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Are US Treasuries better than gilts for UK investors?

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:

US Treasuries beat gilts in 15 equity down markets out of 21 from 1971-2022.

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! This bar chart shows that UK gilt annualised returns are marginally better than US Treasury returns during UK equity slumps. 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. []
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Our Weekend Reading logo

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. []
{ 29 comments }

The Slow and Steady passive portfolio update: Q1 2023

The Slow and Steady passive portfolio update: Q1 2023 post image

The beginning of the year has not been awful. Which is all I ask, really.

You’ll recall that last quarter capped off the worst year ever for the Slow and Steady passive portfolio: a -13% loss. Pretty painful, if really nowt but a light slap on the list of all-time market drawdowns.

The good news today is every asset class bar commercial property has regained ground since then. That’s despite bank runs triggering flashbacks to the Financial Crisis, Britain flirting with recession harder than a couple of Love Island playas, and all of us being afraid of our heating bills.

True, recovering a few per cent under these circumstances feels about as triumphant as winning back 20 yards of No Man’s Land after months of trench warfare. It’s hardly the stuff of overnight victories, but we’ll take what we can get.

Here are the latest results from the Slow and Steady portfolio brought to you by HalfGlassEmpty-O-Vision™:

Annualised return for the Slow & Steady portfolio is 6.5%.

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,200 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts tucked away in the Monevator vaults.

The wider economic tumult has put me in a disheartened mood. I think it’s because, for me, my own portfolio first and foremost represented a hedge against being crushed by the grinding wheels of capitalism.

Regardless of demand for my particular skills, through focused saving and investing I was able to construct a fast-moving skiff of securities that skimmed over the turmoil and finally beached me in the sunnier climes of FIRE1 island.

But I now worry the opportunity may be lost for the younger generation battling rising taxes, rising inflation, a rising cost of living, and fears of a rising China.

How can you invest if you can’t spare the change?

And why would you believe in it anyway if the market drifts sideways for years?

The generation game

For all we talk about it being a long-term game, I’m painfully aware that passive investing was an easy sell when returns were advancing at a heady rate, post-Financial Crisis.

But how many would jump onboard or keep the faith during a lost decade? Even if that churn created the conditions for higher expected returns in the future?

Who would buy into that?

It’s not a personal thing. I’m happy and remain optimistic about my own future.

But I was moved by Mrs Accumulator telling me that her young pupils feel terrified of, and despondent about, the climate crisis.

I don’t blame them. Too many of their elders seem to be calculating it’s okay to drive SUVs because they’re not going to be around to deal with the consequences.

So colour me concerned that there aren’t enough reasons to be hopeful about the future right now. It feels like the tube is squeezed from both ends – from a UK and from a global perspective.

My portfolio has helped insulate me to some extent. I just don’t want those who come after me to conclude that even the financial independence escape route has been closed.

Slow & Steady: the sequel

Changing the subject, I’d like to ask your opinion about some ideas The Investor and I have been kicking around.

We’ve been thinking about introducing two new Monevator portfolios to the site. They’d be long-running series, in a similar vein to the Slow & Steady portfolio.

One would be aimed at absolute beginners and the other would plot a course for Planet Decumulation.

It’s crazy but true that the Slow & Steady portfolio is in its 13th year now. This means there are only seven years left on the clock before we hit the model portfolio’s self-imposed 20-year lifespan!

So the question we’ve been asking ourselves is: what would a passive portfolio look like if we were starting from scratch today?

Our model portfolio is meant as an educational exercise, rather than as a default recommendation. And my reading of the feedback is that everybody gets the global equities side of the equation.

All the angst lies on the defensive side:

“Why bother with bonds?”

“Why are my index-linked gilts getting crushed?”

“What about ‘alternatives’?”

“I’ll stay in cash thanks.”

I think a new starter portfolio should work harder to explain its defensive picks. I also believe the Slow & Steady probably isn’t diversified enough to deal with an uncertain world.

I’ve talked before about the all-weather portfolio concept. Harry Browne’s Permanent Portfolio and Ray Dalio’s All-Weather strategy are famed examples.

These frameworks focus first on the principles of diversification, while being built upon solid investing foundations that remain simple and effective.

Model behaviour

The value of a model portfolio lies in its ability to confirm or to challenge our preconceptions.

I’d rather the Slow & Steady’s successor tilts more towards the latter, by exploring what happens when we add more volatile but less correlated assets to the mix.

Something like:

  • Global equities
  • Gold
  • Broad commodities
  • A bond barbell (long bonds and an ultra-short or cash component)

That’s a portfolio which will almost always have a hero and a zero on its books. The contrasting fortunes of those asset classes should provide plenty of food for thought.

To keep it simple, I’m thinking of leaving out some of the elements the Slow and Steady portfolio already deals with. For example, UK home bias, global REITS, and emerging markets.

Index-linked bonds would also stay on the shelf. I think young investors can do without them.

Should the equity allocation be invested in ESG funds? Because my hunch is that more young investors are putting their faith in that label even though I’m wary of the potential for greenwashing.

And should there be a 5% fun money element? Perhaps a naughty punt on tech, a macroeconomic theme, private equity, or some other alternative bet?

Let me know what you think.

Destination decumulation

The decumulator’s portfolio would be more about the moving parts than the asset price soap opera.

All the action happens when you withdraw cash. Perhaps there’d be two check-ins a year to simulate that. Maybe I’d run two different withdrawal methodologies in parallel to see how each plays out.

Then I’ll try to tease apart the complex interactions of portfolio returns, inflation-adjusted income, tax consequences, dynamic withdrawals, SWRs, and life expectancy.

Rock. And roll.

Along the way, I’d like to look at how to handle unexpected cash demands, equity release, annuities, sustainable withdrawal rate guardrails, and the psychological hurdles of living off a diminishing pot of wealth.

It all sounds pretty ripping, I’m sure you’ll agree!

Anyway, we’ve been musing about it for ages so it’s about time we did something.

Please let me know your thoughts, ideas, and requests in the comments below.

New transactions

Every quarter we pipette £1,200 into the global market petri dish. Our financial seed culture is split between seven funds according to our predetermined asset allocation. The trades play out like this:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £60

Buy 0.247 units @ £242.69

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £444

Buy 0.842 units @ £527.11

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £60

Buy 0.159 units @ £378.28

Target allocation: 5%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.21%

Fund identifier: GB00B84DY642

New purchase: £96

Buy 53.402 units @ £1.80

Target allocation: 8%

Global property

iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.17%

Fund identifier: GB00B5BFJG71

New purchase: £60

Buy 28.207 units @ £2.13

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £324

Buy 135.381 units @ £135.38

Target allocation: 27%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £156

Buy 146.893 units @ £1.06

Target allocation: 13%

New investment contribution = £1,200

Trading cost = £0

Take a look at our broker comparison table for your best investment account options. InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.

Average portfolio OCF = 0.16%

If this all seems too complicated check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.

Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking shows you how.

Finally, learn more about why we think most people are better off choosing passive vs active investing.

Take it steady,

The Accumulator

  1. Financial Independence Retire Early []
{ 86 comments }

Weekend reading: The importance of being earn-iest

Our Weekend Reading logo

What caught my eye this week.

Last week’s inheritance tax and pension alchemy from Monevator contributor Finumus was rounded off with an excellent thread of comments from readers.

Check out the nearly 90 responses if you haven’t. There’s plenty of extra pension and inheritance tax knowledge to be gleaned from the Monevator masses. (Yes, we’re all surprised at the turns our lives have taken that means learning more about taxes and pensions is an exciting prospect. And yet here we are…)

The comment thread also includes a by-turns intriguing and befuddling discussion about what the phrase ‘middle class’ really means these days.

I don’t intend to resurrect that debate. What was frustrating about it to me though was that some people’s conception of middle-class – and for the sake of peace, I’ll concede ‘middle-class’ was a cheeky if not provocative classifier to use in the title – led to off-base missives about how Monevator was becoming the parish circular for the Downton Abbey set.

(Regarding the same article, I just now deleted a short content-less comment bemoaning that Finumus’ useful advice was cluttered up with “left-wing claptrap”. You see the challenge?)

Anyway nobody, not even Finumus (at least not in this article) was denying that – with a household income of £360,000 a year and millions of pounds of assets – the coupled that he featured weren’t minted, even by the standards of London’s gilded postcodes.

My argument will always be that I want people to know how and why people with money do what they do. We can learn something from them. (Including that they often do dumb things, like pamper their egos by investing in expensive market-lagging active funds.)

Alternatively, you could try the opposite approach of hanging around with the Socialist Worker crowd in a south London pub on a Friday night.

You’ll certainly learn something. But I’m confident it won’t be how to make, keep, and invest your money.

Knowing your place

The point is that I fully agree the couple were very well-off, of course. And while from his vantage point in a helicopter headed to the Home Counties for the weekend Finumus may move in more rarefied air, even he bemoans that most people earn so little, rather than being ignorant of it.

In fact I often find myself explaining to friends whose careers are kicking into their peak earning years that their incomes would sound magical (if not faintly criminal) to much of the populace.

Yet even I’m still mildly surprised when I’m confronted with statistics like the dissection of the latest household income figures in This Is Money this week:

Official figures show that 8.8 million people in Britain had an income above £1,000 a week in the year to March 2022 – which would equate to £52,000 a year and put them in the higher rate tax bracket.

However, the average median real-terms household income before housing costs was £565 a week in the period, equating to around £29,500 a year.

That nearly nine million people have been dragged into paying higher-rate income tax is shocking. In 1990 just 1.7 million paid the 40% tax rate. Even by the time Tony Blair was elected in 1997 it had only risen to a little over two million.

This is of course all grist to the ‘squeezed middle’ line of political thinking.

But – much more dispiriting – just look at the thin gruel down below:

Britain’s real problem

As I’ve said before in our political debates, Britain is a relatively poor country among its peers – on a per capita basis – that unfortunately thinks it’s rich enough to indulge in self-harming fantasies.

It wouldn’t be so bad if we had more affordable housing, like Germany, Spain, or (ex-Paris) France.

But our expensive property puts the boot in.

Anyway go check out all the graphs in the This Is Money article, there’s plenty to gawp at. (I couldn’t locate the original graphs from the Department of Work and Pensions website. If you have a link please pop it in the comments below).

But I must confess that it left me in a gloomy frame of mind.

One visual metaphor for wealth generation and distribution in the UK in recent years is the helicopters evacuating a few lucky thousands in the Fall of Saigon in 1975, with a handful more clinging to the landing gear and the rest falling back into a doomed mob left behind.

Maybe I should buy the Socialist Worker bloke a pint, after all?

The new competition

Okay, I’m kidding, for rhetorical effect. Been down that road 30 years ago, literally got the T-shirt.

But capitalism must do better, especially with yet another workplace revolution – instigated by AI – seemingly at our door.

On that note, I’ve included a new AI links section below. Things are moving so fast, and unlike with crypto real-world use cases already abound. Every week there’s something new to flag. Watch this space, and those links.

And have a great weekend!

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{ 33 comments }