What caught my eye this week.
Hello! I’m half-on-holiday this week (and that’s without an NHS app ‘ping’ in earshot…)
My mini-break hasn’t stopped me reading the money and investing Internet. But it does limit my time to waffle on about it.
In other words, straight to the links this week.
Have a cool(er) weekend!
From Monevator
How spending on a credit card can protect the things you buy – Monevator
Emerging market bond risks – Monevator
From the archive-ator: 10 things you can do today to reset your life – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Savers seeking to keep early access to pension pots (at 55) face 2023 deadline [Search result] – FT
Nearly 620,000 people told to self-isolate after NHS Covid app ‘ping’ – ITV
UK fails to renegotiate two-year old and allegedly brilliant Brexit deal – BBC
China signals the end to the $2 trillion US listing juggernaut – Yahoo Finance
Nobody expects the Spanish Inquisition to matter today, but it does – Joachim Klement
Products and services
UK to trial automatic energy bill switching system – Guardian
Coventry Building Society launches best-buy savings account – ThisIsMoney
EVs cheaper to own than petrol or diesel over seven years – ThisIsMoney
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
How to set up an online shop to make money from home – ThisIsMoney
Nationwide offers first sub-1% five-year mortgage fix – MoneySavingExpert
Special offer: Get £100 cashback when you switch your ISA to Interactive Investor [Ends 31 July, terms apply, affiliate link] – Interactive Investor
American Express to overhaul British Airways Avios reward cards – Which
High-tech homes for sale, in pictures – Guardian
Comment and opinion
The highest forms of wealth – Morgan Housel
At what price does safety come first for investors? [Search result] – FT
We are all investors now – Of Dollars and Data
What should you do with an inherited investment portfolio? – ThisIsMoney
How to survive until payday when you’re out of cash – Be Clever with Your Cash
Suppose the 60/40 portfolio underperforms for a decade – Behavioural Investment
Some Chinese shunning careers for “low-desire” [FIRE] life – AP News
The whole world is turning Japanese, demographically – Abnormal Returns
Stumble, trip – Indeedably
Naughty corner: Active antics
Ether’s role in a diversified portfolio – Morningstar
Are US companies really better than European ones? – Albert Bridge Capital
Mental momentum investors – Klement on Investing
What about beta? The demise of alpha – CAIA Association
Covid corner
Covid infections around the UK continue to rise – BBC
How to find the best holiday Covid test, by price and trust – Guardian
Japanese ‘natto’ beans may be a new Covid treatment – New Food Magazine
Kindle book bargains
(Don’t have a Kindle? Buy one and join the cheap book club!)
Elastic Habits: How to Create Smarter Habits That Adapt to Your Day by Stephen Guise – £0.99 on Kindle
Zen: The Art of Simple Living by Shunmyo Masuno – £0.99 on Kindle
A Colossal Failure of Common Sense: The Collapse of Lehman Brothers – £0.99 on Kindle
SAS: Leadship Secrets from the Special Forces by various authors – £0.99 on Kindle
Environmental factors
Why climate change threatens your retirement savings – CBS News
Survivor: salmon edition – Hakai Magazine
Australian lobbying keeps Great Barrier Reef off ‘in danger’ list – Guardian
Off our beat
How to get out of your own head – Raptitude
A quick guide to negative online comments – Humble Dollar
A love letter to browsing record stores and book shops – The Walrus
Zoomtown-on-Sea? The lure of a new life on the coast – BBC
Google Doodle Champion Island Games [Retro-style Olympics game] – Google
Trading sex for cosmetic surgery in Mexico’s narco capital – BBC
Neckties are the new bow ties – The Atlantic
And finally…
“It’s easier to stimulate asset prices than it is to stimulate an economy.”
– Terry Smith, Investing for Growth
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The FT item on the cost of risk mitigation was welcome. Investors are continually beaten with the stick to be prepared for market downturns (we’ll use the alarmist ‘crashes’) and out come the endless graphs and charts and stats showing what would have happened . . . if. Fair enough.
But the cost of that safety net in lost performance challenges its very existence. Real food for thought in the article.
Safety is different things to different people
Re personal investing-which I suspect is most people here-I was reassured by a Vanguard/Bogleheads graph some years ago showing that over the years a 70/30 equities/ bonds portfolio performed as well as a 30/70 0ne
Obviously while young a high equity % is possible even desirable but for the more conservative types ie more safety conscious it shows that what actually matters is costs,amount you save and frugal living-all under the control of the individual investor
The above remarks are related to index funds but I suspect they would apply across the board
xxd09
Retired many years with a 30/70 index fund portfolio which continues to grow!
Some interesting reads this week, both convincing and unconvincing.
I didn’t buy the FT article. Insurance is a cost. Who knew! The question is how much are we prepared to pay to avoid a really bad outcome. It is a personal choice, but I know that my cash holdings (about 12 months average expenditure) are a great comfort when the heating system collapses. Similarly, I hold a substantial bond allocation. I know I could do better over time, going all in equities, but a) I have max 20-30 years to live, and b) I need to be able to sleep at night. Unless they are telling me that bonds are 100% correlated with global equities, I stand by my choices.
The article ‘We are all investors now’ gave some interesting history and a nice perspective on what might come next. I like the idea of customised ‘index’ funds. There are specific risks associated with the sector where you work, and also your philosophy (oil and gas investments if you believe in climate change).
I also enjoyed the musings on demographic changes, and the question ‘what happens if 60:40 portfolios don’t work anymore.
For some reason, this weeks selection spoke to me more than usual. Thank you!
> Savers seeking to keep early access to pension pots (at 55) face 2023 deadline
My cunning suggestion is you should turn 55 during 2022.
@xxd09: Safety is different things to different people
That’s not the only troublesome word.
http://jokes.christiansunite.com/Military/Secure_The_Building.shtml
To a large extent I agree with the FT article, even in a worst case scenario of someone selling up in a crash, bear in mind that compounding a 4% say difference in performance year in, year out, will mean you’re probably at a a higher nominal amount than you’d otherwise be anyway, all because nowadays the expected return on low risk assets is so low.
We tell people to not even get started with investing till they have 3-6months worth if cash, which many people never do, especially if they’re facing popular advice to pay down their mortgage, yet at the same time we also try to auto enroll them on pensions when we know that most people don’t have ‘sufficient’ emergency funds.
And in our recommendations for everyone to keep all those emergency funds we forget that average Joe is underwritten by the benefits system – we’re giving the poor the same advice as higher earners who could not rely on benefits, thus the poor are not developing their stake in society as quickly as they should.
Even then how often do you need that money? And on top of that we advise people keep substantial safe money in their long term pot even when decades away.
We also show seeds of doubt in people even when they are quite sure of how to survive a crash.
I believe no advisor or pension provider wants to get sued for recommending too much capital risk so they’d much more happily push people to lower risk investments.
Also our equities and our economy do rely on many people happily offering cheap credit. I also believe that couples with joint money are much more inclined to be in cash/ safe options because the more cavalier partner can’t negotiate more risk upon joint money, and that supplies our world with capital somewhat too.
NB: -IF- bond prices ever fell and with it dragged down equities, only cash/gold could sufficiently offset that risk as dry powder – just as one type of possible ‘crash’ that assets might correlate in that case because it wouldn’t be a flight to safety by equity problems, but rather a readjustment on risk premiums.
I’m in the bear camp w.r.t that FT article. It was heavy on rhetoric and light on stats. There’s a darn good reason that most investors have some sort of ballast in their portfolios, and that isn’t offset with a wave of hand and some muttering about tight aiming of arrows.
Nice bit at the end, too: “Universa invests in options that hedge against market crashes”. One wonders why they’d bother.
Hi – so the thing that got me about that FT article was how the metaphors made it less understandable! How does a Cassandra (knowing the future, but not being believed) make a good career politician? And how exactly is knowing the future bad for public policy? Unless I’ve got that arse about face and a Cassandra is the opposite, eg believed whilst not knowing the future? Doesn’t he just mean don’t miss the boom while planning for the bust?
Any SIPPs likely to have age 55 locked in rather than NMPA? Or only transfers to DC schemes?
@Rich I looked up Vanguard and HL SIPPs. It’s clear that HL access goes to 57 from 2028. Vanguard it’s murky but likley does as well as the age number is not stated as a concrete value.
Anyone want to contribute a post on the NMPA/DC/SIPPs?
@Matthew, and perhaps @FT I don’t seem to be occupying the same financial planet –
> We tell people to not even get started with investing till they have 3-6months worth of cash[…]we also try to auto enroll them on pensions when we know that most people don’t have ‘sufficient’ emergency funds.
Hmm, something to do with the 20% tax saving, and that you can take a lot more risk with pensions due to the long investment horizon? When I thought I was in imminent danger of being hoofed from work I started a cash ISA and a SIPP equivalent, because you have to fight the nearby fire and the one on the horizon, I did not find that an inconsistent approach. Once I had a year’s cash ISA I switched to 100% S&S ISA and the SIPP, and eventually when the ISA produced enough income I moved the cash ISA into the shares ISA. Sure, it was a deadweight, and the emergency never came, but it meant I could take risk on the stocks and pension, in particular the switchbacks did not bother me, other than when I’d already used up my ISA and wanted to buy into the suckout.
> in our recommendations for everyone to keep all those emergency funds we forget that average Joe is underwritten by the benefits system – we’re giving the poor the same advice as higher earners who could not rely on benefits
You can say many things about the benefits system in the UK but underwritten is stretching it a bit far. Although I am in some danger of proving your point, I never even considered claiming the six months’ contributions-based Jobseeker’s Allowance after leaving work despite 30 years of NI payments because I didn’t want to undergo the mental torture system otherwise known as the DWP. I didn’t need to watch I Daniel Blake, I merely needed to see what happened to hitherto sane people. The, ahem, despised emergency fund gave me near-term options and the pension savings + tax savings gave me medium-term options.
But yes, I have some sympathy for the overall thrust. The poor are poor because they have no money, so most of the advice for those of us more fortunate than them doesn’t apply. It’s bad enough that Universal Credit seems to presume that the poor have salted away five weeks of running costs before they’ve applied, or they were on a monthly salary paid in arrears. Makes you wonder if the architect of that mess, Iain Duncan-Smith, has ever met any poor people in his gilded life.
> Even then how often do you need that money?
I haven’t needed to use fire insurance, ever. I still buy it though, because tail risks are like that, low likelihood but high-impact. Hopefully I will reach the end of my life without ever needing it, but I don’t regard the thousands of pounds spent on it by then a waste. Sure, if I had enough capital that I could self-insure without missing a beat I’d do so. Warren Buffett, Jeff Bezos and Bill Gates don’t need house insurance. They don’t need an emergency fund either. But little people do.
> We also show seeds of doubt in people even when they are quite sure of how to survive a crash.
Pretty much most of us are quite sure of how to survive a crash. Until you’ve actually done it, preferably more than once, and done OK, then knowing is not the same as doing. I ballsed it up royally in the dotcom crash, applied some of the learning and a hunk of good fortune in the GFC, and I am perfectly happy with my performance last year, though it definitely did not follow The Accumulator’s wise words on here. Am I sure I can survive the next crash? Err, no. Somewhere on here there was a review of Comley’s Monkey With a Pin, which indicated stats show that the majority of private investors know how to avoid a crash, they just can’t actually do it without doing violence to their portfolios. We shouldn’t be planting seeds of doubt in these guys, we should be planting trees, great big impenetrable forests of doubt.
I agree entirely with the theory of the FT article and what you say. But experience and observation show that the theory is really, really, tough to turn into practice. Investing is not as purely cerebral as people try to make out.
Covid update
I’ve just spent the last 4 days at the latitude festival in Suffolk – circa 40,000 attendance, a real mix of under 25s and 45 plus – lighter in the young parent ages.
I’ve barely seen a mask – well under 1%, I’ve noticed about 5 wearers.
It will be a interesting test – hopefully they can track some Kpi’s
B
Ps it was great, especially in a Motorhome.
Pps loos less great!
@Rich – I’d like to know this too! I’ve contacted the two SIPP platforms I use but a post laying out what the options are (if any!) would be very welcome.
How did you get on with the Terry Smith book, Monevator? We were intending to review it on the show and have a giveaway, but it’s really calling out for a decent editor. Some nuggets of wisdom, but I’m not sure the ‘collected works’ angle serves the material well in this case.
I’ve been a reader for several years now and really appreciate everything that goes into this site. The Weekend Reading section is always a great source of info.
I’m sure there are many many more who think the same but don’t actually let the authors know.
Thank you!
@old_eyes — Glad the links hit the spot. Perhaps you like the more reflective summer lull type pieces that people seem to be writing at the moment? On the direct indexing angle, I believe this is going to be huge over the next ten years. It’s pretty interesting that just when something seems settled as a no-brainer (index funds, when traditional or ETFs) something comes along to disrupt that status quo (but certainly not replace it).
@Matthew — I don’t really understand your point, you just seem to be making lots of statements about how things are.
@far_wide — Hah, well perhaps they might say options enable them to protect against the extreme outcomes more cheaply than the routinely ‘costly’ downside protection of a mixed asset allocation? Most of us would take 10% or even 20% drawdowns for long-term higher returns; it’s the fear of 40-50% drawdowns and slow grind to nowhere thereafter that really makes the case for not-all-equities. I do believe there’s a valid discussion to be had around bonds (see the 60/40 portfolio article, too) but exactly what conclusion we should have reached will only be apparent in another 10 years or so.
@ermine — “We shouldn’t be planting seeds of doubt in these guys, we should be planting trees, great big impenetrable forests of doubt.” I’m not sure about that. When you look at the huge amounts that were shoveled into cash ISAs over the past 10 years that would have done better in share ISAs and a global tracker, it’s pretty staggering. The problem perhaps is that the appreciation of risk/reward is not distributed at all equally. Many of those who pursue the highest rewards (the meme stock day traders etc) don’t understand the downside risks. Those who hide in cash perhaps don’t understand the alternative rewards…
@Boltt — Interesting. I’m watching masks in stores wane over the past few days. It does seem a bit of a futile gesture at this point, even if you’re a containment believer (because it was never at all about 100% protection etc). The recent figures look good-ish, let’s hope Euro spiking trumps Freedom Day surging in the to-and-fro. 🙂
@Luke — I enjoyed it, but I was late to the fan club for Terry Smith. (I liked him and what I’d seen, but I’d only read a very few of his articles). I have a soft spot too for old investing articles/takes about past events. Somehow it feels you can learn more at times without the noise of here and now. (E.g. The Nomad letters: https://igyfoundation.org.uk/wp-content/uploads/2021/03/Full_Collection_Nomad_Letters_.pdf)
@Badger — Thanks for your comment, always great to get some positive feedback. Weekend Reading is popular according to our dashboard numbers, but commentators always come and go. 🙂
I suppose what I mean is that 1) bringing investing to the poor would enhance social justice, 2) existing advice to keep a large buffer, although sensible is a barrier that the poor might not have the luxury of being properly safe before the imperitive of needing to buy a few bricks of equity because of all the financial headwinds they face like renting, house prices rising, etc, 3) the risk equation is different for them because of the (albeit imperfect) means tested welfare system (which, by the way, would reward their pension contributions).
So they need more risk and can bear it more than most of us because of UC and because they have little skin in the game (at least regarding capital loss), and if they are in unskilled work it shouldn’t take too long for them to find other work and they won’t be ruined by emergencies such as car failure. If they rent they might also not have to worry about boiler failure – so considering that they live on so little anyway and their income might not actually drop much in UC, what exactly do they have left to brace for as an emergency?
They are accustomed to living with loss especially to inflation anyway – loss to rent, loss to house price inflation as a buyer, food inflation in the shops, so increasing their income as fast as possible and diversifying it away from their (probably intense) workplaces might almost feel like a move to greater safety for them. And they might feel less on the ‘being done over’ end of capitalism.