What caught my eye this week.
I noticed as I compiled today’s links that I’ve a new favourite investing blog. Who Enso Finance is I’ve not idea (and s/he is in great company there!) but I’m looking forward to their musings each week.
Take the latest post on the limits of diversification:
Most things die. All things change.
The ultimate failure mode for diversification is to consider it in too narrow a context, and mistake our attachment to particular mythologies, cosmologies, and models for the immutability of those things.
There are many triggering ways of illustrating this, but I’ll leave it at this: society can remain communist longer than you can remain alive.
I have been linking to Enso Finance for a while. No reader has yet picked up and commented on anything below, though.
Perhaps it’s a blog that you need to have been around the block a few times to gel with? It feels to me full of deep wisdom. Like talking shop with the oldest genial person in the office.
If you’re a veteran investor I say give it a try.
Have a great weekend everyone!
From Monevator
Irish ETFs: post-Brexit CDI switch – Monevator
Do you have an investing edge? – Monevator
From the archive-ator: Tax relief upfront is the same as tax relief later – Monevator
News
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Private sector growth at eight-year high as retail sales jump – Guardian
UK public sector spending deficit hits £303bn post-war record – Pound Sterling Live
House prices hit all-time high; beach huts lead the market in price inflation… – Country Life
…as total property sales hit 16-year high – Guardian
Government to pay £120m to London Capital & Finance investors – Which
FCA warns social media sites it will act on risky investment offers – Guardian
Credit Suisse raises capital after the Archegos blow-up – Reuters
Value has a long way to go before it catches back up with growth – The Irrelevant Investor
Products and services
Vanguard launches price war in UK pension market [Search result] – FT
‘BankHub’ trials an alternative to High Street branches – ThisIsMoney
A three-year face-off between Nutmeg, Wealthify, and Vanguard – Much More With Less
Nationwide increases borrowing limit to 5.5x salary, with a five-year lock-in – ThisIsMoney
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
The pros and cons of using a buy-to-let managing agent – ThisIsMoney
Gates, cameras, and home security systems are more costly than you might think [Search result] – FT
Barclaycard reportedly facing customer backlash after slashing credit limits – ThisIsMoney
Homes for sale near water, in pictures – Guardian
Comment and opinion
Investors are the moths, markets are the flames – A Teachable Moment
Does withdrawal frequency timing alter success in drawdown? – The Poor Swiss
How much should you have saved by your 30s? – A Wealth of Common Sense
Bonds as investments today [Podcast, fortnight old] – Wealth Managed
Is the exhausting cult of productivity finally over? – Guardian
Adaptation – Indeedably
Wooden spoons – Humble Dollar
Central bank money printing is largely irrelevant to money supply and inflation – Factor Research
Investing is a joke mini-special
The most annoying bull market of all-time – A Wealth of Common Sense
Yeah, I bought some Dogecoin today – Slate
The era of the joke as an investment idea – Of Dollars and Data
Naughty corner: Active antics
With specialty funds, bigger has been better – Morningstar
Understanding edge – Party at the Moontower
Increasing disclosure requirements could hurt investors – Albert Bridge Capital
Wall Street has mostly given up on shorting pricey stocks – Yahoo Finance
Why should equities be fairly valued? – Behavioural Investment
Endowment performance has sharply deteriorated since 2008 – TEBI
Covid corner
India’s Covid surge affects the entire world – Slate
Kindle book bargains
Bezonomics: How Amazon Is Changing Our Lives by Brian Dumaine – £0.99 on Kindle
Never Split the Difference by Chris Voss – £0.99 on Kindle
Rebel Ideas: The Power of Diverse Thinking by Matthew Syed – £0.99 on Kindle
Blood, Sweat, and Pixels: The Turbulent, Triumphant Stories Behind How Video Games Are Made by Jason Schreier – £0.99 on Kindle
Environmental factors
“Urgency and agency”: Michael Mann on conquering climate despair – Behavioral Scientist [h/t Abnormal Returns]
Off our beat
How people get [really] rich now – Paul Graham
The self-educating child – Mr Money Mustache
How many T. Rexes were there? Billions – Berkeley News
Parents are sacrificing their social lives on the altar of intensive parenting – The Atlantic
How one man accidentally became a global fashion brand – Guardian
The creator crisis forced artists to be founders [Podcast] – Josh Constine
And finally…
“Why do bubbles end? One obvious reason is that they run out of fuel.”
– William Quinn, Boom and Bust: A Global History of Financial Bubbles
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A very interesting post. In some ways I agree with Enso, getting uptight about hedging against a chance of 1% interest rate rise is probably a waste of energy. However, I don’t think anyone (apart from the super rich who are already probably planning for it) can hedge against societal collapse. So it might not be worth the effort of hedging against it. If society collapses, or there is nuclear war, or a pandemic that makes COVID-19 look like a picnic, no amount of guns and cans of beans are going to protect you for very long.
Although obviously not societal collapse, if we enter a decade bear market for whatever reason, there’s not a lot you can do about it. I think the best approach might be to work on the assumption that things will muddle on as they have been, with about 5% rise in equities year on year. This has survived 2 world wars, the Cold War, the GFC and Covid…..so far. However, Taleb’s Black Swan hasn’t gone away, you just have to keep that at the back of your mind. It could just all collapse. The chances are small though that you won’t be able to ride it out. However, small risks with massive consequences happen all the time.
How would you diversify your “mythologies and cosmologies” (opinions?) ? – The nature of having an opinion on the way things are/ the way things work is that there is one best way/ one reason why it is that way (in a Newtonian way) – and we’re simply trying to establish exactly what that is. There is a fair amount of overlap between religions for example but they are different because they assert specific things that aren’t reconcilable. So much so that it’d be offensive to express the full spectrum of views.
Diversification in investing is simply smart a way to avoid paying for research or taking the added risk of being active, and hedging against the unknown, but ultimately all done for a focussed goal of making money for a specific savings goal, nothing hippy about being one with the world.
Hmm, maybe it’s me but I don’t understand what that quote is trying to say and I’m not sure they’ve made much effort to make it broadly understandable. I prefer the clearer writing of Monevator!
Attachment/risk… The post seems to be looking at a possibility total system failure, which, whilst I acknowledge that this is a possibility, it is not one I feel I need to hedge against other than with living the best life I can now.
If I were of the bunker mentality… “We laugh at people who stockpile guns, medicine and canned goods. But they’re thinking about this the right way” … How far would that get me in such a scenario? It would probably make me a target! And my life would see a miserable end at the point or butt of a gun. Having socially useful skills that enhance and add to the skills of others is how we, as a society, got to the place where we could grow as a population beyond bare existence. In such a scenario perhaps this would be the best currency as for it not to be would mean further degradation into chaos.
Living well now means using your social skills with your neighbors and friends and acquiring social capitol, useful skills as mentioned in the post are another good hedge for such a situation.
I find myself disagreeing with @ Matthew about opinions being necessarily fixed as to be “the best way”, I think that an opinion is just a starting point that is not an immutable fact, although I recognise that some might hold opinions in that way.
JimJim
@dave
Hmm, maybe it’s me but I don’t understand what that quote…..
Nah it’s not you. I couldn’t be bothered with it.
@TI. I read quite a few of the links over the past few weeks and I don’t understand the point of the Enso blog. Lot’s of nice quotes and phrases but a total dearth of hard data or quantifiable evidence. Odd for someone who says they are an investment analyst.
Nonetheless, I can see it being a popular blog in the FIRE community. They do have a soft spot for pop pyschology and pseudophilosophy.
The comparison nutmeg/wealthify/vanguard was interesting, but I can’t help wondering how it would have turned out using Lifestrategy 100. That would surely have been a better comparison for the highest risk options with the robo-advisers. Certainly, there seems a massive aversion to including bonds in a portfolio among the FIRE investing community – vast majority seem to be 100% equities.
I’ll confess I haven’t read the Enso blog, it doesn’t sound like my bag.
But, if it’s talking about broader risks of the current economic status quo changing/transforming, or political risks, risks of conflict for example, then I agree these things can happen. We don’t have to look far for risk of financial catastrophe even in the contemporary world. Look at any conflict ridden region. Imagine you were a successful middle class comfortably off person in Syria or Iraq, for example. Your stable future could be upended overnight. Similarly for many other groups of people in history who’ve found themselves on the wrong side of conflicts or subject to persecution, not to mention those living in countries that are corrupt/lacking in good governance. We don’t need systemic failure (or, to be less negative, system transformation) to be at risk of personal financial catastrophe.
So if you want data to help with mitigating strategies for these kinds of risk, one place to look is listening to people/peoples who have lost everything through conflict or persecution, and look for how they have survived/recovered. Though tbh I think the lessons may be more about knowing what to prioritise, when to take drastic action to find safety, how to draw on social capital, and how to adapt and make a living anywhere, anyhow.
@jimjim – yes a starting point, I don’t mean that opinions shouldn’t change as you refine them or the situation changes, but that you cannot hold a diverse portfolio of differing opinions simultaneously, which to me appered to be what the post is suggesting – for example you couldn’t be both Sunni and Shia, you couldn’t be both communist and capitalist, etc, because these theories by definition specify things that clash.
And that for example if you were trying to find the most efficient engine design or system of government there would ultimately be a best design for those circumstances.
As someone with an interest in both personal finance and philosophy, I suspect I’m in the target audience for the Enso Finance blog. I hadn’t come across it before, so thanks for calling attention to it. I agree with others in the comments here that the message of some of the posts can be a little obscure (which is may be appropriate for something drawing on Zen koans, but is a bit frustrating all the same). There are some lovely turns of phrase in there though – I particularly liked this bit in the Donkeys post: “It’s not about making sure you’re never the donkey. It’s a matter of realizing whether you *might* be the donkey in a given situation and adjusting your risk accordingly. Where you’ll run into serious trouble is betting like a shark when you are, in fact, a donkey.”
I’d just like to know why the buffalo couldn’t get his tail through the window. That’s going to bug me till I have to Google it…
Sorry last post should have been a reply to @MonkeysOnARock. It refers to one of the koans in Enso’s recent posts.
@Vanguardfan The LS100 Acc historical NAV is available from Vanguard Investor (or any number of other places): up 9.3%, then down 9.38% then up 36.3%. It has an OCF of 0.22%. Assuming a platform charge of 0.25% (I don’t think Vanguard’s own cheapo platform was available back in 2018), a £1000 initial investment on 31/3/2018 would have grown to £1087.91 after a year, then fallen to £981.21 on or around 31/3/2020, then grown to £1331.09 by 31/3/2021. I *think* I’ve got those figures right, or at least close enough.
@Hudlbuck I’ve given up and Googled it, but am still none the wiser…
On the topic of Zen ideas which might be useful in a personal finance context (even if they probably weren’t meant for it), this all prompted me to look up some bits from the Tao Te Ching which seemed to fit nicely with the buy and hold long-term saving mindset:
“Knowing others is intelligent.
Knowing yourself is enlightened.
Knowing what is enough is wealth.”
“Act and you ruin it.
Grasp and you lose it.
Therefore the Sage
Does not act
And so does not ruin
Does not grasp
And so does not lose.”
Behavioural finance, always interesting.
Btw the photo of the house in Cornwall was taken by my father, small world huh….
Great link “Does withdrawal frequency timing alter success in drawdown? – The Poor Swiss”.
His findings agree with what I have always thought, but it is good too see this confirmed and with some real numbers.
Was I the only reader to be nonplussed by the article claiming central bank money creation doesn’t cause inflation? It actually says in its summary “QE money printing had no substantial impact on inflation, aside from asset price inflation” – in other words it did cause inflation. Almost all the money creation since the 2008 banking crisis has been directed at assets (via bond purchase) so it is hardly surprising its effect has been on asset prices.
Pandemic QE may be a bit different, so there could be effects down the line, with bond purchases balanced by new government borrowing much of which has gone into the pockets of consumers via furlough payments. But since that is largely substituting for wages it hasn’t meant more money chasing consumer goods so inflation isn’t an inevitable consequence. Things could change of course as the economy re-opens, but there are so many risks around (particularly as any effects of Brexit have been subdued so far) that predictions aren’t sensible.
Thanks as usual for so many interesting links; the prize this week has to go to the T. Rex calculation.
@Johnathan B – Well eventually these assets will be sold and spent when people retire, at that point entering the economy, on the other hand it also makes annuities more expensive which cancels out that a bit, although that itself is mitigated a bit by pension freedoms. Higher asset prices might cause earlier retirees which might cause inflation in itself for the services they would’ve provided when working. Also future generations will have to shoot higher because of more expensive bonds so on the other hand that might increase labour supply long term, mitigating inflation.
However if interest rates did rise much one day, you could have a flood of money out of the bond market, so if inflation does rise in the future it might be hard to control, more likely they would take rate rises slow & tolerate inflation and/or unwind QE first.
@Matthew, I think I am agreeing with you by saying that asset price inflation is unlikely to have a short-term effect on consumer inflation, and that any subsequent effect will be less certain and spread out enough that a government could use normal fiscal measures to control it (i.e. tax and interest rates).
Inflation in bond values due to QE seems to translate very rapidly to increases in share prices – something readers of this blog probably know to their advantage – and a little more slowly into property prices. That almost certainly will then mean increases in rents; however those aren’t included in the basic CPI but presumably will feed through eventually if they put pressure on wages. But again, that is so spread out that it can probably be addressed through minor tweaks.
Maybe we will have a real economist along soon to explain things properly…
@Johnathan B – rents might not rise with house prices as much as they used to because rates are so low, landlords will tolerate lower yields for lack of other options because all other yields are lower too, and their buy to let mortgage is also cheaper.
@Matthew, I think the conclusion from our discussion is that we can guess but really don’t know. In fact it probably comes down to the standard Monevator advice: the chances are that anything we think we know has already been priced in, and we will be best off investing in diversified index trackers …
@Johnathan B – Indeed, do that and we’ll be ok.
However there might be fireworks to watch potentially at some point – I expect inflation and interest rates would be tame, but it shouldn’t be unthinkable (like it seems to be) that rates can’t potentially rise by much, and it shouldn’t be unthinkable that bonds could be vulnerable in a way they never have before – or market’s history doesn’t have a precedent for what might happen after such low rates.
I’ve read that beyond a certain point lowering interest rates can be partially deflationary because people have to save harder to buy houses and annuities, likewise a rise from such a low place might not have the same effects that a rise from more normal rates would have.
When inflation comes, what can be done without causing carnage to pensions and mortgage borrowers?
Although likewise I worry about deflation.
But like you say, standard advice. I just enjoy watching.
I believe we are still in the early days of markets (and human civilisation) – i.e. QE was new. We’re still learning, haven’t experienced everything yet.
@Johnathan B, i agree you don’t know. Neither do I, the author of the article or anyone else who chooses to pontificate about such things.
“QE money printing had no substantial impact on inflation”. He does not know what inflation/deflation would have been without QE, so his assertion has no validity.
@Naeclue (#16):
Currently – in the UK – the monthly approach would only be practical if you regularly withdrew the same amount each and every month. Otherwise, you will repeatedly get caught up in the nightmare that is the delays involved in accessing your income drawdown money.
To date, I have only ever managed one ad-hoc withdrawal that was completed in less than a month. And even that withdrawal took just a couple of days shy of a month!
Then, after the withdrawal has completed, you will probably still have to add back in the delay and effort for recovering overpaid tax from HMRC.
Some more related chatter on this matter is at:
https://the7circles.uk/weekly-roundup-12th-april-2021/
IMO, once a year is currently just about doable. By trial and error I have concluded that this should be tilted towards the end of the tax year – but initiated around mid/late January to ensure completion within the tax year.
Attempting anything more frequent would be IMO far more trouble than it could ever be worth!
So, a nice idea in theory, but currently there are some real-world limitations around a UK implementation!
@Naeclue (#16), @Al Cam (#24) I took Poor Swiss’s findings as further validation of my taking a monthly income via dividends from a handful of investment trusts. Simple, effective, and now shown to be the ideal withdrawal frequency.
@Al Cam, I only have experience of withdrawals from the Hargreaves Lansdown SIPP, but with them it is straightforward to make withdrawals. Submit the simple online request by 17th of the month and the payment is made by 28th. If you don’t have sufficient cash in the account to make the payment, they pay out all cash less £50.
A relative has a small Vanguard SIPP, but not yet in drawdown. My understanding is that you can set up a monthly withdraw plan with them and they will sell the precise number of units each month to meet each payment. They will not charge additional fees for doing it either, unlike some brokers. Sounds ideal for those wanting regular monthly income and unfortunate that other brokers don’t offer something like this, or want to charge more for doing it.
@Naeclue (#26):
Thanks for your interesting response.
I am familiar with the constant monthly withdrawal approach you mention – albeit from another platform/vendor than Vanguard. However, my reading of the Poor Swiss approach is that you would need to sell a variable amount of units each month; albeit I suspect the variation may not be that much. I gleaned this from one of his referenced posts.
I similarly inferred the Poor Swiss approach is based exclusively on accumulating units and thus it seems unlikely that there will be cash at hand in the SIPP.
I have discussed the issue of the delays involved in selling units, etc to access income drawdown money with Mike at 7 circles several times over the last few years and he has mentioned delays of the order of a month with HL, see e.g. https://the7circles.uk/weekly-roundup-29th-march-2021/
I suspect – as usual – the devil is in the details!
@Naeclue (#26):
To clarify
in post (#27) I should have said something like “However, my reading of the Poor Swiss approach is that the monthly income would be variable; albeit I suspect the variation may not be that much. “