This mini-series has previously explained investment trust discounts and premiums and why they arise. Read those articles first if you need to.

Bear markets are when you make your money. You just don’t know it at the time. Beaten-up markets enable you to buy future cashflows cheap, boosting your expected returns. That’s as true for investment trusts as for any other assets.

Indeed: pick-up unloved investment trusts on a discount and you can extra-juice your future returns, should that valuation gap narrow over time.

But alas! I haven’t just whispered the secret to getting rich quick into your ear.

Because it’s no easier to pick winners in a bear market than in a bull one. You’re still statistically likely to lag a tracker fund. (Although I’d argue it’s little easier to avoid outright losers once the froth has come off.)

Besides, even if you buy the indices you can’t know how long a recovery will take.

You can’t even be absolutely certain a recovery will come at all. Just ask anyone with a tin full of share certificates from Tzarist Russia…

However with those caveats out of the way, it’s a fact that investment trust discounts and premiums do wax and wane.

People overpay in the good times. While in miserable periods someone will sell at almost any price.

Check out this graph from Numis showing how discounts widening and narrowing is an age-old story:

I don’t believe it’s fanciful to try to profit from these cycles.

2022 and all that

Average discounts blew out towards historically extended levels in the ‘Sell Everything’ market of 2022.

Some trust sectors have rallied since, at least off the Mini Budget lows. You won’t find infrastructure or blue chip equity income trusts on a double-digit discounts anymore.

But what about technology, private equity, commercial real estate, or growth trusts priced at anything from 10% to 50%-off the value of their underlying assets?

You know – all the stuff we couldn’t get enough in the good old days of… 18 months ago?

All that is still priced to go. 

So if you’re an adventurous (/misguided) active investor and you’re ready to take a hit if you get it wrong, some bargains are surely out there.

Don’t discount it

The most important thing we need to think about when buying any investment trust – whether it’s trading at a discount or a premium to its underlying value – is obviously the potential impact on our wealth.

Recall that investment trusts are listed companies that own other assets. When you buy shares in an investment trust, you effectively become the owner of a portion of those assets.1

Your ownership of the trust’s assets is proportionate to your ownership of the trust.

For all but the oligarchs among us, this is most easily worked out by taking the total number of shares you own, and multiplying by the net asset value (NAV) per share of the trust:

• If you own 1,000 shares of a trust with a NAV per share of £2, then your economic exposure to its assets is £2,000.

But as we’ve previously seen, a trust’s share price may be higher than the NAV per share. (It’s trading at a premium to net assets.)

Or it may be lower. (The trust trades at a discount).

And this complicates things!

Two ways to win (or lose)

Premiums and discounts come about for all sorts of reasons. We covered that earlier in this series.

The key point today is we have two moving parts when it comes to the returns we see from buying shares in a trust:

• The movement of the trust’s share price. This determines how much we’ll get for our shares if we sell today.

• The movement of the trust’s NAV. This reflects the underlying returns of the trust’s investments. NAV changes tell us how well the trust is performing, ignoring the gyrations in its share price.

As I said earlier, as a shareholder you have an economic interest in a proportion of the trust’s net assets. Thus it’s the movement of the trust’s NAV over time – ideally upwards – that’s most important over the long-term.

However over the short-term, share prices are kerrraaazy! They can do anything.

This means that if you want to sell on any given day, you’ll have to take the price you’re offered for the trust’s shares. Regardless of whether the shares trade at a discount (boo!) or a premium (yay!) to NAV. (Aka ‘What they are really worth’.)

Sadly you can’t demand the trust is liquidated just so you get the correct value for your assets. Well, not unless you own enough shares to influence the board of directors.

Sometimes trusts do wind themselves up. They’ll sell their assets and gradually return the NAV to shareholders via capital returns or dividends.2

But that’s rare, and it’s outside your control.

No, in practical terms your shares are worth what someone else will pay you for them. Whatever the underlying NAV might be.

This means that any movement in the discount or premium while you hold the shares can greatly affect the returns you see.

NAV growth and the share price

Provided the discount or premium remains unchanged during your ownership of the shares, the share price will simply capture the increase or decrease in the underlying assets.

People get confused about this. So here’s a quick example:

Let’s say you buy Monevator Investment shares at a 25% discount to the £1.60 NAV.

That is, you pay £1.20 a share.

The simply brilliant manager [ahem] makes great stock picks. The NAV doubles from £1.60 to £3.20.

Despite this superb performance, the discount remains unchanged at 25%.

Your shares now trade at £2.40 (75% of £3.20) against the NAV of £3.20.

You’ve made the same 100% return in the share price as the NAV has doubled, despite the persistent – but constant – discount.

How a narrowing discount increases your return

So far so straightforward.

But what’s more likely to happen is that the performance of a manager who has doubled the trust’s net asset value will be noticed by other investors. And these envious hordes will want a piece of the action.

More people wanting to buy the shares would typically lead to the discount being reduced (narrowing) as demand hots up:

Let’s say the discount narrowed from 25% to just 5%.

At a 5% discount to the £3.20 NAV, the shares would be trading at £3.04.

In this case, the doubling of the NAV – plus the closing of the discount –  has boosted the return you see on your initial purchase price of £1.20 a share.

In fact, you’ve made a 153% return, compared to just the 100% growth in the NAV.

Conversely, premiums can clobber your returns

A discount narrowing from 25% to just 5% is an unusually good outcome, unless you’re lucky enough to purchase shares in a trust when the market is going through one of its fits.

But the general point is clear. It’s great to buy an investment trust at 25% less than the value of its assets and then to see that markdown narrow due to good performance. You get a double whammy of a return!

If these things happened predictably we could all meet on a tropical island by Christmas.

In practice, discounts can persist for years – or ‘forever’ in practical terms. But they do often close, and it’s great when it happens.

On the other hand, when you buy a trust at a premium to its underlying assets then the converse of all the above can unfold.

If you buy an investment trust on a premium to NAV and that premium closes – either because the share price doesn’t keep up with NAV growth, or because the NAV doesn’t grow or shrinks, and the share price falls even faster – then the premium narrowing will reduce your return, versus the performance of the trust’s underlying portfolio.

For this reason, I almost never buy trusts on a meaningful premium.

When premiums fade

Some people – especially those who manage investment trusts – will tell you that it doesn’t matter if you buy at a premium. What is important is the performance of the underlying portfolio.

And it’s true that if you buy on say a 10% premium and in future sell at the same mark-up, then your returns will not be affected. Just as with static discounts, like we saw above.

However in my experience, premiums do not generally persist. Even trusts that more often than not trade at a premium – infrastructure trusts, for example – go through spells on a discount.

Why not buy them then, and get rid of the risk of paying over the odds?

Managers will point to graphs showing how delaying purchasing like this foregoes returns. But it’s a false choice. There’s almost always something else you can do with your money while you wait to buy near par.

RIT’s faded glory

In the original version of this article in 2010, I wrote:

One of my favourite investment trusts, RIT Capital Partners, frequently trades at a premium to its NAV, thanks to its great track record and investors taking optimistic views on the value of its illiquid holdings.

I don’t sell my RIT holding just because of the premium. I’d just have to buy back in later. But I have only ever bought the shares when they were priced at or below net asset value.

This is a cautious approach, and it will mean you will sometimes miss out on an excellent performance from a trust that’s become popular with investors.

Better safe than sorry is my view, but you’ll have to make your own mind up.

While it only goes back ten years, this graph from the AIC shows how RIT’s fading premium has taken the edge off shareholder returns:

Source: AIC

Starting in early 2015 RIT’s shares began to trade at a persistent premium to NAV. You can see this in the bottom chart. (Click to expand). The premium was over 10% by 2018.

No doubt investors at that time shrugged off paying a near-12% surcharge for exposure to RIT’s underlying assets. After all the record looked good – and with RIT your gains tend to be come with less downside than you get in the market, which is always nice too.

Happy days!

Sadly though, as I write the shares now trade at a thumping 22% discount to NAV.

This huge shift from premium to discount has scythed away about a third of the return that shareholders would have enjoyed if the premium had instead remained static.

Investors get off the Lindsell Train

An even more startling example comes with the Lindsell Train Investment Trust.

For many years investors paid an expanding premium for this trust.

Initially this seemed to be down to enthusiasm for manager Nick Train’s market-beating stock picks. But in time a more sophisticated analysis had it that the trust’s large shareholding in Train’s (unlisted) fund management company was undervalued. The premium, it was said, reflected the market correctly divining the true value of this large and fast-growing private holding.

To his credit, Nick Train was himself cautious. For example in 2016 Train warned:

“We would advise investors to think carefully before buying shares at such a steep premium to NAV.”

A fund manager telling people not to buy his fund? Needless to say, not the usual run of things.

It’s worth knowing though that Train had been warning about the trust being on a precarious footing for many years before that. In fact he said much the same when the trust was on a 21% premium to assets in 2012. The share price more than tripled over the next five years!

So perhaps we can almost understand how some shareholders persuaded themselves it was worth paying a roughly 90% premium – nearly double the NAV – to buy the shares in 2019.

Unfortunately, the music finally stopped and the years since have been rubbish:

Source: AIC

Notice here that – while hardly racing away – the NAV (orange line) has continued to grow since the date of the peak premium in 2019.

However the share price (blue, shaded) has sunk like a stone as the premium (bottom chart) has completed evaporated.

If you were unlikely (or foolish) enough to buy at the peak premium then your shareholding has been pretty much cut in half. Again that’s despite the NAV being modestly up since then.

When something can go wrong, it usually will

Now, in the case of both RIT Capital Partners and Lindsell Train there’s other stuff going on besides the gilding coming off an excessively buffed-up share price.

RIT had a rotten 2022 for a trust that some – incorrectly – expected to never lose money. Meanwhile Lindsell Train has seen market-lagging returns and fund outflows as its style has fallen out of favour.

In the face of these headwinds, there’s no eagerness to pay a premium for the assets. Hence the demise of those premiums.3

I would argue however that some similar rough patch will nearly always come along to take the sheen off shares that are priced to perfection.

If I like the long-term investment case, I’d far rather buy in that rough patch, and with a margin of safety. As opposed to in the best of times, where the potential downside is magnified by paying well above NAV for the shares.

Indeed I currently own both these investment trusts. And I bought them on a discount.

I wouldn’t avoid a trust on a small premium of 2-3%, if everything else checked out. And I’d probably hold if the price subsequently got carried away – at least within reason.

Generally, though, anything beyond that is a no-go. I like to stack the deck in my favour!

Cut-price trusts boost your income, too

Finally it’s worth knowing there’s an advantage for income seekers buying investment trusts priced below NAV.

You will get a superior dividend income from a trust on a discount. That’s because the trust will usually pay out the same cash stream from its net assets, regardless of the discount.

And since you’ve bought more exposure to those underlying assets for the same money, you’ll get more income than if the trust traded at NAV:

• A 10% discount to NAV will boost your income from that trust by 10%, compared to if you bought when the share price at NAV.

There’s not many free lunches in investing, but buying a good equity income investment trust on a big discount may be one of them.

For this very reason, income-focused investment trusts usually trade close to their net asset value.

Not all that glisters is gold – or even cheap

Beware: a really big discount or one that is out of whack with other trusts in its sector can be a warning sign. Investors may rightly fear something is amiss with the trust (or know that it is) and so require a big markdown to assets before buying in to help protect their downside.

Look closely at such a trust’s gearing (debt), the sort of assets it holds, and management’s plans and track record. Consider the macro-economic backdrop, too.

A classic example right now are commercial property investment trusts. These are on a big discounts for a host of reasons.

Offices are half-empty, with people still working from home. Financing is dearer. Yields on alternative investments (particularly bonds) are higher.

These trusts have already written down the value of their assets. But there could be further to go, so NAVs could yet head lower. And all this could get worse with a recession.

Or… it could get better? Maybe interest rates will be cut, bond yields will fall, and workers keen to keep their jobs will show their faces in the office more, boosting occupancy.

Nobody (should have) said this stuff was easy.

By all means be contrarian if you’re an active investor with reason to believe you know better about one of these factors.

That’s my game, I won’t judge.

But if you don’t – don’t!

Buying trusts on a discount: naughty, but nice

In conclusion, I think rifling around for excessively unloved investment trusts is one of the more accessible ways to play the active investing game. Should you be inclined.

But before I get pilloried in the comments, I certainly am not saying it’s a sure thing. Nor that you will do better than buying a tracker, or anything like that.

This is still stockpicking. Most people do it poorly, especially on a risk-adjusted basis.

For related reasons, I’ve not bothered citing academic research into whether buying investment trusts on a discount is a way to capture market-beating returns.

I’ve read a few bits and bobs over the years. Most do detect ‘price signals’ – that is, they find evidence of future returns captured in today’s prices.

But I don’t really think such studies are especially relevant to private investors.

You won’t be buying a basket of every investment trust on a discount, weighted by the degree of apparent under-valuation, for instance. You probably can’t hold indefinitely. And you certainly won’t also be shorting trusts on a premium, which is the sort of thing academics love to do in their models but is both costly and risky in real-life.

You’re also unlikely to have the muscle to agitate for corporate change – a strategy often employed by professional bargain-hunters in closed-end funds.4

No, you’ll be looking for good trusts with decent prospects, priced more cheaply than you judge they should be.

Nothing more complicated. Nothing less simple. Fun, if you’re that way inclined.

Happy hunting!

1. Remember you need to subtract any debt or other obligations carried by the trust, to determine the value of its net assets. []
2. After subtracting any costs for doing so. []
3. Lindsell Train’s board has also tweaked the valuation of that unlisted fund management business. []
4. Investment trusts are a variety of closed-end fund. []

Orthodox investing advice has always been that UK investors should hold either gilts or high-quality global government bonds hedged to UK pounds (GBP) for the main part of their defensive asset allocation.

I’ve long subscribed to that advice myself.

Highly-rated government bonds provide the defensive ballast for your investing strategy. Sticking with your local currency – in our case GBP – avoids adding additional riskiness into what’s meant to be the steadier portion of our portfolio.

But (heresy alert!) recent evidence suggests that unhedged US Treasuries could be a better choice.

Why? Because the dollar has risen against the pound in the majority of stock market slumps since the turn of the century. When it did so, it bestowed a welcome FX bonus for UK-based investors who owned US government bonds – juicing up their defensive returns at just the right time.

The upshot is holding US bonds can protect your portfolio from equity losses better than home-grown gilts – when it works.

But what if that trend is a reversible historical anomaly, and not a bankable portfolio hack?

To approach that question we need to ask some others.

For starters, did US Treasuries dominate gilts for more than just the past couple of decades?

A second salient question: how does this strategy impact long-term returns? Because if US bonds actually deliver lower returns than gilts over time then they become much less attractive, even if they do better for a bit in a crunch.

Maybe those currency gains quickly unwind once market jitters subside, exposing UK passive investors to FX blowback and potentially extra-nasty losses if they’re caught sitting in US Treasuries?

It’s quite the conundrum. But if I’m better off holding US Treasuries instead of gilts though then I’d really like to know about it. So let’s dive in.

UK vs USA: enter at your own risk

Before getting to the good bit, we need to repeat that holding unhedged US Treasuries ahead of UK gilts means adding currency risk to your fixed income asset allocation.

Currency risk can work for you or against you:

• A UK investor – with assets valued in US dollars (USD) – benefits when the pound weakens against the dollar. A rising dollar means USD-priced assets are now more valuable in GBP terms.
• Equally, USD assets sink in value in GBP terms when sterling strengthens. The dollar price of such US assets is now worth less in pounds.

These gains or losses from currency risk are grafted on top of the asset’s underlying return.

If you invest in unhedged US Treasuries, you’re hoping for two things to happen:

• Your government bonds spike as global equities tumble.
• You additionally profit from the surge in demand for dollar-priced assets.

Hence this ploy adds an extra risk to your collection. Namely, that the dollar doesn’t live up to its reputation as a safe-haven during a market tailspin.

If the USD falls against the pound in an “adopt the brace position!” scenario then the currency knock-back could swamp any bond bounce you hoped to gain.

All of which tells us that playing FX roulette with your defensive allocation is like releasing a predator into the environment to wipe out a pest species.

It’s inherently risky and it may not work as advertised.

UK vs USA: battle of the government bonds

To discover how frequently US Treasuries beat gilts during sustained stock market falls, I calculated the annual total returns of unhedged US Treasuries in GBP from 1971 to 2022.

We’re looking at GBP returns throughout because we’re interested in this substitution from the perspective of a UK investor.

And those dates were selected because they span the entire floating exchange rate era for currencies, up until this year.

Next I compared the GBP returns of Treasury Bonds against gilts in every year when UK equities registered a negative annual return and/or the UK stock market fell 10% or more, for a period of at least one month, regardless of whether that loss is revealed by the annual returns data.

Against that backdrop, US Treasuries beat gilts in 15 years out of a sample of 21:

Nominal total return data from JST Macrohistory1, FTSE Russell, and Aswath Damodaran. Annual exchange rate from Measuring Worth2. February 2023.

Gosh, that’s quite the thumping. Not as bad as our record in the America’s Cup, but still a comprehensive win for US Treasuries.

Is that it in then? Is it time to ditch our gilts? Do we never need to worry about a mad Prime Minister ever again?

Not so fast…

US Treasuries vs gilts: overall annualised returns

Next I looked at the match-up between gilts and US Treasuries over the entire period, in terms of their annualised returns.

And oh my, the plucky Brits have won something!

George Washington, John Bogle, Beyonce, are you watching? Your bonds took a helluva beating! Okay, sorry about that – I may have got carried away and slightly exaggerated.

The bond scores are:

• 8.3% gilts
• 8.0% US Treasury bonds

Those are nominal, average annualised returns across the entire 52-year period, for an investor operating in UK pounds.

And there’s essentially nothing in it. Regardless of whether you bought and held gilts or Treasuries, your overall returns were much the same after 52 years.

US government bonds actually bested gilts, by 28 years to 24. But much of the gain made in US Treasuries during down periods was later undone by the strengthening pound when market confidence was restored.

US Treasury Bonds vs gilts: across the decades

Next question: are there distinct eras when owning US Treasuries worked best for UK investors?

The table below shows how many years per decade that US government bond returns exceeded gilts when UK equities fell (same criteria as before):

Decade	US Treasuries	UK gilts
1970s	4	1
1980s	1	1
1990s	1	3
2000s	4	0
2010s	3	1
2020s	2	0

By this reckoning, the 1990s was the only decade when US Treasuries didn’t counterbalance sliding stock prices at least as well as gilts.

However even this data hides decent periods for our boys versus US Treasuries.

Most notably, gilts made a comeback versus US Treasuries in the late 1970s, held their own in the 1980s, and then actually outperformed in the 1990s during those down years.

So preferring US bonds didn’t benefit UK investors for about a quarter of a century.

How bad are US Treasuries when they don’t perform?

When equities caved but gilts outperformed Treasuries, the average nominal annual return for each government bond for UK holders was:

• US Treasuries: -2.3%
• Gilts: 12.3%

Which is a painful showing for the US asset – one that would probably leave you ruing the decision to go off-piste if it happened to your portfolio.

As mentioned at the start, the problem with adding a currency play to the bond side of your portfolio is that FX volatility can swamp the asset’s typically more modest underlying returns.

Hence my biggest fear with this strategy is that an adverse currency move could cause US bonds to inflict large negative returns upon investors who are already buckling under the strain of watching their equities nosedive.

The worst GBP annual return for Treasury bonds was -13.2% during 1987 – the same year as the Black Monday Crash. In contrast gilts were up 17.9% that year.

That said, when gilts fell -16% in 1974 and -24% in 2022, US Treasuries were up 7% and down only -9%, respectively.

America the Beautiful

How do things look when US Treasuries beat gilts during stock market losing streaks?

Well, under these conditions, average nominal annual returns for the two government bond types were:

• US Treasuries: 12.3%
• Gilts: 2.3%

Meanwhile, across all 21 of the down years we looked at earlier, the average annual returns gap narrows to:

• US Treasuries: 8.1%
• Gilts: 5.2%

It’s still advantage US Treasuries, but the picture is more mixed.

Which leads me to wonder: which bond is the better option during a proper nightmare?

Which bond works best during the worst bear markets

The stiffest tests of investor nerve this past half century were the 1972-74 stock market crash, the Dotcom Bust, and the Global Financial Crisis.

US Treasuries beat gilts 3-0 during these utter meltdowns.

Here are the average returns:

• US Treasuries: 13.2%
• Gilts: 1.5%

That’s a big performance gap. US bonds potentially bucked up your portfolio just when you needed it most.

However, there’s one final and important check we need to make.

What difference does replacing UK government bonds with US Treasuries make to the overall returns for a globally diversified portfolio?

US Treasuries vs gilts: diversified portfolio returns

I compared the long-term results of two diversified portfolios. Both feature 60% MSCI World equities, with the remaining 40% devoted to either gilts or US Treasury Bonds.

And it’s a photo-finish!

Here are the nominal, annualised returns for the two portfolios (1971-2022):

• World / US Treasuries: 9.88% annualised
• World / Gilts: 9.94% annualised

(Equity returns are in GBP from the MSCI World index. Portfolios rebalanced annually.)

However, it wasn’t so close over the entire time frame. The portfolio with gilts was actually an annual percentage point ahead by the end of the 1990s.

It was still almost half a percentage point ahead before the Brexit Referendum.

US Treasuries vs gilts: bet now!

We’ve seen then that US Treasuries can indeed cushion your portfolio better than gilts when equity confidence crumbles. Not all of the time, but the majority of the time, at least historically. And especially in the worst crunches.

However just to keep things interesting, gilts edged the win when it comes to overall portfolio returns.

To me this strongly suggests the strategy is only worth considering if you’re a particular type of investor – one who is hands-on with your portfolio, enjoys managing extra complexity, and understands the extra currency risk may not pay off (and might even backfire) at the worst possible time.

So if you want to keep things simple, then you can happily leave this ploy alone.

Despite 50 years of relative UK economic decline, you’d still have been better off owning gilts all told.

Cool Britannia revisited

Don’t fall for gloomy geopolitical narratives that the UK is destined for the international knacker’s yard.

Plausible-sounding storylines of doom are the stock-in-trade of financial punditry. But they’re no basis for a long-term investing strategy.

To give you but one counterpoint: nobody would have predicted gilts would buck the trend against US Treasuries after Britain lurched from crisis to crisis during the 1970s as ‘the sick man of Europe’.

Sure, we’re in a mess right now. But our current national conversation could as easily signal a turning point as herald further decline.

Finally, if you are tempted by the idea of adding unhedged US Treasuries then consider dipping a toe in the water, rather than entirely ditching gilts (or GBP hedged global bonds).

You could split your nominal bond allocation fifty-fifty, for example. Or you could instead buy a slug of gold, given it’s a non-correlated defensive asset that also boosts UK investors when the dollar rises.

Take it steady,

The Accumulator 

1. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298. []
2. Lawrence H. Officer, “Dollar-Pound Exchange Rate From 1791,” MeasuringWorth, 2023. []

What caught my eye this week.

One thing that helped me through the worst of the pandemic was a newly-found love of South Korean ‘K Dramas’.

Like many others, I discovered these bingeable soap operas – with their wholesome story lines and fairy tale romances – to be wonderful escapism.

What my 19-year old self – neck-deep in Dostoevsky and Joy Division – would make of my middle-aged addiction, I’m embarrassed to think about.

Then again perhaps it’s just two sides of the same coin.

In those days I thought there were answers to the human condition, waiting for me to find them.

Much older and maybe very slightly wiser – or perhaps just more cowardly – I now suspect there are mostly only comforts.

Here, there, and everywhere

Enough metaphysics, and on to some on-topic reflections on the latest K Drama to soothe my days – the veritable chicken soup for the soul that is Hometown Cha Cha Cha.

It’s still available on Netflix and you should watch it. So I’ll try to avoid spoilers.

In brief it’s the story of high-flying dentist Yoon Hye-jin and her burgeoning relationship with the show’s other lead – a huge fish in a small pond named Hong Du-sik, or ‘Chief Hong’ to all his neighbours.

Besides making all real-life women pale for me compared to the fantasy of Hye-jin (and there’s even a t-shirt suggesting many viewers feel the same about Chief Hong) Hometown Cha Cha Cha showcases an alternative way of life. One that’s relevant to the way we do business around here.

You see, from the moment of her arrival in the small town where Chief Hong plies his many trades, Hye-jin is astonished to find him at work everywhere.

Here is Chief Hong directing fisherman at the docks. Now he’s over there at the coffee shop pulling lattes. The doorbell rings – Chief Hong has deliveries. His other occupations include estate agent, carpenter, and tech repair guy.

Naturally, hilarity ensues. And there’s a deeper reason for all this plate juggling, too.

But as I said, no spoilers.

Moe than his job’s worth

Just to generalise, Chief Hong is doing all these things because he wants to support – and be supported by – the local community.

Hong charges for everything he does. But he only ever charges an hourly minimum wage. Hye-jin argues he could pull big bucks in the capital, Seoul. But he prefers pulling espressos for his friends by the seaside.

On his days off he surfs.

Again dancing around revealing too much, we can see Chief Hong as sort of Barista FIRE1. He appears to have inherited his grandfather’s home (and to be fair what a home). Beyond that, the minimum wage – and endless payments in kind – keep him happy.

Hye-jin can’t believe he’s not working for a prestigious chaebol making megabucks. Chief Hong is frustrated that she can’t see why he doesn’t.

Less pain, more gain

I like the new FIRE definitions – Coast FIRE, Barista FIRE, and so on – that arrived in the more recent years of what we now apparently must call a movement.

These new definitions neuter that old enemy, the ‘retirement police’.

So you might say “yes I’m financial independent and I’ve retired from the rat race, but I’m Barista FIRE. I’m working at the pub because I like the social contact and the extra cream it puts on my post-work cake”. 

Or perhaps you do some maths and see that as long as you let your ISAs and SIPP compound for 20 years, you’re already sorted. So you shift to a Coast FIRE way of life, ambling towards the end of your career at your leisure.

Many of the biggest voices on the Internet on this topic transition to one of those two lifestyles after finishing with formal work. Even our own Accumulator, I’d (gingerly) argue.

TA would say he’s ‘Lean FIRE’. He has a pot of cash that he calculates can get his household through the rest of his days, albeit without many fancy holidays.

But in practice he’s still doing paid work he likes. Because, well, he likes it, but also – I strongly suspect – because it takes the edge of that Lean aspect. So perhaps he’s Barista FIRE, but a fatter FIRE than his Lean FIRE sums suggest.

Still, a rose by any other name and all that malarkey, right?

You do it your way

Long-time readers will know I’m a fan of doing some work forever. And I do mean paid work.

The testimonies of the legions of early retirement advocates who either go back to work or do some sort of side hustle reinforce my case for me.

Volunteer by all means. But I believe in our society as we find it today, getting paid for doing something is about more than money.

I’ve always assumed work-with-FIRE should usually involve maximizing your Pareto-power by doing your best-paid work in the least amount of time.

But – call me slow – Chief Hong has opened my eyes to another way.

I wonder too if the government would have more luck tempting the retired back to work if they encouraged them to watch Hometown Cha Cha Cha, versus fiddling with the tax system.

Maybe getting these over-50 dropouts to do just a couple of days a week part-time doesn’t suit their diabolical economic plans?

I don’t know. But as we’ve discussed before, just a little extra income is worth an awful lot, especially in retirement. Making £10,000 a year doing a couple of days of engaging work a week pretty much doubles the state pension. It is equivalent to perhaps £250,000 extra in your retirement pot.

I understand taxes and allowances complicate the maths, but again I think that misses the point.

Yes, I know wild horses wouldn’t drag some of you back to anything resembling work. Fair enough, whatever is best for you is grand with me.

But at least schedule Hometown Cha Cha Cha into one of your endless days of leisure. You might just get a glimpse of what you’re missing…

Have a great Easter weekend!

p.s. Sending my links early ahead of the long weekend as The Accumulator and Mrs TA are visiting Monevator HQ for an overnight stay. Of course, generally we don’t even travel on the same planes, in order to avoid a tragedy bringing down this blog forever. If you never hear from us again, you know that freak gas explosion you saw in the news had our names on it…

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1. Financially Independent Retired Early. []