. My partner and I spent all we had, though we knew the future would catch up with us in the end.

Restraining our present-day spendaholic selves was the best decision we ever made and has given our future selves a fighting chance.

And though our investment train is rattling full steam ahead, the amount we save right now will make a critical difference to whether we hit our financial goals.

The trick is knowing where to start. Many people I know fling their hands up in despair at the wall of challenges they face:

• Mortgage
• Living expenses
• Emergency fund
• Education fees
• Pension contributions

It seems impossible to even begin chipping away at this list on a moderate income.

Yet every journey begins with a single step and, in my case, a website.

Savings saviour

To change the bad habits of a lifetime you need a helping hand. I found it at MoneySavingExpert.com.

I’d like to say it was a book that changed my life, but really it was this website.

You may well know about it already. The site’s owner, Martin Lewis, is like a TV evangelist: preaching and teaching Britons how to save cash.

The site is most potent when used as a complete programme to turnaround your finances. It maps the way forward with the inspiration, knowledge and tools to dramatically change your spending habits.

The first move has to be yours. I had to admit that the way I was running my financial affairs (or rather ignoring them) was a problem.

But then Ms Accumulator and I used MoneySavingExpert to do something about it.

Step 1: Budget control

Where was all the money going? We thought we knew, but the truth was our bank account had more leaks than the water board.

The scales only fall from your eyes when you budget for everything – from your early morning Starbucks to your summer holidays.

That sounds like ten shades of agony until you discover the hard work’s already been done for you by MoneySavingExpert’s Budget Brain (scroll down a bit after clicking through).

This fantastic tool rounds up every relevant expense in easy-to-swallow online form. All you’ve got to do is fill in the numbers to see the state you’re in.

Once you know where the money goes, you can work out how to stem the flow.

Step 2: Cut the bills

Yep, it’s obvious. We pay so many bills it’s like we’ve got financial fleas.

But if we can cut the blood-suckers down to size then there will be a bit more cash left at the end of every month to have some fun with (like sticking it away for 20-years in a low-cost tracker. That’s my kind of fun!).

It may be obvious, but so few of us find the time to get a good deal. Or we sort out the gas and electricity but forget about squeezing insurance premiums or motoring costs.

Again, MoneySavingExpert charges to the rescue. The site’s easy-to-follow guides show you how to score a great deal without wasting your life.

Go to the full Money Makeover page. Here all life’s expenses are lined up like ducks in a row. Shoot them all down. One-by-one. Large and small.

Martin Lewis reckons the average person gains the equivalent of a 25% pay-rise by completing the makeover.

I don’t know exactly how much we’ve saved, but it’s easily hundreds of pounds a year.

Step 3: Re-value everything

Here’s the key question Ms Accumulator and I had to ask ourselves:

What do you really enjoy in life?

The answer more than doubled the amount we could save.

With our spending habits laid bare by the budget-planner, we could go down the list and cross out the things we didn’t really need / want / think were worth the money.

Personal finance sites invariably home in on a classic list of wasteful expenditures:

• Satellite TV
• Gym membership
• Magazine subscriptions
• Eating-out at lunch
• Ready-made meals
• Fast food
• Fast cars (in our case!)
• Anything replaceable by own-brand goods

In fact, anything that’s bought on auto-pilot should be scrutinised and struck off where possible. Especially if it’s on direct-debit: the evil leech of income.

There are a couple of excellent tools to assist your austerity drive:

1. MoneySavingExpert’s Demotivator tool

This is a shock-tactic designed to stop you spending. It reveals your annual outlay on any particular item and how long you must work to afford it.

It turns out that I spend £143 a year on my weekly bacon sandwich. I could have 10 shares in a property ETF for that.

2. The ‘before-tax’ price tag

Buy a shirt for £40 and it actually costs the average Joe about £58 in earnings before tax.1

That shirt was an expensive luxury at £40, but now I realise I’ve got to earn £58 to pay for it, I can’t put it back on the rack quickly enough.

The pay-off

The idea isn’t to make yourself miserable every time you spend a penny, but to find simple ways to make yourself think twice about what’s really worth spending money on.

• The Demotivator tool helps you visualise whether seemingly harmless expenses are worth the long-term cost.

• The before-tax price tag helps you resist the allure of the impulse purchase. If adding almost 50% to the price of an item helps you see its true cost then you can assess its true worth to you, even in the heat of consumption arousal.

It’s easy to get embarrassed about thrifty living and write yourself off as an old skinflint. But the emotional pay-off of controlling your spending is every bit as great as the financial benefits of saving more.

We know we can’t afford everything we want, and trying to do so is a short-cut to anxiety and possible disaster.

But by working out what we really value in life, we spend more time doing the things that actually make us happy while saving enough to secure our future financial well-being.

Take it steady,

The Accumulator

1. Approx, assuming income tax @ 20%, National Insurance @ 11%, and not worrying about personal allowances, thresholds or the odd penny. [↩]

Good reads from around the Web.

I met my friend The Bear last week for one of our occassional wanders through London.

The Bear is not his real name – he is not a character from a Disney movie, or even a gangster from a Guy Ritchie one.

He is however invariably pessimistic about something – hence a bear in investing terms – and I do enjoy his entertaining rants.

Not just doom and gloom

I have other reasons to meet up with The Bear, besides getting myself a healthy dose of anti-euphoria.

For one thing he kindly hands over past issues of the cult US investing newsletter Grant’s Interest Rate Observer – delivering a big batch that I carry about in a Tesco bag during our wanderings, before starting to work my way through them on the Tube before I’m even home.

More on that later.

The other reason I value talking to The Bear about investing is that while he can seem dogmatic in his views, he is not dogmatic in how he should respond to them.

For example he is apoplectic about what he sees as the rigged and ruinous nature of the UK property market (he swears a lot about everything) but that hasn’t stopped him owning shares in UK housebuilders, which he plans to dump before his predictions of a downturn come true.

And like his hero James Grant of the Interest Rate Observer fame, he is scornful about the utility of extended low interest rates and QE.

Yet The Bear has profited from owning shares in certain UK banks in the past few years, which he bought when they were cheap enough to withstand even his gloomy outlook.

I also like how he’ll make a dozen small bets, knowing he might lose all his money on half of them but with the chance of 2-5-10-fold returns on those that do prevail. (Bankruptcies, deeply discounted rights issues and the like).

That’s what the maths says makes sense, but very few stockpickers have the fortitude to carry it out.

Are we there yet?

I should say that I don’t actually know if The Bear has beaten the market, for all this sparky thinking and stock picking effort.

I discuss investing with him for intellectual stimulation and to challenge my own views, not for actionable advice.

(Indeed if I do ever achieve my aim of persuading him to write occasionally for Monevator, this will be the motivation.)

One thing that makes it difficult to judge any investor’s world view, let alone their performance, is timing and timescales.

For instance, I put it to The Bear that perhaps Grant’s subscriber list had shrunk, given that the publication has been warning of the dangers of a reckless Federal Reserve and the folly of selling your gold for several years now in which the US economy and market has actually recovered and gold has tumbled down the toilet.

A subscription to the fortnightly Grant’s Interest Rate Observer costs $1,175 a year. Small change for a hedge fund perhaps, but not so trivial that you wouldn’t want to think the authors were occasionally getting something right?

My friend responded with the classic defense of the unrequited pessimist…

…namely: “It’s still too soon to tell. Wait until it’s over.”

Waiting for the Fat Lady

This sentiment is the ready retort of anyone whose downside bet has gone against them.

It was long my rallying cry against soaring London house prices, until I decided it’d be better to shut up than cry wolf for another decade. (Many others have since taken up the call).

It’s also what optimists think when they buy in the midst of bear markets, even if they quote Warren Buffett rather than reach for the mantras of more pessimistic folk.

“Wait until it’s over” is a strong defense, because you can’t argue with the logic – because you can rarely be sure it’s over.

It’s true that Grant’s and others who’ve warned of all kinds of toxic fallout from QE have – as my friend suggested – become almost laughing stocks when they appear on CNBC and the like nowadays.

My friend (and no doubt Grant too, for he is a formidable student of the markets) sees this as a sign that the last days of the current bull run may be upon us.

Equally, it’s easy to forget how terrified everyone was of QE when it began, even though investors and pundits today tend to cheer it whenever they see it and now fear tighter money instead.

I admit I expected inflationary consequences, like most other onlookers.

But today? Inflation? On the contrary, we only recently saw some deflation.

The Bear would say you need to look at elevated asset prices and depressed yields to see where QE-stoked inflation has had an impact.

I’d retort that I don’t remember many of the doomsters saying “buy bonds and equities because of QE”.

In fact, quite the opposite.

“Buy gold because the dollar will soon be worthless” was more their sentiment at the time.

You told them ‘not to fight the Fed’ all you liked (and I did). This time was apparently different.

Whoops!

In truth all of us take what we can and justify it as we go along to some degree, however much we try to stay alert to these sorts of behavioural flaws.

Long-term buy and believe

Now, most of you are passive investors, to whom this post has been at best a semi-interesting diversion that’s probably outstaying its welcome.

However don’t think you’re not betting on the same sort of reversions that my friend is looking for.

Passive investors in equities and are other assets are not neutral on the direction of those prices in the long-term.

On the contrary, their implicit position – which of course I think is eminently sensible – is that while ups and downs are apparent on a graph of stock market returns, over the long-term, for most markets, the trend is definitively higher.

What would you tell a cynical family member who said you were wasting your money, given that shares were down but you were still pumping your hard-earned cash regularly into your index funds?

“It’s too soon to say that,” would be your reply. “Let’s wait and see over the long-term.”

You don’t know Jack

The truth is whether we’re passive investors, permabulls, or inveterate doomsters betting on a crash, we only have so many decades, which means we can only afford to take so many steps back from those graphs.

Eventually our time horizon shrinks to such an extent that the zags down on the graph look more like ravines, and the zags up more like distant summits that always seem to be just another valley out of reach.

That’s why we’re told to reduce our exposure to riskier assets as we age.

It’s also why we diversify – in case we’re climbing the wrong mountain.

How things turn out are only ever obvious in hindsight. I’m always reading Grant’s 12-18 months after it publishes its (always extremely readable) thoughts, which could make me feel like a genius if I’m not careful.

I know better than they do! True, I haven’t seen the ending but I have seen the spoilers.

But real life is not like reading old publications, obviously. However we invest, and wherever we think things are going, we’ve walking along with our hands outstretched, feeling our way through the fog.

One reason passive investing works so well is because it acknowledges and even exploits such uncertainty with a humble and automatic strategy that can cope with almost anything that looms out of the gloom.

Us more egotistical active investors have to work hard to remember we know nothing, and to challenge our preconceptions all the time.

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